MSC Upholds Rescission Of No-Fault Policy Due To Insured’s ‘Material Representations’

In this case involving the denial of auto insurance benefits, the trial court abused its discretion when it ordered reformation of the insured’s no-fault policy instead of rescission, the Michigan Supreme Court has held in a unanimous decision.

The high court in Sherman v Progressive Michigan Ins Co (Docket No. 167826) affirmed the Michigan Court of Appeals ruling that the defendant-insurance company was entitled to summary disposition on the plaintiff-insured’s claim for personal injury protection (PIP) benefits because the plaintiff had made material representations on her insurance application. In light of those material misrepresentations, the Michigan Supreme Court agreed with the Court of Appeals that rescission of the policy was the proper remedy – not reformation, as the trial court had ordered.

“Having concluded that the undisputed facts establish that the plaintiff made material misrepresentations in procuring insurance …, we must … consider whether [the defendant] is entitled to rescission of the insurance contract,” Justice Brian K. Zahra wrote for the high court.

“We clarify that appellate courts must review a trial court’s decision to grant or deny the equitable doctrine of rescission for an abuse of discretion,” the Michigan Supreme Court emphasized. “The trial court’s balance of the equities should have weighed the misrepresentations perpetrated by [the plaintiff] against the lack of evidence of any improper conduct by [the defendant]. The equities weighed entirely in favor of [the defendant].”

Therefore, “the trial court abused its discretion when it ordered reformation, rather than rescission,” the justices held. “We therefore affirm the judgment of the Court of Appeals.”

Justice Megan K. Cavanagh, Justice Richard H. Bernstein, Justice Elizabeth M. Welch, Justice Kyra H. Bolden and Justice Kimberly A. Thomas joined Justice Zahra’s opinion. Justice Noah P. Hood did not participate because he was on the Court of Appeals panel that issued the decision being reviewed.

Background

The plaintiff was injured while a passenger in a vehicle that she owned. After the accident, she sought PIP benefits through her insurance carrier, defendant Progressive Michigan Insurance Company.

The defendant subsequently discovered that the plaintiff had made material misrepresentations in her insurance application regarding where she garaged her vehicles and who resided in her home. Contrary to what the plaintiff had indicated on her application, the defendant learned that 1) she garaged her cars in Detroit and not in Clinton Township, and 2) she had resident-relatives who were not listed on her application. Notably, the plaintiff’s premium would have increased by 83.2 percent if she had disclosed these facts.

The defendant denied the plaintiff coverage because of the misrepresentations. The defendant notified the plaintiff that it was rescinding her policy ab initio and was refunding the premiums that she had paid.

Thereafter, the plaintiff filed this lawsuit against the defendant in Washtenaw County Circuit Court, claiming the defendant had unlawfully denied her PIP benefits and had breached the insurance contract. The defendant filed a motion for summary disposition, arguing the policy was rescinded due to the plaintiff’s material misrepresentations. The trial court denied the defendant’s summary disposition motion and, instead, reformed the policy to reflect the plaintiff’s correct address and the premium increase.

The defendant filed an interlocutory appeal. The Court of Appeals reversed and remanded for entry of judgment in favor of the defendant. The plaintiff then filed a motion for reconsideration, and the Court of Appeals vacated its prior opinion and issued a new opinion clarifying the applicable standard of review. The Court of Appeals also again reversed the trial court and ordered rescission of the policy (Docket No. 364393).

“The trial court’s balance of the equities should have revealed misconduct by [the plaintiff], but none by [the defendant],” the Court of Appeals said in a published opinion written by Judge Thomas C. Cameron, joined by Judge Noah P. Hood and Judge Adrienne N. Young. “The trial court erred by failing to recognize this distinction. Compounding this error was the trial court’s decision to reform, rather than rescind, the policy. Not only did [the plaintiff] fail to request reformation in her demand for relief, [case precedent] stands for the proposition that innocent insurers should not bear the burden of an insured’s fraud. By ordering the policy reformed, the trial court placed the financial burden of paying PIP benefits on [the defendant], notwithstanding the fact that [the plaintiff] obtained those very same benefits by way of fraud. Therefore, the trial court erred when it ordered reformation, rather than rescission.”

The plaintiff appealed.

Rescission, Not Reformation

At the outset of its analysis, the Michigan Supreme Court noted that the Court of Appeals “applied the proper standards of review” to hold: 1) there was no genuine issue of material fact that the plaintiff misrepresented material information on her insurance application and the defendant relied on her misrepresentations, and 2) the trial court abused its discretion when it ordered reformation of the insurance policy instead of rescission.

“Here, we agree with the Court of Appeals that rescission is the proper remedy,” the high court said. “[W]hen rescission is requested …, the appellate court must consider the facts in the light most favorable to the nonmoving party and first determine, de novo, that there is no genuine issue of material fact. The Court of Appeals correctly determined, de novo, that no genuine issue of material fact existed regarding [the plaintiff’s] misrepresentations of material information in the policy application and [the defendant’s] reliance on her misrepresentations.”

According to the justices, the defendant relied on the plaintiff’s misrepresentations to give her “a much lower rate than it would have had it received accurate information” from her. “Thus, there is no genuine issue of material fact that [the plaintiff] made misrepresentations and that [the defendant] would have issued [her] a different contract had it known the accurate information.”

Next, the Michigan Supreme Court examined whether the trial court abused its discretion by denying rescission of the contract. “The trial court, sitting in equity, should have examined [the defendant’s] conduct related to the procurement of the policy to determine whether rescission is the proper remedy. The record contains no allegation of wrongdoing or inequitable conduct on [the defendant’s] part. Clearly then, [the defendant] is entitled to rescission, given that [it] made no mistake, committed no fraud, and materially relied on [the plaintiff’s] misrepresentations when issuing her an insurance policy. Given the one-sided nature of the equities in this case, there was no plausible basis for the trial court to find that a result favoring [the plaintiff] and disfavoring [the defendant] was warranted as a matter of equity. This inequitable result was an abuse of discretion. Accordingly, the Court of Appeals correctly applied the abuse-of-discretion standard when determining that the trial court improperly denied rescission ….”

In so ruling, the high court rejected the plaintiff’s argument that case precedent required the Court of Appeals to remand the case, so the trial court could “rebalance the equities.” According to the justices, the cases on which the plaintiff relied to make this argument – Bazzi v Sentinel Ins Co, 502 Mich 390 (2018), and C-Spine Orthopedics, PLLC v Progressive Mich Ins Co, ___ Mich ___ (July 3, 2025) – were “distinguishable” from the present case. “Unlike those cases, the trial court here did conduct a rescission analysis and abused its discretion in granting … reformation of the policy,” the justices observed.

“A remand for rebalancing of the equities is unnecessary in this case,” the Michigan Supreme Court explained. “[The plaintiff] is the party who committed material misrepresentations, there are no third-party interests at stake, and, as properly recognized by the Court of Appeals, it is undisputed that [the defendant] did not act improperly. The equities are therefore one-sided and requiring a remand to ‘rebalance’ them would be both unnecessary under Michigan law and a waste of judicial resources.” Therefore, “[b]ecause the record is complete and the equities overwhelmingly favor rescission, the Court of Appeals correctly determined that [the defendant] is entitled to rescission of the policy.”

In conclusion, the Michigan Supreme Court emphasized that, when rescission is requested through a motion brought under MCR 2.116(C)(10), “the appellate court must first determine, de novo, that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law on the underlying claim. Then, the appellate court must review a trial court’s decision to grant or deny the equitable doctrine of rescission for an abuse of discretion. The Court of Appeals correctly did so here. We therefore affirm the judgment of the Court of Appeals.”