Opinion
SC 162930 COA: 351048
11-29-2021
BRIAN WEBB, Plaintiff-Appellee, v. PROGRESSIVE MARATHON INSURANCE COMPANY and MICHIGAN AUTOMOBILE INSURANCE PLACEMENT FACILITY a/k/a MICHIGAN ASSIGNED CLAIMS PLAN, Defendants-Appellees, and VHS OF MICHIGAN, INC., d/b/a DETROIT MEDICAL CENTER, Intervening Plaintiff-Appellant, and UNNAMED SERVICING INSURER, Defendant.
Wayne CC: 18-012887-NF
Bridget M. McCormack, Chief Justice Brian K. Zahra David F. Viviano Richard H. Bernstein Elizabeth T. Clement Megan K. Cavanagh Elizabeth M. Welch, Justices
ORDER
On order of the Court, the application for leave to appeal the January 28, 2021 judgment of the Court of Appeals is considered, and it is DENIED, because we are not persuaded that the questions presented should now be reviewed by this Court.
Cavanagh, J. (concurring).
I agree with this Court's order denying leave to appeal using interlocutory language. The issues in this case are more appropriately considered by this Court after proceedings on remand are completed. I write separately only to call attention to the Court of Appeals' potentially misleading reference to the right to rescind a contract based on an innocent misrepresentation when determining whether rescission was appropriate in this case based on a fraudulent misrepresentation. These doctrines are not interchangeable, and courts should take care not to conflate the two when analyzing a claim to rescind a contract.
As this Court has recognized, one may be entitled to rescission of a contract under the common law if the contract was procured by either an innocent misrepresentation or a fraudulent misrepresentation. See Titan Ins Co v Hyten, 491 Mich. 547, 555-556 (2012). While these common-law doctrines "are substantially similar, they are also significantly different." US Fidelity and Guaranty Co v Black, 412 Mich. 99, 118 (1981). In order to obtain rescission based on a fraudulent misrepresentation, one must demonstrate:
"(1) [t]hat [the opposing party] made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury." [Titan, 491 Mich. at 555 (citation omitted).]
By contrast, in order to obtain rescission on the basis of an innocent misrepresentation, one need not show that the opposing party knew of the falsity of the misrepresentation or that the opposing party intended that it should be acted upon by the victim. US Fidelity, 412 Mich. at 117-118. In addition, unlike in a claim alleging fraudulent misrepresentation, a claimant seeking rescission of a contract on the basis of an innocent misrepresentation must show that the injury suffered as a result of the misrepresentation "inure[d] to the benefit of the misrepresenter." Id. at 118. Accordingly, the two doctrines "each contain separate elements" such that sufficient proof as to one does not necessarily equate to sufficient proof of the other. Titan, 491 Mich. at 557.
The Court of Appeals in this case concluded that there is no genuine issue of material fact that defendant Progressive Marathon Insurance Company (Progressive) is entitled to rescind the insurance policy at issue as to Chirece Clark-the insured- because of fraudulent misrepresentation in her application for insurance. Webb v Progressive, __Mich App __(2021) (Docket No. 351048); slip op at 3-4. However, before conducting this analysis, the Court of Appeals noted that rescission could also be justified in cases of innocent misrepresentation and suggested that this fact was relevant to its analysis. Id. at __; slip op at 3. The Court of Appeals did not note the distinct elements between claims for fraudulent and innocent misrepresentation, and this reference to innocent misrepresentation was seemingly unnecessary in light of its later conclusion that the elements of fraudulent misrepresentation were satisfied. It was erroneous for the Court of Appeals to imply that the possibility of rescission based on an innocent misrepresentation supported its analysis that there was a question of fact that Clark committed fraudulent misrepresentation.
The Court of Appeals went on to hold that there is a question of fact as to whether Brian Webb-the plaintiff and injured party in this case-participated in Clark's fraud. Webb, __ Mich.App. at__; slip op at 4-5. The Court of Appeals further explained that, if the trier of fact concludes that Webb participated in Clark's fraud, Progressive is entitled to rescind the policy as to him and the trial court need not balance the equities to determine if rescission is warranted. Id. These holdings have not been challenged in this Court.
The distinction is not merely a semantic one. "Because a claim to rescind a transaction is equitable in nature, it is not strictly a matter of right but is granted only in the sound discretion of the court." Bazzi v Sentinel Ins Co, 502 Mich. 390, 409 (2018) (quotation marks and citation omitted). Thus, even in the context of a fraudulent misrepresentation, "rescission does not function by automatic operation of the law" as to innocent third parties. Id. at 411. Rather, a trial court must balance the equities and determine, in its discretion, whether rescission is warranted in the context of that third party. Id. at 410-411. In this case, the Court of Appeals held that Progressive was entitled to rescind its policy as to Clark because of the fraudulent misrepresentation. This conclusion is consistent with Bazzi, in which the Court held that the insurer was entitled to rescind the policy as to the insured on the basis of a fraudulent misrepresentation. Bazzi, 502 Mich. at 412.
However, as discussed earlier, an innocent misrepresentation, unlike a fraudulent one, can occur even without knowledge of the falsity of the statement or an attempt to defraud. In other words, one can accidentally commit an innocent misrepresentation that could provide a basis for rescinding a contract. In light of the diminished culpability of one who commits an innocent misrepresentation when compared to one who commits a fraudulent misrepresentation, it is not clear whether one should be entitled to rescind a contract as of right on the basis of an innocent misrepresentation or whether a case-specific balancing of the equities is required. Cf. Citizens Ins Co of America v Pioneer State Mut Ins Co, unpublished per curiam opinion of the Court of Appeals, issued December 19, 2019 (Docket No. 346360), p 7 ("To the degree an innocent misrepresentation may be considered grounds to rescind as to the policyholder, making an innocent misrepresentation is less culpable behavior than actual fraud and so weighs against rescission as to a third party."). Because I understand the Court of Appeals decision to hold that there is no question of fact that Clark committed fraudulent misrepresentation, I do not believe that the opinion either explicitly or implicitly addresses this issue.
With these observations, I concur in this Court's denial order.