Representing clients with less-than-stellar driving records can present special challenges. You may face allegations of comparative fault in a Third Party case, or even claims that the policy is subject to rescission. According to a recent decision, if your clients have undisclosed points on their licenses, they may not be entitled to any benefits at all.
In a recent published Michigan Court of Appeals decision, 21st Century Premier Ins Co v Zufelt, the court ruled that any omission of a material fact can doom an injured motorist’s claim for no-fault benefits, even if that omission was cured in later renewals. That includes failing to disclose points on the driver’s license.
On June 17, 2012, Barry Zufelt received an auto insurance policy from 21st Century Premier Insurance Company. One condition of eligibility was that Zufelt needed less than 6 points on his license.
Barry Zufelt was not a good driver. At the time of the application he had 7 points, but he failed to disclose a 3 point ticket he had received in April of that year. The insurance underwriter’s review of Zufelt’s record didn’t uncover the ticket either, so the policy was issued. By the end of September 2012, four points, initially issued in September 2009, dropped off of Zufelt’s record, so the policy was automatically renewed in December 2012. At that time, Zufelt had 5 points.
In March 2013, Zufelt was in a car crash with Daniel Novak, both of whom suffered injuries. Zufelt was treated at the University of Michigan. The driver and the medical provider both sought PIP benefits under Zufelt’s insurance policy.
Then 21st Century discovered those secret 3 points. On July 19, 2013, the insurance company sued Zufelt and the U of M Regents for reimbursement of over $600,000 in benefits paid. 21st Century claimed it was entitled to rescind Zufelt’s auto insurance policy because he was ineligible when the policy was issued and had made material misrepresentations on the application. Specifically, he failed to disclose the April 2012 accident. 21st Century asked that it be allowed to be reimbursed for any benefits paid and be excused from paying any of Zufelt’s Third Party liability to Novak. The trial court agreed, rescinded the insurance policy, and entered a judgment against U of M.
The Regents appealed. It claimed that 21st Century had failed to allege or prove fraud. Any misrepresentation Zufelt may have made had been cured before the most recent renewal contract in December 2012. Since Zufelt was eligible at that time, 21st Century, they argued, should not be allowed to cancel the policy after the crash.
Fraud V Misrepresentation
Under the Regents’ argument, only fraud would allow the insurance company to rescind the contract. However, the court ruled:
Although plaintiff included the word fraud in a list of reasons to void the policy, the crux of its argument was that rescission was permissible because of [Zufelt]’s misrepresentation on the application and its reliance on that misrepresentation.
Misrepresentation alone was enough to rescind the contract, even without fraud. Zufelt admitted to non-disclosure of the April 2012 accident. 21st Century’s underwriter testified that the company would not have issued the policy if it had known about the prior accident and its related eligibility points.
Rescission and Renewal Contracts
The Regents next argued that even if the first contract could be rescinded, the problem had been cured before the policy was renewed. The court quoted Russell v State Farm Mut Auto Ins Co, saying:
“A renewal contract has been stated by many jurisdictions to be a new, and a separate and distinct contract, unless the intention of the parties is shown clearly that the original and renewal agreements shall constitute one continuous contract. It has thus been stated to be a new or separate contract which is based upon and subject to the terms and conditions as were contained in the original policy. Unless otherwise provided, the rights of the parties are controlled by the terms of the original contract, and the insured is entitled to assume, unless he has notice to the contrary, that the terms of the renewal policy are the same as those of the original contract.”
The renewal contract here continued the terms of eligibility and rescission from the original contract. Without explanation, the court ruled that this allowed Zufelt’s misrepresentation on the original contract to carry forward to the renewal. Even though Zufelt was eligible at the time of the renewal, the fact that he had failed to disclose the April 2012 accident originally carried forward with the contract. This allowed 21st Century to rescind the contract for a material misrepresentation, even after the auto accident. The misrepresentation itself made him “ineligible.”
Under the 21st Century decision, even an accidental omission can haunt a driver for years. Both sides could continue as though there was a valid contract through several renewals. The driver could continue to operate under the assumption he or she had valid insurance until it is too late to do anything about it. Then that error could cut them off from any no-fault benefits after a car crash.
By allowing a misrepresentation to be grounds for rescission of even a renewal contract, the court has promised insurance companies they will be allowed to ferret out errors after the fact, rather than requiring them to be diligent before issuing their policies in the first place. This decision is very damaging to Michigan consumers. It brings back the risk that a serious injury could put a driver into financial ruin.
David Christensen is an auto accident attorney at Christensen Law in Southfield, Michigan. He has been fighting for Michigan drivers’ benefits for over 20 years. If your client is facing a complicated no-fault claim, contact Christensen Law today for a referral.