Background
In November 2020, Janice Sherman applied to Progressive Michigan Insurance Company for a no-fault auto policy covering two vehicles. On her application, she identified Clinton Township as both her address and the garaging location for her vehicles, and listed herself as the sole resident and driver. In July 2021, Sherman was a passenger in one of the insured vehicles when it was rear-ended by a hit-and-run driver, causing injuries for which she sought personal protection insurance (PIP) benefits.
During its investigation, Progressive discovered that Sherman had in fact garaged her vehicles at a Detroit address and at her brother’s residence, and that she had adult resident-relatives she had not disclosed. Progressive determined that accurate information would have increased Sherman’s premium by 83.2%. On that basis, Progressive denied her PIP claim, declared the policy rescinded ab initio, and refunded her $1,491.54 in premiums.
Sherman sued, alleging unlawful denial of benefits and breach of contract. Progressive moved for summary disposition. The Washtenaw Circuit Court denied the motion and instead ordered the policy reformed to reflect Sherman’s Detroit address and the associated premium increase. The Court of Appeals reversed, holding that the trial court abused its discretion by ordering reformation rather than rescission where the misconduct was entirely one-sided. Sherman then applied for leave to appeal to the Michigan Supreme Court, which ordered oral argument on the application.
The Court’s Holding
In a unanimous opinion by Justice Zahra (Justice Hood not participating), the Michigan Supreme Court affirmed the Court of Appeals. The Court clarified the two-step standard of review that applies when rescission is sought through a motion for summary disposition under MCR 2.116(C)(10): an appellate court must first review de novo whether there is a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law; it must then review the trial court’s decision to grant or deny rescission for an abuse of discretion — not de novo. The Court noted that prior Court of Appeals decisions had created confusion by importing a “clear error” standard for factual findings into the MCR 2.116(C)(10) context, where no factual findings are made, and that opinion clarifies the correct framework going forward.
Applying that framework, the Court agreed with the Court of Appeals that no genuine issue of material fact existed as to Sherman’s material misrepresentations and Progressive’s reliance on them. Whether Sherman’s misrepresentations were innocent or fraudulent was immaterial; rescission is available whenever a material misrepresentation is relied upon by the insurer. Because the equities were entirely one-sided — Sherman committed the misrepresentations, Progressive acted without fault, and no third-party interests were at stake — the trial court abused its discretion by ordering reformation rather than rescission.
The Court further held that remand to the trial court to rebalance the equities was unnecessary. Unlike earlier cases such as Bazzi v. Sentinel Insurance Co. and C-Spine Orthopedics v. Progressive Michigan Insurance Co., where the trial court had never conducted a rescission analysis in the first instance, the trial court here did engage in an equitable analysis — it simply abused its discretion in doing so. Where the record is complete and the equities overwhelmingly favor one party, no purpose is served by sending the case back for rebalancing.
Key Takeaways
- When rescission is sought via a summary disposition motion under MCR 2.116(C)(10), Michigan appellate courts apply a two-step review: de novo on the absence of genuine factual dispute, then abuse of discretion on the equitable decision to grant or deny rescission.
- An insurer may rescind a no-fault policy based on material misrepresentation regardless of whether the misrepresentation was fraudulent or innocent, so long as the insurer materially relied on the misrepresentation in setting the premium or issuing the policy.
- Where a trial court conducts a rescission analysis but abuses its discretion — and the record is complete with entirely one-sided equities — the Court of Appeals need not remand for rebalancing; it may direct entry of judgment for the prevailing party outright.
- Reformation of an insurance policy is not an appropriate remedy when the misconduct lies entirely with the insured and the insurer engaged in no wrongdoing.
Why It Matters
This decision resolves a persistent split in Michigan Court of Appeals authority over how to review equitable rescission decisions, particularly when rescission is litigated through a summary disposition motion. By establishing a clear two-step framework — de novo on the factual record, abuse of discretion on the equitable remedy — the Court brings predictability to a frequently litigated issue in insurance coverage disputes and eliminates the erroneous “clear error” language that had crept into the case law from Pioneer State Mutual Insurance Co. v. Wright.
For insurers, the decision reinforces that rescission is the appropriate remedy when a policyholder’s material misrepresentation is the sole source of inequity. For policyholders and their counsel, it signals that courts will not craft equitable workarounds — such as reformation — to preserve coverage when the balance of equities runs entirely against the insured and no public policy concern (such as innocent third-party recovery) is implicated.