MARKMAN, J.
We granted leave to appeal to address whether an insurance carrier may avail itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, when the fraud was easily ascertainable and the claimant is a third party. In accordance with this Court's precedent in Keys v. Pace, 358 Mich. 74, 99 N.W.2d 547 (1959), we answer this question in the affirmative. There being nothing in the law to warrant the establishment of an "easily ascertainable" rule, we overrule State Farm Mut. Auto. Ins. Co. v. Kurylowicz, 67 Mich.App. 568, 242 N.W.2d 530 (1976), and its progeny
McKinley Hyten obtained a provisional driver's license in April 2004. In January 2007, Hyten's driver's license was suspended by the Secretary of State because of multiple moving violations and two minor traffic accidents. In light of what she perceived as assurances from her probation officer, Hyten anticipated that her license would be restored at a district court hearing scheduled for August 24, 2007.
That same year, Hyten's mother, Anne Johnson, inherited a motor vehicle that she "earmarked" for Hyten. Given the anticipated restoration of Hyten's driver's
At the August 24, 2007, hearing, Hyten's driver's license was not restored, and it was not restored until September 20, 2007. Titan was not informed of this fact. Subsequently, in February 2008, Hyten was driving the insured vehicle and collided with the vehicle of Howard and Martha Holmes, causing injuries to them. In the process of investigating the accident, Titan learned that Hyten did not have a valid driver's license when the policy was issued. In anticipation that the Holmeses would be filing claims against Hyten for their injuries, Titan filed the instant action seeking a declaratory judgment. Titan averred that had it been informed that Hyten's license had been suspended, it would never have accepted the risk and would not have issued the insurance policy. Given Hyten's fraudulent conduct in her application for insurance, Titan sought a declaration that, should the Holmeses prevail in their action, Titan was not obligated to indemnify Hyten.
Farm Bureau Insurance Company, the Holmeses' insurer, intervened as a defendant, and Titan, Farm Bureau, and Hyten each filed cross-motions for summary disposition. Relying on Court of Appeals decisions holding that an insurer may not avoid liability under an insurance policy for fraud that was easily ascertainable, and concluding that whether a person possesses a valid driver's license is easily ascertainable, the trial court granted Farm Bureau's and Hyten's motions for summary disposition. The Court of Appeals affirmed on the basis of Kurylowicz, asserting that once an insurable event has occurred and a third party (the Holmeses here) possesses a claim against an insured arising out of that event, an insurer is not entitled to reform the policy to the third-party's detriment when the fraud by the insured was easily ascertainable. Titan Ins. Co. v. Hyten, 291 Mich.App. 445, 805 N.W.2d 503 (2011) (Hyten I). Titan filed an application for leave to appeal in this Court, which we granted. Titan Ins. Co. v. Hyten, 490 Mich. 868, 802 N.W.2d 617 (2011) (Hyten II).
This Court reviews de novo a trial court's decision on a motion for summary disposition. Shepherd Montessori Ctr. Milan v. Ann Arbor Charter Twp., 486 Mich. 311, 317, 783 N.W.2d 695 (2010). In addition, the proper interpretation of a statute is a question of law that this Court reviews de novo. Eggleston v. Bio-Med. Applications of Detroit, Inc., 468 Mich. 29, 32, 658 N.W.2d 139 (2003). The proper interpretation of a contract is also a question of law that this Court reviews de novo. Rory v. Continental Ins. Co., 473 Mich. 457, 464, 703 N.W.2d 23 (2005).
Insurance policies are contracts and, in the absence of an applicable statute, are "subject to the same contract construction principles that apply to any other species of contract." Id. at 461, 703 N.W.2d 23. As this Court noted in Rohlman v. Hawkeye-Security Ins. Co., 442 Mich. 520, 525 n. 3, 502 N.W.2d 310 (1993), quoting 12A Couch, Insurance, 2d (rev ed.), § 45:694, pp. 331-332,
Thus, when a provision in an insurance policy is mandated by statute, the rights and limitations of the coverage are governed by that statute. See Rohlman, 442 Mich. at 524-525, 502 N.W.2d 310 (holding that because personal injury protection benefits are mandated by MCL 500.3105, that statute governs issues regarding an award of those benefits). On the other hand, when a provision in an insurance policy is not mandated by statute, the rights and limitations of the coverage are entirely contractual and construed without reference to the statute. See Rory, 473 Mich. at 465-466, 703 N.W.2d 23 (holding that because uninsured-motorist coverage is optional and not mandated by statute, "the rights and limitations of such coverage are purely contractual and construed without reference to the no-fault act").
In addition, because insurance policies are contracts, common-law defenses may be invoked to avoid enforcement of an insurance policy, unless those defenses are prohibited by statute. See id. at 470, 703 N.W.2d 23. Rory noted that common-law defenses include duress, waiver, estoppel, fraud, and unconscionability. Id. at 470 n. 23, 703 N.W.2d 23. In this case, Titan asserts the defense of fraud to avoid liability under the insurance policy entered into with Hyten.
Michigan's contract law recognizes several interrelated but distinct common-law doctrines — loosely aggregated under the rubric of "fraud" — that may entitle a party to a legal or equitable remedy if a contract is obtained as a result of fraud or misrepresentation. These doctrines include actionable fraud, also known as fraudulent misrepresentation; innocent misrepresentation; and silent fraud, also known as fraudulent concealment. Regarding actionable fraud,
The doctrine of innocent misrepresentation is also well settled in Michigan, recognizing,
As is evident, although the doctrines of actionable fraud, innocent misrepresentation, and silent fraud each contain separate elements, none of these doctrines requires that the party asserting fraud prove that the fraud could not have been discovered through the exercise of reasonable diligence. Stated differently, these doctrines do not require the party asserting fraud to have performed an investigation of all assertions and representations made by its contracting partner as a prerequisite to establishing fraud.
The legal and equitable remedies for fraud are manifold. Fraud in the procurement of the contract may be grounds for monetary damages in an action at law, see generally Hord v. Environmental Research Institute of Mich., 463 Mich. 399, 617 N.W.2d 543 (2000), or, as Titan requests in the instant case, grounds to retroactively avoid contractual obligations through traditional legal and equitable remedies such as cancellation, rescission, or reformation, see, e.g., United States Fidelity, 412 Mich. at 118 n. 10, 313 N.W.2d 77. However, because a contract must always be construed to satisfy relevant provisions of law, Rohlman, 442 Mich. at 524-525, 502 N.W.2d 310, such remedies may be limited or narrowed by statute. For example, the no-fault automobile insurance act, MCL 500.3101 et seq., limits the ability of a licensed insurer to "cancel" automobile coverage after a policy has been in effect for at least 55 days. See MCL 500.3220. Similarly, in certain circumstances, the financial responsibility act, MCL 257.501 et seq., limits the ability of an insurer to avoid liability on the ground of fraud in obtaining a motor vehicle liability policy with respect to insurance required by the financial responsibility act. See MCL 257.520(f)(1) ("The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute whenever injury or damage covered by said motor vehicle liability policy occurs; ... [and] no fraud, misrepresentation, assumption of liability or other act of the insured in obtaining or retaining such policy ... shall constitute a defense as against such judgment creditor.").
Several appellate decisions of this state have suggested that MCL 257.520 applies to all liability insurance policies. For example, in State Farm Mut. Auto. Ins. Co. v. Sivey, 404 Mich. 51, 57, 272 N.W.2d 555 (1978), this Court indicated that MCL 257.520(b)(2) applies to "all policies of liability insurance[.]" (Emphasis added.) In addition, in Farmers Ins. Exch. v. Anderson, 206 Mich.App. 214, 220, 520 N.W.2d 686 (1994), the Court of Appeals indicated that "when an accident occurs in this state, the scope of liability coverage is determined by the financial responsibility act." See also League Gen., Ins. Co. v. Budget Rent-A-Car of Detroit, 172 Mich.App. 802, 805, 432 N.W.2d 751 (1988) ("When an accident occurs in this state,
We have closely reviewed MCL 257.520(f)(1), and we believe that the statute does not in every case limit the ability of an automobile insurer to avoid liability on the ground of fraud; its reference to "motor vehicle liability policy" is not all encompassing. Rather, as used in MCL 257.520(f)(1), "motor vehicle liability policy" refers only to an "owner's or an operator's policy of liability insurance, certified as provided in [MCL 257.518] or [MCL 257.519] as proof of financial responsibility...." MCL 257.520(a). Thus, absent this certification, MCL 257.520(f)(1) has no relevant application. Further, MCL 257.520(f)(1) refers only to "the insurance required by this chapter," (emphasis added), and the only insurance required by chapter V of the Michigan Vehicle Code is insurance "certified as provided in [MCL 257.518] or [MCL 257.519] as proof of financial responsibility...." MCL 257.520(a). Therefore, as we stated in Burch v. Wargo, 378 Mich. 200, 204, 144 N.W.2d 342 (1966), MCL 257.520 "applies only when `proof of financial responsibility for the future' ... is statutorily required...." See also MCL 257.522 ("This chapter shall not be held to apply to or affect policies of automobile insurance against liability which may now or hereafter be required by any other law of this state ...."); and State Farm Mut. Auto. Ins. Co. v. Ruuska, 412 Mich. 321, 336 n. 7, 314 N.W.2d 184 (1982) ("[I]n discussing the requisites for an automobile liability policy issued as proof of future financial responsibility, the Legislature [in MCL 257.520(b)], after requiring an owner's policy to designate by explicit description or appropriate reference all covered motor vehicles, limited the liability coverage to only those automobiles listed in the policy by speaking in terms of the use of `such' vehicle(s)."). For these reasons, we now clarify that MCL 257.520(f)(1) does not apply to a motor vehicle liability insurance policy unless it has been certified under MCL 257.518 or MCL 257.519 and, to the extent that Sivey, Anderson, and League suggest otherwise, they are overruled.
The principal question presented in this case is whether an insurer may avail itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, when the fraud was easily ascertainable and the claimant is a third party. As an initial matter, we note that this precise question was addressed in 1959 in Keys, 358 Mich. 74, 99 N.W.2d 547. In Keys, the plaintiff, a third party, was involved in a motor vehicle accident with the defendant, who was insured by the Detroit Automobile Inter-Insurance Exchange (DAIIE). The plaintiff filed suit against the defendant for injuries that she had sustained in the accident. While the suit was pending, the DAIIE notified the defendant that it considered the policy void ab initio because it was discovered that he had misrepresented a material fact in the application for insurance, namely, that he had falsely stated that his license had not been suspended within the past three years, when, in fact, it had been.
After securing her judgment, the plaintiff filed an affidavit for a writ of garnishment against the DAIIE, which opposed the writ arguing that it had no duty to indemnify the defendant because the policy was void ab initio as a result of the material misrepresentation. This Court agreed and held that the defendant's material misrepresentation entitled the insurer to avoid liability under the policy. Id. at 82-83, 99 N.W.2d 547. In so holding, Keys rejected the plaintiff's argument that the insurer had ratified the policy, or, alternatively, had waived its right to avoid liability, because it had failed to declare the policy void at or near the time of the accident, when the insurer could have used available records to discover the misrepresentation. Writing for a unanimous Court, Justice SMITH stated as follows:
Thus, Keys answered the precise question presented in this case in the affirmative, holding that an insurer may avail itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud, notwithstanding that the fraud may have been easily ascertainable, and notwithstanding that the claimant is a third party.
However, despite Keys, the Court of Appeals in Kurylowicz, on similar facts, reached a different conclusion. In Kurylowicz, the insured sought insurance coverage for his automobile from State Farm. In filling out the application for insurance, he misrepresented the fact that his driver's
Kurylowicz surveyed the caselaw of other jurisdictions and, finding the reasoning in those cases persuasive, approvingly quoted a California case: "[A]n automobile liability insurer must undertake a reasonable investigation of the insured's insurability within a reasonable period of time from the acceptance of the application and the issuance of a policy. This duty directly inures to the benefit of third persons injured by the insured.'" Id. at 576, 242 N.W.2d 530, quoting Barrera v. State Farm Mut. Auto. Ins. Co., 71 Cal.2d 659, 663, 79 Cal.Rptr. 106, 456 P.2d 674 (1969). Ultimately, Kurylowicz held that "where an automobile liability insurer retains premiums, notwithstanding grounds for cancellation reasonably discoverable by the insurer ..., the insurer will be estopped to assert that ground for rescission thereafter." Kurylowicz, 67 Mich.App. at 579, 242 N.W.2d 530.
The Kurylowicz rule has become known as the "easily ascertainable" rule, and, as the Court of Appeals noted in this case, it only applies when a third-party claimant is involved. That is, under the Kurylowicz rule, an insurer may not avail itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud when the fraud was easily ascertainable and the claimant is a third party. See, e.g., Ohio Farmers Ins. Co. v. Mich. Mut. Ins. Co., 179 Mich.App. 355, 445 N.W.2d 228 (1989). However, when it is the insured who seeks benefits under an insurance policy procured through fraud, even an easily ascertainable fraud will not preclude an insurer from availing itself of traditional legal and equitable remedies to avoid liability. See Hammoud v. Metro. Prop. & Cas. Ins. Co., 222 Mich.App. 485, 563 N.W.2d 716 (1997).
Not only did Kurylowicz clearly err by disregarding Keys,
First, Kurylowicz justified the "easily ascertainable" rule on the basis of its understanding
This "public policy" rationale does not compel the adoption of the "easily ascertainable" rule. In reaching its conclusion, Kurylowicz effectively replaced the actual provisions of the no-fault act with a generalized summation of the act's "policy." Where, for example, in Kurylowicz's statement of public policy is there any recognition of the Legislature's explicit mandate that, with respect to insurance required by the act, "no fraud, misrepresentation,... or other act of the insured in obtaining or retaining such policy . . . shall constitute a defense" to the payment of benefits? MCL 257.520(f)(1). We believe that the policy of the no-fault act is better understood in terms of its actual provisions than in terms of a judicial effort to identify some overarching public policy and effectively subordinate the specific details, procedures, and requirements of the act to that public policy. In other words, it is the policy of this state that all the provisions of the no-fault act be respected, and Kurylowicz's efforts to elevate some of its provisions and some of its goals above other provisions and other goals was simply a means of disregarding the stated intentions of the Legislature. The no-fault act, as with most legislative enactments of its breadth, was the product of compromise, negotiation, and give-and-take bargaining, and to allow a court of this state to undo those processes by identifying an all-purpose public policy that supposedly summarizes the act and into which every provision must be subsumed, is to allow the court to act beyond its authority by exercising what is tantamount to legislative power. Third-party victims of automobile accidents have a variety of means of recourse under the no-fault act, and it is to those means that such persons must look, not to a judicial articulation of policy that has no specific foundation in the act itself and was designed to modify and supplant the details of what was actually enacted into law by the Legislature.
Second, it is claimed that the "easily ascertainable" rule complements MCL 500.3220, which provides:
The Court of Appeals panel below reasoned that
We agree with the Court of Appeals that MCL 500.3220(a) shows an intent to allow insurers only a limited period during which to reassess the risk after the formation of a policy and when the risk is deemed unacceptable to "cancel" the policy. However, we disagree that when an insurer elects not to reassess the risk and later uncovers fraud, it is somehow precluded from pursuing traditional legal and equitable remedies in response.
Risk assessment and the uncovering of fraud are distinct insurance processes and are not logically interrelated in a manner that would reasonably suggest that any statute addressing one of these processes necessarily addresses the other. Nor within MCL 500.3220(a), in particular, are these processes joined together by any specific language. MCL 500.3220 limits an insurer's ability to "cancel" an insurance policy after it has been in effect for 55 days. In contract law, "cancellation" has acquired a peculiar and appropriate meaning in the law.
Third, it is contended that the "easily ascertainable" rule is required for the protection
Having concluded that the purported justifications do not support the "easily ascertainable" rule, we overrule Kurylowicz and its progeny, there being nothing in the law to warrant the establishment or imposition of an "easily ascertainable" rule.
Although Keys was decided before the no-fault act became law, we
The Keys rule, which allows an insurer to avail itself of a legal or equitable remedy on the ground of fraud in the application for insurance, notwithstanding that the claimant is a third party and the fraud could have been discovered through further investigation, comports with the long-established understanding of fraud in Michigan.
As already noted, it is well settled in Michigan that fraud in the application for an insurance policy may allow the blameless contracting party to avoid its contractual obligations through the application of traditional legal and equitable remedies. Michigan's common law has consistently defined the elements of fraud without reference to whether the fraud could, upon the exercise of reasonable diligence in carrying out further investigation, have been discovered by the party claiming that it was harmed by the fraud. See Candler, 208 Mich. at 121, 175 N.W. 141 (defining the elements of actionable fraud); United States Fidelity, 412 Mich. at 115-116, 313 N.W.2d 77 (defining the elements of innocent misrepresentation), quoting Holcomb, 69 Mich. at 399, 37 N.W. 497 (MORSE, J., concurring); and Tompkins, 60 Mich. at 480, 483, 27 N.W. 651 (defining the elements of silent fraud). To hold an insurer to a different and higher standard, one that would require it affirmatively to investigate the veracity of all representations made by its contracting partners before it could avail itself of these remedies, would represent a substantial departure from the well-established understanding of fraud. We discern no basis for treating insurers differently from all other parties who enter into contracts in this state.
For these reasons, we reaffirm the principles set forth in Keys and hold that an insurer is not precluded from availing itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, even when the fraud was easily ascertainable and the claimant is a third party.
Titan alleges that Hyten's representation that no member of her household had any unlicensed drivers or any drivers with a suspended or revoked driver's license was fraudulent. To establish actionable fraud, Titan bears the burden of proving that (1) Hyten made a material misrepresentation; (2) it was false; (3) when she made it, she knew it was false, or else made it recklessly, without any knowledge of its truth, and as a positive assertion; (4) she made it with the intention that it should be acted on by Titan; (5) Titan acted in reliance on it; and (6) Titan
Should Titan prevail on its assertion of actionable fraud, it may avail itself of a traditional legal or equitable remedy to avoid liability under the insurance policy, notwithstanding that the fraud may have been easily ascertainable. However, as discussed earlier in this opinion, the remedies available to Titan may be limited by statute. Rohlman, 442 Mich. at 525 n. 3, 502 N.W.2d 310.
In accordance with our longstanding jurisprudence before Kurylowicz, an insurer may seek to avoid liability under an insurance policy using traditional legal and equitable remedies including cancellation, rescission, or reformation, on the ground of fraud made in an application for insurance, notwithstanding that the fraud may have been easily ascertainable and the claimant is a third party. This rule is consistent with Michigan's well-settled understanding of fraud. Accordingly, we overrule Kurylowicz, 67 Mich.App. 568, 242 N.W.2d 530, and its progeny, there being nothing in the law to warrant the establishment or imposition of an "easily ascertainable" rule. Because the Court of Appeals relied on Kurylowicz and its progeny, we reverse the judgment of the Court of Appeals. Further, because it is unclear whether the trial court found that the insured obtained her policy through fraud, we remand to the trial court for further proceedings in accordance with this opinion.
YOUNG, C.J., and MARY BETH KELLY and ZAHRA, JJ., concurred with MARKMAN, J.
HATHAWAY, J. (dissenting).
I would affirm the Court of Appeals' well-reasoned opinion in this case. I believe that the "easily ascertainable" rule should remain the law of this state because it is soundly based in existing caselaw and this state's policy regarding automotive liability insurance and compensation for innocent third-party accident victims.
Judges in numerous cases have considered the "easily ascertainable" rule and have concluded that it is consistent with this state's policies. Today, however, the majority discards the analyses of those judges and overrules the unanimous opinion of this Court in State Farm Mut. Auto. Ins. Co. v. Sivey, 404 Mich. 51, 272 N.W.2d 555 (1978); the unanimous Court of Appeals opinion in State Farm Mut. Auto. Ins. Co. v. Kurylowicz, 67 Mich.App. 568,
Together, those cases represent 36 years of thoughtfully analyzed and legally sound caselaw interpreting the no-fault act.
I would affirm the judgment of the Court of Appeals because it went through a careful and correct analysis of the statutory and common-law underpinnings of the rule and the reasons why the rule is necessary. Furthermore, the Court of Appeals correctly applied the rule in this case to hold that plaintiff, Titan Insurance Company, cannot reform its insurance policy in order to avoid the maximum liability owed under the policy to the innocent third-party defendants, Howard and Martha Holmes. Accordingly, I would adopt the Court of Appeals' well-reasoned opinion in its entirety.
CAVANAGH and MARILYN KELLY, JJ., concurred with HATHAWAY, J.
The Court of Appeals in the instant case held that "[t]here can be no fraud where a person has the means to determine that a representation is not true." Hyten I, 291 Mich.App. at 462, 805 N.W.2d 503, quoting Nieves v. Bell Industries, Inc., 204 Mich.App. 459, 464, 517 N.W.2d 235 (1994) (emphasis added). When read in isolation, this statement might support the panel's conclusion that an insurer has a duty to investigate representations made by a potential insured. However, when the statement is read in the full context of the Nieves opinion, as well as other precedent, it is clear that an insurer has no duty to investigate the representations of a potential insured. The Court of Appeals in the instant case failed to recognize that in Nieves, and in the two cases relied on by Nieves in the pertinent portion of its opinion, Montgomery Ward, 330 Mich. 275, 47 N.W.2d 607, and Webb v. First of Mich. Corp., 195 Mich.App. 470, 491 N.W.2d 851 (1992), the allegedly defrauded party was given direct information refuting the misrepresentations. Ignoring information that contradicts a misrepresentation is considerably different than failing to affirmatively and actively investigate a representation.
In Mable Cleary Trust v. Edward-Marlah Muzyl Trust, 262 Mich.App. 485, 501, 686 N.W.2d 770 (2004), the Court of Appeals held that the rule articulated in Nieves is only applied when the plaintiff was "either presented with the information and chose to ignore it or had some other indication that further inquiry was needed." (Emphasis added.) To the extent that the latter part of this statement can be read to support the proposition that a party has an independent duty to investigate and corroborate representations, we overrule Mable Cleary Trust.
