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Johnson v. USA Underwriters

Court of Appeals of Michigan

May 14, 2019

NILES JOHNSON, Plaintiff,
v.
USA UNDERWRITERS, Defendant/Cross-Defendant-Appellant, and COURTNEY EISEMANN and STEVEN VANDEINSE, Defendants, and CITIZENS INSURANCE COMPANY OF AMERICA, Defendant/Cross-Plaintiff/Appellee.

          Washtenaw Circuit Court LC No. 16-000191-NF

          Before: Beckering, P.J., and Riordan and Cameron, JJ.

          CAMERON, J.

         Defendant/cross-defendant, USA Underwriters, appeals the trial court's stipulated order dismissing with prejudice plaintiff, Niles Johnson's, complaint against defendants, Courtney Eisemann, Steven Vandeinse, and USA. On appeal, USA claims the trial court committed multiple errors when it denied USA's motion for summary disposition and instead granted defendant/cross-plaintiff, Citizens Insurance Company of America's, motion for summary disposition as to its cross-claim against USA, granted Citizens's motion for entry of judgment, and granted Citizens's motion for attorney fees. We reverse the trial court's order and remand this case for proceedings consistent with this opinion.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In June 2015, Vandeinse purchased a 2011 Chevy Impala from a used car dealership in Ypsilanti. Before the dealership would finalize the sale, Vandeinse was required to obtain automobile insurance. Vandeinse went to a nearby L.A. Insurance agency and asked the insurance agent, Jennifer Essak, for a policy to cover the Impala. According to Vandeinse, he asked her for a "full coverage policy." Vandeinse left the agency with a USA insurance policy that provided collision and comprehensive insurance coverages only. The insurance agent, however, stated in her affidavit provided during discovery that she "explained to [Vandeinse] the difference between no-fault coverage and collision and comprehensive coverage and offered to assist him with obtaining both." Often times, "it was less expensive for the customer to obtain no-fault coverage from one carrier and then collision and comprehensive coverage through [USA]." She further asserted that Vandeinse "declined my offer to assist him with obtaining no-fault coverage, and asked only for collision and comprehensive coverage through [USA]."

         The application for automobile insurance that Vandeinse completed was entitled "Application for Physical Damage Insurance Economy Program" through USA. The declarations section of the application stated: "This application is for Auto Physical Damage Insurance only. It does not provide bodily injury, property damage or any other Michigan statutory No-Fault coverages." Additionally, Vandeinse initialed a provision in the application that stated: "PHYSICAL DAMAGE ONLY. This insurance is physical damage only coverage and does not meet the requirements of the Michigan No-fault Act, Chapter 31 of the Michigan Insurance Code." After obtaining the collision and comprehensive insurance policy, Vandeinse purchased the Impala from the dealership using a certificate of insurance that USA provided. Like the insurance application, the certificate of insurance[1] stated, "This insurance is physical damage only, coverage does not meet the requirements of the Michigan No-Fault Act, Chapter 31 of the Michigan Insurance Code." Citizens asserts on appeal that, other than this disclosure, the certificate "looks like a regular no-fault certificate . . . that you would take to the Secretary of State to get your tabs renewed." The Michigan Secretary of State apparently accepted this certificate and registered the Impala with the State of Michigan.

         On September 8, 2015, codefendant Eisemenn drove the Impala while Vandeinse rode in the passenger seat. As Eisemann exited a parking lot, she struck Johnson, who was riding his bicycle on the sidewalk. Johnson sustained injuries and was transported to the hospital. On February 29, 2016, Johnson filed a complaint against Eisemann, Vandeinse, and the Michigan Automobile Insurance Placement Facility (the Facility). The parties eventually stipulated to adding USA as a defendant to the amended complaint, and to substitute Citizens as a defendant and dismiss the Facility. Citizens filed a motion for summary disposition under MCR 2.116(C)(10), seeking dismissal from the lawsuit because Vandeinse had a no-fault policy through USA, and therefore, Johnson was ineligible for any benefits through the Facility. USA filed its own motion for summary disposition under MCR 2.116(C)(8), claiming USA's insurance policy did not include mandatory no-fault coverage. The trial court ultimately held that USA's practice of selling automobile insurance with certificates of insurance but without mandatory no-fault coverages amounted to "an intent to defraud" and denied USA's motion for summary disposition. The trial court signaled to the parties that it would wait for any claims to reform the policy until the issue "ripen[ed]."

         Citizens then filed a motion for summary disposition against USA under MCR 2.116(C)(10). Citizens sought reformation of USA's policy to include mandatory no-fault coverages as a matter of law and public policy. According to Citizens, issuing an insurance policy with only optional coverages was a violation of MCL 500.3101(1) and against the public policy of the state to ensure that all drivers have mandatory no-fault coverage. Moreover, Citizens argued that USA and the insurance agent misrepresented the type of insurance, therefore, necessitating reformation. In response, USA argued that Citizens had not shown that reformation was an acceptable remedy because there was no mistake or fraud by either party to the insurance contract, especially in light of the insurance agent's affidavit, and the no-fault act does not prevent insurers from providing only collision and comprehensive insurance policies. The trial court granted Citizens's motion for summary disposition, concluding that USA's policy was issued "with an intent to deceive the consumer and the Secretary of State, [and] that the policy violates the Michigan No-Fault Act." Therefore, the trial court reformed USA's insurance policy "to include no fault/PIP coverage, liability coverage, and property damage."

         On appeal, USA argues the trial court erred when it reformed the insurance policy to include mandatory no-fault coverages because (1) there was no mistake or fraud by either party, (2) issuing insurance policies with collision and comprehensive coverages only does not contravene the no-fault act, and (3) public policy does not allow for reformation under these circumstances. We agree.

         II. REFORMATION OF USA'S POLICY

         A. STANDARD OF REVIEW

         This Court reviews de novo motions for summary disposition under MCR 2.116(C)(10). Johnson v Recca, 492 Mich. 169, 173; 821 N.W.2d 520 (2012). MCR 2.116(C)(10) provides that a trial court may grant judgment on all or part of a claim where "[e]xcept as to the amount of damages, there is no genuine issue as to any material fact, and the moving party is entitled to judgment or partial judgment as a matter of law." The moving party must support its motion by affidavits, depositions, admissions, or other documentary evidence. Bronson Methodist Hosp v Auto-Owners Ins Co, 295 Mich.App. 431, 440; 814 N.W.2d 670 (2012). If the moving party properly supports its motion, the opposing party then has the burden to demonstrate with evidentiary materials that a disputed material fact exists. Id. at 440-441. "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." West v Gen Motors Corp, 469 Mich. 177, 183; 665 N.W.2d 468 (2003). This Court, reviewing the record in the same manner as the trial court, "must consider the pleadings, affidavits, depositions, admissions, and any other evidence in favor of the party opposing the motion, and grant the benefit of any reasonable doubt to the opposing party." Radtke v Everett, 442 Mich. 368, 374; 501 N.W.2d 155 (1993).

          Insofar as the motion for summary disposition involves questions regarding the proper interpretation of a contract, this Court reviews de novo. Rory v Continental Ins Co, 473 Mich. 457, 464; 703 N.W.2d 23 (2005). Additionally, "[t]his Court reviews de novo the trial court's decision to grant or deny equitable relief." Olsen v Porter, 213 Mich.App. 25, 28; 539 N.W.2d 523 (1995). When considering whether a trial court properly ordered reformation, this Court must be "mindful that courts are required to proceed with the utmost caution in exercising jurisdiction to reform written instruments." Id. To reform a contract, "the facts necessary for the allowance of the remedy shall be proved by clear and convincing evidence." Woolner v Layne, 384 Mich. 316, 319; 181 N.W.2d 907 (1970) (quotation marks and citation omitted). Evidence is clear and convincing only if it produces "in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established." In re Martin, 450 Mich. 204, 227; 538 N.W.2d 399 (1995) (citation omitted).

         B. REFORMATION BASED ON MISTAKE AND FRAUD

         USA first argues that there was insufficient evidence to support reformation of USA's insurance policy on the basis of fraud. Therefore, USA asserts that the trial court erred when it granted summary disposition in favor of Citizens and reformed the policy to include no-fault, liability, and property damage coverages on the basis of USA's fraudulent conduct. We agree.

         Courts of equity have the power to reform an insurance contract to conform to the agreement actually made. See Casey v Auto Owners Ins Co, 273 Mich.App. 388, 398; 729 N.W.2d 277 (2006). Reformation may arise if a plaintiff proves "a mutual mistake of fact, or mistake on one side and fraud on the other, by clear and convincing evidence." Id. Importantly, reformation is not warranted when there is only a mistake in law, i.e., a mistake where one of the parties is mistaken as to the legal effect of an agreement. Id.; see also Olsen, 213 Mich.App. at 29 ("[R]eformation will generally not be granted for a mistake of law.").

         There are two types of fraud: actionable fraud and silent fraud. Actionable fraud has the following requirements:

(1) the defendant made a material representation; (2) the representation was false;
(3) when the defendant made the representation, the defendant knew that it was false, or made it recklessly, without knowledge of its truth as a positive assertion;
(4) the defendant made the representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage. [M&D, Inc v WB McConkey, 231 Mich.App. 22, 27; 585 N.W.2d 33 (1998).]

         On the other hand, "[s]ilent fraud, also known as fraudulent concealment, acknowledges that suppression of a material fact, 'which a party in good faith is duty-bound to disclose, is equivalent to a false representation and will support an action in fraud.'" Maurer v Fremont Ins Co, 325 Mich.App. 685, 695; ___N.W.2d___ (2018), quoting M&D, Inc, 231 Mich.App. at 29. Furthermore, "the party having a legal or equitable duty to disclose must have concealed the material fact with an intent to defraud." Maurer, 325 Mich.App. at 695.

         Fraud, however, "is not a necessary element of every action to reform an agreement on the basis of a unilateral mistake." Johnson Family Ltd Partnership v White Pine Wireless, LLC, 281 Mich.App. 364, 380; 761 N.W.2d 353 (2008). Our Supreme Court has also held:

[I]f one party at the time of the execution of a written instrument knows not only that the writing does not accurately express the intention of the other party as to the terms to be embodied therein, but knows what that intention is, the latter can have the writing reformed so that it will express that intention. [Woolner, 384 Mich. at 318-319.]

         Stated differently, a contract may be reformed when one party to a contract made a mistake and the other party knows about the mistake but remains silent about it, i.e., there was inequitable conduct. Johnson Family, 281 Mich.App. at 380-381. (citation omitted).

         Citizens has never claimed mutual mistake. Instead, Citizens claims that USA's practices were intended to deceive purchasers of its insurance, which constituted fraud. The trial court accepted this argument, concluding that USA's practice reflected an "intent to defraud." Conversely, USA argues on appeal that its policy and practices were not deceptive, and Vandeinse was not mistaken about what coverages he was purchasing. Moreover, even if he was mistaken about the insurance coverages he purchased, a mistake of law is not a basis to reform a contract. Under these circumstances, we agree that the trial court erred when it reformed the insurance policy on grounds of fraud.

         As a preliminary matter, we first differentiate between a mistake of fact and a mistake of law. Reformation is permissible on evidence of a mistake of fact, not a mistake of law. A mistake of law is "a mistake by one side or the other regarding the legal effect of an agreement." Casey, 273 Mich.App. at 398. Here, USA correctly asserts that the only mistake alleged by Vandeinse was his belief concerning his insurance coverage. Vandeinse stated after the accident that he believed he had "full coverage," because that is what he requested from his insurance agent. However, Vandeinse's mistaken belief that he had "full coverage" was simply a mistake about the legal effect of his insurance policy, which is a mistake of law-not fact. Therefore, Vandeinse is not entitled to reformation of the insurance policy.

         Additionally, Citizens claims that Vandeinse made a mistake of fact because he mistakenly believed that his policy provided full coverage that could then be used to finance his car and register it with the Michigan Secretary of State. Even if, as Citizens argues, Vandeinse should not have been able to legally finance and register his car using the USA insurance policy, the fact remains that he did indeed finance his new car and register it with the Secretary of State. Vandeinse accomplished exactly what he intended to do when he purchased his insurance policy; thus, there was no mistake of fact at all. Because there is no mistake of fact sufficient to reform the contract, this Court need not determine whether USA committed fraud. Thus, reformation on this basis was error.

         Even if fraud was attributable to Vandeinse's insurance agent, there is insufficient evidence to find USA liable for purposes of reformation. "An insurance policy constitutes a contractual agreement between the insurer and insured[, ]" and "[w]hen such an agreement 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." West American Ins Co v Meridian Mut Ins Co, 230 Mich.App. 305, 310; 583 N.W.2d 548 (1998) (citations omitted). Thus, "an agent's job is to merely present the product of [her] principal and take such orders as can be secured from those who want to purchase the coverage offered." See Harts v Farmers Ins Exch, 461 Mich. 1, 8; 597 N.W.2d 47 (1999). In this case, the insurance agent's actions are not attributable to USA because she was independent and considered an agent of Vandeinse. She did not represent USA; rather, she presented USA's product to Vandeinse, who then purchased it knowing that it did not meet the requirements of the no-fault act. Therefore, reformation is not a cognizable remedy.

         C. REFORMATION FOR A VIOLATION OF LAW AND PUBLIC POLICY

         USA also argues that the trial court erred when it reformed the insurance contract on the basis of a violation of the no-fault act and public policy. We agree.

         "It is a 'bedrock principle of American contract law that parties are free to contract as they see fit, and the courts are to enforce the agreement as written absent . . . a contract in violation of law or public policy.'" Corwin v DaimlerChrysler Ins Co, 296 Mich.App. 242, 256; 819 N.W.2d 68 (2012) (citation omitted). "[W]hen reasonably possible, this Court is obligated to construe insurance contracts that conflict with the no-fault act and, thus, violate public policy, in a manner that renders them 'compatible with the existing public policy as reflected in the no-fault act.'" Id. at 257 (citation omitted). Thus, reformation is the appropriate remedy when such a contract violates law or public policy. Id. A contract against public policy has been defined as:

The question whether a contract is against public policy depends upon its purpose and tendency, and not upon the fact that no harm results from it. In other words, all agreements the purpose of which is to create a situation which tends to operate to the detriment of the public interest are against public policy and void, whether in the particular case the purpose of the agreement is or is not effectuated. For a particular undertaking to be against public policy actual injury need not be shown; it is enough if the potentialities for harm are present. [Mahoney v Lincoln Brick Co, 304 Mich. 694, 705; 8 N.W.2d 883 (1943) (quotation marks and citation omitted).]

         The question here is whether an insurer violates the Michigan no-fault act or public policy when it sells optional coverages without mandatory no-fault coverages, such as personal protection insurance, property protection insurance, and residual liability insurance. We conclude that it does not.

         1. MICHIGAN NO-FAULT LAW

         MCL 500.3101(1) provides:

The owner or registrant of a motor vehicle required to be registered in this state shall maintain security for payment of benefits under personal protection insurance, property protection insurance, and residual liability insurance. Security is only required to be in effect during the period the motor vehicle is driven or moved on a highway. Notwithstanding any other provision in this act, an insurer that has issued an automobile insurance policy on a motor vehicle that is not driven or moved on a highway may allow the insured owner or registrant of the motor vehicle to delete a portion of the coverages under the policy and maintain the comprehensive coverage portion of the policy in effect.

         "A policy of insurance represented or sold as providing security is considered to provide insurance for the payment of the benefits." MCL 500.3101(3).

         The no-fault act is clear that an owner must register his or her vehicle in the state and "maintain security for payment of benefits under personal protection insurance, property protection insurance, and residual liability insurance" "during the period the motor vehicle is driven or moved on a highway." MCL 500.3101(1). With this in mind, "an insurer that has issued an automobile insurance policy on a motor vehicle that is not driven or moved on a highway may allow the insured owner or registrant of the motor vehicle to delete a portion of the coverages under the policy . . . ." Id. (emphasis added).

         Section 3101(1) is clear that an insurer providing mandatory no-fault coverages has the discretion to "allow the insured owner or registrant of the motor vehicle to delete a portion of the coverages under the policy and maintain the comprehensive coverage portion" so long as the "motor vehicle . . . is not driven or moved on a highway." MCL 500.3101(1). The no-fault act, however, does not bar, let alone address, an insurer's ability to sell optional insurance coverages only. In this case, the USA policy did not provide the mandatory no-fault coverages to Vandeinse. Indeed, USA does not offer mandatory coverages to any customers; it only sells collision and comprehensive policies, which, according to Vandeinse's insurance agent, are to be bundled with other ...


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