CITIZENS INS CO OF AMERICA V HILDA MAE RIPPY
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STATE OF MICHIGAN
COURT OF APPEALS
CITIZENS INSURANCE COMPANY OF
AMERICA,
UNPUBLISHED
September 17, 2009
Plaintiff-Appellee,
v
HILDA MAE RIPPY, PHILLIP GOLDMAN, and
BARBARA GOLDMAN,
No. 284510
Genesee Circuit Court
LC No. 06-084984-CK
Defendants,
and
MYRA LOU TRENT, Personal Representative of
the Estate of CYRUS E. TRENT, Deceased,
Defendant-Appellant.
CITIZENS INSURANCE COMPANY OF
AMERICA,
Plaintiff-Appellee,
v
HILDA MAE RIPPY, PHILLIP GOLDMAN, and
BARBARA GOLDMAN,
Defendants-Appellants,
and
MYRA LOU TRENT, Personal Representative of
the Estate of CYRUS E. TRENT, Deceased,
Defendant.
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No. 284511
Genesee Circuit Court
LC No. 06-084984-CK
Before: Sawyer, P.J., and Cavanagh and Hoekstra, JJ.
PER CURIAM.
In Docket No. 284510, defendants, Hilda Mae Rippy, Phillip Goldman, and Barbara
Goldman, appeal as of right an order granting summary disposition to plaintiff, Citizens
Insurance Company of America. In Docket No. 284511, defendant Myra Lou Trent, as personal
representative of the Estate of Cyrus E. Trent, deceased, appeals as of right the same order.1 We
affirm.
Barbara’s mother, Rippy, was in a car accident that resulted in the death of Cyrus E.
Trent. The Estate of Trent filed a claim against Phillip and Barbara’s umbrella insurance policy
with plaintiff, alleging that Rippy was covered as a member of Phillip and Barbara’s household
because she lived above the garage. Plaintiff subsequently rescinded the umbrella insurance
policy and filed a declaratory judgment action with the trial court to establish its indemnity with
respect to the Estate of Trent’s claim. Subsequently, plaintiff’s motion for summary disposition
was granted on grounds including that the umbrella insurance policy in effect at the time of the
accident could be rescinded and was void ab initio because Phillip misrepresented the members
of the household in the application for the policy by omitting Rippy’s name.
On appeal, defendants claim that the trial court erred when it relied on Oade v Jackson
Nat’l Life Ins Co of Mich, 465 Mich 244; 632 NW2d 126 (2001), to grant the motion for
summary disposition. After de novo review, we disagree. See MacDonald v PKT, Inc, 464
Mich 322, 332; 628 NW2d 33 (2001).
In Oade, supra at 246, 248, the insured completed an application for life insurance stating
that he had been treated for chest pain or other disorders of the heart, but had not been
hospitalized for this treatment. Id. By contract, however, the insured had a duty to ensure that
his answers on the application remained true until the effective date of the policy. Id. After he
completed the application and before the policy was issued, the insured went to the emergency
room complaining of chest pains and stayed overnight for tests. Id. at 248. The insured did not
inform the insurer of the hospitalization and the insurer issued the policy. Id. at 249. When the
insured subsequently died of a heart attack, the insurer denied the beneficiaries’ claim for
payment of death benefits. Id. This Court concluded that the insured’s misrepresentation was
not material because there was a possibility that a policy would have been offered by the insurer
at a higher rate. Id. at 250. The Supreme Court disagreed. Id. at 253-254. Quoting Keys v
Pace, 358 Mich 74, 82-83; 99 NW2d 547 (1959), it stated that “a fact or representation in an
application is ‘material’ where communication of it would have had the effect of ‘substantially
increasing the chances of loss insured against so as to bring about a rejection of the risk or the
charging of an increased premium.” Id. at 254. Because there was no genuine issue of material
fact regarding the materiality of the insured’s misrepresentations in Oade, the insurer could avoid
the contract. Id. at 256.
1
This Court consolidated the appeals. Citizens Ins Co of America v Rippy, unpublished order of
the Court of Appeals, issued April 9, 2008 (Docket Nos. 284510 and 284511).
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Defendants challenge the Supreme Court’s materiality rule in Oade by claiming that
misrepresentations leading to a minor increase in the premium should not be equally material as
misrepresentations leading to significant increases in the premium. They suggest that a better
test would be whether the insurer would have refused to issue any policy for insurance with the
applicant. Here, plaintiff would not have refused to issue a policy, but rather, would have only
increased the premium if Rippy had been listed. Thus, defendants maintain that the omission of
Rippy was not material.
In Oade, supra at 254, our Supreme Court rejected a similar argument, overruling
Zulcosky v Farm Bureau Life Ins Co of Mich, 206 Mich App 95; 520 NW2d 366 (1994). It cited
MCL 500.2218(1), which provides:
No misrepresentation shall avoid any contract of insurance or defeat recovery
thereunder unless the misrepresentation was material. No misrepresentation shall
be deemed material unless knowledge by the insurer of the facts misrepresented
would have led to a refusal by the insurer to make the contract. [Oade, supra at
253.]
Interpreting this statute, the Oade Court emphasized the Legislature’s use of the words refusal
“to make the contract,” as opposed to the use of the words refusal to make “‘a’ contract.” Id. at
254 (emphasis in quotation). It stated, “[t]he proper materiality question under the statute is
whether ‘the’ contract issued, at the specific premium rate agreed upon, would have been issued
notwithstanding the misrepresented facts.” Id. Accordingly, here, defendants’ argument that a
minor increase in the premium should not be as material as misrepresentations leading to
significant increases in the premium must fail.
Next, defendants question whether MCL 500.2218 should apply to the umbrella policy.
They maintain that the materiality rule in MCL 500.2218 is limited to policies for disability
insurance.
MCL 500.2218 provides, in part:
The falsity of any statement in the application for any disability insurance policy
covered by chapter 34 of this code may not bar the right to recovery thereunder
unless such false statement materially affected either the acceptance of the risk or
the hazard assumed by the insurer. [Emphasis added.]
MCL 500.2218 further provides, in part:
(1) No misrepresentation shall avoid any contract of insurance or defeat recovery
thereunder unless the misrepresentation was material. No misrepresentation shall
be deemed material unless knowledge by the insurer of the facts misrepresented
would have led to a refusal by the insurer to make the contract. [Emphasis
added.]
Despite language in MCL 500.2218 referencing disability insurance, in Oade, supra at 251, our
Supreme Court stated that the “touchstone of the statute’s applicability is ‘misrepresentation.’”
Thus, in Oade, even though the contract at issue was for life insurance, not disability insurance,
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the Supreme Court concluded that MCL 500.2218 applied because the insured made a
misrepresentation. Id.
Likewise, in this case, the contract at issue was not for disability insurance. Rather, it
was for umbrella coverage of personal injury or property damage that the insured would be liable
to pay. Therefore, for MCL 500.2218 to be applicable according to Oade, a misrepresentation
must have occurred. Pursuant to MCL 500.2218(2), a misrepresentation is a “false
representation.” A representation is a “statement as to past or present fact, made to the insurer
by or by the authority of the applicant for insurance or the prospective insured, at or before the
making of the insurance contract as an inducement to the making thereof.” MCL 500.2218(2).
In 2001, Phillip met with his brother, Lawrence, an independent insurance agent at Lake
Agency, to complete the application for the umbrella policy. Phillip answered the questions on
the application verbally and Lawrence recorded them. Specifically, Lawrence recorded that
Phillip, Barbara, and their daughters Blaine and Paige were members of the household, but he
did not list Rippy. Phillip’s answers and Lawrence’s recordation were made to induce plaintiff
to issue the 2001 to 2002 umbrella insurance policy, thereby constituting representations.
Phillip’s representation with respect to the members of the household was false and constituted a
misrepresentation because Rippy lived above the garage and Phillip believed that she was a
member of the household. In light of the misrepresentation on the 2001 application, MCL
500.2218 applied.
Phillip and Barbara entered into renewed contracts for umbrella insurance coverage from
2002 to 2006. An employee at Lake Agency, Jillyn Crooks, stated that Lake Agency employees
complete renewal questionnaires for insureds based on information in their previous applications
for insurance. Then, the employees send the renewal questionnaires to the insurer. Relevant to
the instant matter, Phillip faxed the 2006 renewal questionnaire to Lake Agency and Crooks and
a personal lines manager, Debra Gray, completed it for Phillip and Barbara based on their 2001
application. Because the renewal questionnaires were completed by Lake Agency with Phillip’s
authority to induce the 2006 to 2007 renewal contract, the answers regarding the members of the
household in the renewal questionnaires constituted representations. The 2006 renewal
questionnaire did not list Rippy as a member of the household and Phillip admitted that this
omission was false. Thus, the representations in the 2006 renewal questionnaire constituted
misrepresentations and MCL 500.2218 applied.
Defendants maintain that, unlike the applicant in Oade, Phillip did not sign and verify the
2001 application and renewal questionnaires. Consequently, defendants appear to argue that
Phillip did not make any representations. This argument fails. Nothing in the definition of
representation in MCL 500.2218(2) requires the applicant for insurance to sign and verify
representations. Furthermore, even though Phillip and Barbara did not sign and verify the
representations in the 2001 application and renewal questionnaires, they contractually adopted
them by the terms of the umbrella insurance policy. The umbrella insurance policy stated:
By accepting this policy you agree that:
(1) The statements in your application and declarations page and all future notices
relating to the primary policies are:
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(A) Offered to induce us to issue and continue this policy;
(B) Your agreements and representations and;
(C) Relied on by us as true in issuing and continuing this policy.
Defendants also maintain that MCL 500.4503, requiring the intent to deceive, should
apply instead of MCL 500.2218. MCL 500.4503 provides, in relevant part:
A fraudulent insurance act includes, but is not limited to, acts or omissions
committed by any person who knowingly, and with an intent to injure, defraud, or
deceive:
(a) Presents, causes to be presented, or prepares with knowledge or belief that it
will be presented to or by an insurer or any agent of an insurer, or any agent of an
insurer, reinsurer, or broker any oral or written statement knowing that the
statement contains any false information concerning any fact material to an
application for the issuance of an insurance policy.
This statute only defines a fraudulent insurance act for the purposes of MCL 500.4511, which
provides that a person who commits a fraudulent insurance act is guilty of a felony. Unlike MCL
500.2218, MCL 500.4503 does not address circumstances in which an insurer may rescind a
contract of insurance. Consequently, the statute is inapplicable to the facts of this case.
Moreover, this Court has repeatedly held that rescission is justified for innocent
misrepresentations if the party relies on the misrepresentations. See Lake States Ins Co v Wilson,
231 Mich App 327, 331; 586 NW2d 113 (1998); Lash v Allstate Ins Co, 210 Mich App 98, 103;
532 NW2d 869 (1995).
In summary, Phillip misrepresented the members of his household in the 2001 application
and this misrepresentation was manifested on his behalf in the renewal questionnaires. See
Oade, supra at 254. Plaintiff relied upon the 2006 renewal questionnaire to make the 2006 to
2007 renewal contract. Because plaintiff would have charged a higher premium for umbrella
coverage if it had known that Rippy was a member of the household, the misrepresentation was
material. See id. Thus, the trial court did not err when it allowed plaintiff to rescind the
contract, declared it void ab initio, and granted plaintiff’s motion for summary disposition. See
Lake States Ins Co, supra at 331.
Defendants’ next argument, that the easily ascertainable exception precludes plaintiff’s
defense of rescission, is not included in their Statement of Questions Presented. See MCR
7.212(C)(5); Weiss v Hodge, 223 Mich App 620, 634; 567 NW2d 468 (1997). Thus, defendants’
claim is not properly before this Court.
Defendants further argue that Lake Agency was the agent of plaintiff, so plaintiff should
be bound by any mistakes made by Lake Agency in obtaining Phillip and Barbara’s umbrella
coverage. We disagree.
An agent’s authority may be actual or apparent. Auto-Owners Ins Co v Michigan Mut Ins
Co, 223 Mich App 205, 216; 565 NW2d 907 (1997).
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Actual authority may be either express or implied. Implied authority is the
authority that an agent believes the agent possesses. Apparent authority arises
where the acts and appearances lead a third person reasonably to believe that an
agency relationship exists. However, apparent authority must be traceable to the
principal and cannot be established only by the acts and conduct of the agent. [Id.
(internal citations omitted).]
“It is hornbook learning that because one is an agent for one purpose he is not an agent for all.”
Sherman v Korff, 353 Mich 387, 397; 91 NW2d 485 (1958).
“[A]n insurance agent typically acts on behalf of the parties to facilitate the sale and
execution of [an insurance] policy.” Genesee Foods Services, Inc v Meadowbrook, Inc, 279
Mich App 649, 654; 760 NW2d 259 (2008). “When an insurance policy ‘is facilitated by an
independent insurance agent or broker, the independent insurance agent or broker is considered
an agent of the insured rather than an agent of the insurer.’” Id., quoting West American Ins Co v
Meridian Mut Ins Co, 230 Mich App 305, 310; 583 NW2d 548 (1998).
In Genesee Foods Services, supra at 656, the insurer and an independent insurance
agency had an agency agreement giving the independent insurance agency authority to sell,
accept, and bind the insurer to insurance contracts in exchange for a commission on the sale.
Despite this agreement creating a “limited fiduciary relationship,” this Court stated that when the
independent insurance agency assisted the insureds to find an insurer that could provide them
with the most comprehensive coverage and to ensure that the insurance contract properly
addressed their needs, the independent insurance agency’s primary fiduciary duty of loyalty
rested with insureds. Id. Therefore, this Court concluded that the independent insurance agency
was the agent of the insureds, not the insurer. Id. at 656-657. Consequently, the independent
insurance agency was not released from liability when the insureds signed a settlement
agreement releasing the insurer and its agents from liability for coverage following a fire. Id. at
657.
Like the parties in Genesee Foods Services, supra at 656, plaintiff and Lake Agency had
an agency agreement expressly giving Lake Agency authority to sell, accept, and bind plaintiff to
insurance contracts in exchange for a commission on the sale. There was also some evidence of
Lake Agency’s apparent authority to bind plaintiff to insurance contracts because plaintiff’s
service center is staffed by plaintiff’s employees, but located at Lake Agency. When customers
call the service center to make a change in coverage, plaintiff’s employees answer the telephone
“Lake Agency.” Notably, however, conflicting evidence existed regarding Lake Agency’s
apparent authority because Phillip and Barbara’s 2001 application stated, “No coverage is bound
until this application is accepted by the Company.”
Even if a question of fact existed regarding whether Lake Agency had a limited fiduciary
duty to bind plaintiff to insurance contracts, it was not material to the resolution of plaintiff’s
motion for summary disposition. Instead, following Genesee Foods Services, supra at 656-657,
Lake Agency’s primary fiduciary relationship was with Phillip and Barbara in the facilitation of
the insurance contract as an independent insurance agent. Lake Agency is an independent
insurance agent because it represents over 20 insurers. Here, Lawrence acted as an independent
insurance agent because Phillip called him into action. See Restatement Agency, 3d, § 3.14.
Phillip requested coverage from Lawrence and Phillip urged Lawrence to take care of all of the
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family’s insurance matters. Moreover, even though plaintiff supplied the insurance forms and
determined policy premiums, Phillip controlled Lake Agency’s actions because it completed the
2001 application and subsequent renewals based on Phillip’s responses to application questions.
See id. In light of these facts, Lake Agency was the agent for Phillip and Barbara, not plaintiff,
in the facilitation of the insurance contract. Consequently, defendants’ argument that Lake
Agency was the agent of plaintiff and plaintiff should be bound by any mistakes made by them
fails.
In light of our conclusions above, that the trial court did not err when it allowed plaintiff
to rescind the 2006 to 2007 renewal contract, declared the 2006 to 2007 renewal contract void ab
initio, and granted plaintiff’s motion for summary disposition, this Court need not address
plaintiff’s remaining argument on appeal that the trial court erred when it relied on Merrill v
Fidelity & Cas Co of NY, 304 F2D 27 (CA 6, 1962), as an alternative ground for granting
plaintiff’s motion for summary disposition.
Affirmed.
/s/ David H. Sawyer
/s/ Mark J. Cavanagh
/s/ Joel P. Hoekstra
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