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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FACTS
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In Linh Wang v. Esurance Insurance Company, No. C24-0447-JCC, United States District Court, W.D. Washington, Seattle (May 1, 2026) John C. Coughenour, United States District Judge, found that throughout this case, culminating with its briefing on Plaintiff’s renewed motion and that Defendant has subjected Plaintiff to unnecessary motion practice for clearly discoverable information and made dubious representations (including to the Court).
FACTUAL BACKGROUND
This case involves an underinsured/uninsured motorist insurance bad faith claim arising from a 2017 motor vehicle collision. The plaintiff, Linh Wang, alleges that Esurance Insurance ...
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Post number 5347
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Nebraska Requires an Actual Assignment to Allow Contractor to Sue Insurer
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FACTUAL BACKGROUND
In ...
Deprive Insurer of the Ability to Properly and Timely Investigate Claim & Recover Nothing
Posted on July 2, 2026 by Barry Zalma
Post number 5385
No Contract Claim No Bad Faith Claim
In South Alexander Development I, LLC v.Markel American Insurance Co., Civil Action No. 23-1436-JWD-SDJ, United States District Court, M.D. Louisiana (June 24, 2026) South Alexander Development I, LLC (SADI) owned and operated a solar farm in Springfield, Louisiana that allegedly sustained significant Hurricane Ida damage.
After SADI submitted a claim, MAIC ultimately paid $1,099,614.02 for undisputed physical damage plus the $210,000 income-loss policy limit. SADI later sued for breach of contract and statutory bad faith, contending MAIC failed to fully investigate and adjust the claim; MAIC sought summary judgment, arguing SADI failed to cooperate and withheld material repair-cost information.
LAW:
Louisiana insurance policies are interpreted as contracts according to their plain meaning, and the insured bears the burden ...
Deprive Insurer of the Ability to Properly and Timely Investigate Claim & Recover Nothing
Posted on July 2, 2026 by Barry Zalma
Post number 5385
No Contract Claim No Bad Faith Claim
In South Alexander Development I, LLC v.Markel American Insurance Co., Civil Action No. 23-1436-JWD-SDJ, United States District Court, M.D. Louisiana (June 24, 2026) South Alexander Development I, LLC (SADI) owned and operated a solar farm in Springfield, Louisiana that allegedly sustained significant Hurricane Ida damage.
After SADI submitted a claim, MAIC ultimately paid $1,099,614.02 for undisputed physical damage plus the $210,000 income-loss policy limit. SADI later sued for breach of contract and statutory bad faith, contending MAIC failed to fully investigate and adjust the claim; MAIC sought summary judgment, arguing SADI failed to cooperate and withheld material repair-cost information.
LAW:
Louisiana insurance policies are interpreted as contracts according to their plain meaning, and the insured bears the burden ...
Happy 250th Anniversary America
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Post number 5384
ZIFL – Volume 30 Issue 13 July 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ This issue contains the following articles about insurance fraud:
A Very Expensive, Supposedly Successful, Fraud
Arbitration Concluded Multimillionaire was Defrauded by Key Employee Who Initiated the Arbitration
Fahad Ghaffar was found to have breached his fiduciary duty by advising John Paulson against making an investment in a payments company, then turned a $35.7 million profit by buying the shares himself, the arbitrator, Carolyn Demarest, said. She also found that Ghaffar hid his interest in a software company in which he “fraudulently induced” Paulson to make a $12.2 million investment.
...
