Rescission Appropriate When Insured Lies on Application
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Post 4827
Progressive Michigan Insurance Company (Progressive) appealed the order denying its motion for summary disposition and ordering reformation of plaintiff's, Janice Sherman's, automobile insurance policy even when reformation was not requested by Sherman.
In Janice Sherman v. Progressive Michigan Insurance Company and JOHN DOE, No. 364393, Court of Appeals of Michigan (June 20, 2024) the Court of Appeals explained the importance of the equitable remedy of rescission.
BACKGROUND FACTS
On November 12, 2020, Sherman applied to Progressive for a no-fault insurance policy for two vehicles-a 2006 Cadillac DTS sedan and a 1993 Chrysler New Yorker sedan. In the application, she identified her address as 16845 Tremlett Drive, Clinton Township, MI 48035, and confirmed that the vehicles were garaged at this address. The application also failed to disclose the total number of resident relatives, 14 years of age or older, and "all regular drivers" of her vehicles then residing in her household.
Progressive's litigation underwriting specialist, Janeen Copic, submitted an affidavit stating that Progressive would have charged a 7.7% higher premium had Sherman accurately disclosed the number of drivers and resident-relatives at the reported address, and a 75.5% increased premium had Sherman disclosed her permanent Detroit residence.
THE ACCIDENT
On July 14, 2021, Sherman was a passenger in one of the vehicles when it was hit from behind by John Doe. She was injured in this accident and asked Progressive for personal protection insurance (PIP) benefits. Progressive refused while rescinding the policy ab initio because of misrepresentations in her application. Sherman lied about the location where the cars were garaged and other individuals resided with her who she did not list on her application. Progressive estimated that, had Sherman included this additional information, it would have increased her premium by 83.2%.
THE SUIT
Sherman then sued Doe and Progressive claiming it unlawfully refused to pay PIP benefits and had breached her insurance contract. Sherman claimed the remedy should be tailored to the equities of the situation and needed to produce a fair result for all parties. The trial ordered that the policy be reformed to reflect the "insurance premium that [Progressive] believes it would have been entitled to had the insured listed Detroit as the residence.".
SUMMARY DISPOSITION
Summary disposition is appropriate if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law.
An insurer has a reasonable right to expect honesty in the application for insurance. Indeed, it is well settled that an insurer is entitled to rescind a policy ab initio on the basis of a material misrepresentation made in an application for no-fault insurance. A misrepresentation is material if the insurer would have rejected the risk or charged an increased premium and would not have issued the same contract had it been given the correct information.
Even if fraud is not established rescission is justified in cases of innocent misrepresentation if a party relies upon the misstatement, because otherwise the party responsible for the misstatement would be unjustly enriched if he were not held accountable for his misrepresentation.
There was no reason in law or policy for the burden of such a risk to be placed on the insurer in preference to the insured who made the intentional material misrepresentations. The trial court's balance of the equities should have revealed misconduct by Sherman, but none by Progressive.
The Court of Appeals concluded that the trial court erred by failing to recognize this distinction. By ordering the policy reformed, the trial court placed the financial burden of paying PIP benefits on Progressive, notwithstanding the fact that Sherman obtained those very same benefits by way of fraud. The trial court erred when it ordered reformation, rather than rescission and its order was reversed.
ZALMA OPINION
Rescission is an ancient equitable remedy that exists because it would be unfair to allow one party to a contract to profit from fraud in the obtaining of a contract of insurance. Sherman lied in the application requesting an offer of insurance about the location and available drivers which, had she told the truth, would have resulted in much higher premiums. The trial court trying to be fair wrongfully refused rescission but used another equitable remedy: reformation to require the victim of Sherman's fraud, Progressive, with the medical expenses. Neither Ms. Sherman nor anyone should be allowed to profit from their fraud.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Post 5242
Read the full article at https://lnkd.in/g_HVw36q, see the video at https://lnkd.in/gpBd-XTg and at https://lnkd.in/gzCnBjgQ and at https://zalma.com/blog plus more than 5200 posts.
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FACTUAL BACKGROUND
The indictment alleged that insurers reimburse only for medically necessary services. Navarro performed unnecessary respiratory pathogen panel (RPP) tests on nasal swabs collected from asymptomatic individuals for COVID-19 screening.
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Read the full article at https://lnkd.in/guC9dnqA, see the video at https://lnkd.in/gVxz-qmk and at https://lnkd.in/gUTAnCZw, and at https://zalma.com/blog plus more than 5200 posts.
In Illinois Department of Insurance, Insurance Compliance Department v.USA Water And Fire Restoration, Inc., And Nicholas Pacella, Individually And As Officer, Nos. 23WC021808, 18INC00228, No. 25IWCC0467, the Illinois Department of Insurance (Petitioner) initiated an investigation after the Injured Workers’ Benefit Fund (IWBF) was added to a pending workers’ compensation claim. The claim alleged a work-related injury during employment with the Respondents who failed to maintain workers’ compensation Insurance.
Company Overview:
USA Water & Fire Restoration, Inc. was incorporated on January 17, 2014, and dissolved on June 14, 2019, for failure to file annual reports and pay franchise taxes. It then operated under assumed names including USA Board Up & Glass Co. and USA Plumbing and Sewer. The business ...
The Professional Claims Handler
Post 5219
Posted on October 31, 2025 by Barry Zalma
An Insurance claims professionals should be a person who:
Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
Understand how to repair damage to real and personal property and the value of the repairs or the property.
Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
How to Create Claims Professionals
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Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
