Background
On January 28, 2022, Tnitha Barnes applied for no-fault auto insurance with Citizens United Reciprocal Exchange (CURE) for a 2006 Nissan Altima and a 2014 Ford Fusion. In her application, Barnes listed herself as the sole owner and registrant of the Altima, though Karin Barnes (her daughter) actually owned it. Barnes also failed to list Karin as a household member despite knowing that Karin attended college in Atlanta during the school year but returned to live with her during the summer—a period covered by the policy.
On March 13, 2022, Barnes had an accident while driving the 2014 Fusion and filed a claim for personal protection insurance (PIP) benefits. CURE subsequently filed a declaratory action seeking rescission of the entire policy, alleging that Barnes had made material misrepresentations in her application. The trial court denied CURE’s motion for summary disposition, finding disputed factual questions about whether the misrepresentations were material to coverage decisions.
The Court’s Holding
The Michigan Court of Appeals reversed, holding that Barnes’s failure to disclose Karin as a household member constituted a material misrepresentation that entitled CURE to rescission. The court found that Barnes knew at the time of application that Karin would be a household member during the policy period (specifically during summer 2022) and that Karin would have access to the vehicles. Under Michigan law, a misrepresentation is material if its disclosure would have substantially increased the chances of loss or affected the insurer’s premium decision.
CURE’s underwriting manager testified in an affidavit that had CURE known Karin was a household member, it would have increased premiums by $263.75 due to the increased risk of another household member and potential driver. This satisfied the materiality requirement. The court distinguished the case from Howard v. LM General Insurance Co., where rescission was improper because the misrepresented vehicle was not involved in the accident and the insured’s vehicle of concern was properly covered. Here, the misrepresentation affected underwriting and premium calculations for the entire policy, not just the non-involved vehicle.
The court reversed the trial court’s denial of summary disposition on the household member misrepresentation and remanded for entry of summary disposition in CURE’s favor and for the trial court to determine, under an equitable balancing test established in Sherman v. Progressive Michigan Insurance Co., whether rescission is the appropriate remedy.
Key Takeaways
- Failure to disclose a household member on an insurance application is a material misrepresentation when that person has access to the insured vehicles and affects underwriting calculations, regardless of whether that person was involved in the accident giving rise to the claim.
- An insurer satisfies the “injury” element of fraud when an underwriter testifies that premiums would have been higher or coverage would have been denied had the true facts been known.
- Materiality for insurance misrepresentations is measured by whether disclosure would have affected the insurer’s premium decision or coverage determination, not by whether the misrepresented fact directly caused the loss.
- Even if a misrepresented vehicle is not involved in an accident, failure to disclose a household member still supports rescission because it affects the overall risk profile and underwriting decision for the entire policy.
Why It Matters
This decision clarifies Michigan law on what constitutes material misrepresentation in no-fault insurance applications. By holding that household member disclosures go to the overall underwriting risk—not merely to specific vehicles or accidents—the court gives insurers stronger grounds to rescind policies when applicants conceal family members with access to insured vehicles. The ruling rejects a narrow reading that would limit rescission only to misrepresentations directly connected to the loss claimed.
The case also reinforces that an insurer need not prove it would have denied coverage entirely to establish injury; a showing that premiums would have increased suffices under materiality standards. On remand, the trial court must still apply an equitable balancing test to determine whether rescission is appropriate, leaving open the possibility that remedies other than complete rescission might be warranted in some circumstances.