Fraud in Inception Allows Insurer to Rescind
Lamin Fatty appealed the trial court's order granting summary
disposition to Farm Bureau on the basis of finding Fatty's fraud was
grounds for contract rescission and reimbursement of benefits paid. In
Lamin Fatty v. Farm Bureau Insurance Company Of Michigan, No. 363888,
Court of Appeals of Michigan (November 21, 2023) the Court of Appeals
resolved the dispute.
FACTS
After a motor vehicle accident where Fatty sustained bodily injuries the
issue of rescission was raised when it was discovered that at the time
of the accident, Fatty was insured by Farm Bureau under the no-fault
act. Fatty obtained insurance with Farm Bureau on July 17, 2019. On the
application for insurance, Fatty answered the following question in the
negative: "Are any vehicles to be insured used to carry persons for a
fee?"
Uber records indicated that Fatty began working as an Uber driver in
early May 2019 (before he applied for the insurance) and drove for Uber
on the day of the accident. Fatty's drive log shows he picked up a rider
at 6:05 p.m. and dropped them off at 6:30 p.m. Fatty picked up another
rider at 6:38 p.m. and dropped them off at their destination at 6:50
p.m. Fatty continued picking up riders and completing trips that night
until 8:17 p.m.
After this discovery, Farm Bureau filed a counterclaim on the basis of
fraud, requesting reimbursement of benefits paid to or on behalf of
Fatty with regard to the accident.
The trial court granted Farm Bureau's motion for summary disposition of
the counterclaim, including its request for reimbursement of $104,730.82
for benefits paid, because the policy was rescinded under the doctrine
of fraud in the procurement. The trial court also found Fatty's fraud
entitled Farm Bureau to attorney fees under the no-fault act, and costs.
Specifically, the trial court found the requested costs of $2,599.50
were reasonable and awarded $10,000 in attorney fees. Fatty appealed.
SUMMARY DISPOSITION OF THE CLAIM
The trial court properly rescinded the insurance policy because Fatty
committed fraud in the procurement of the contract by explicitly denying
using his vehicle to carry passengers for a fee. Because of this
rescission, summary disposition of Fatty's claims was appropriate,
without regard to whether Fatty was driving for Uber at the time of the
accident.
Fraud in the inducement to enter a contract renders the contract
voidable at the option of the party deceived. An insurer has a
reasonable right to expect honesty in the application for insurance.
Rescission abrogates the contract and restores the parties to their
relative positions had the contract never been made. A court must not
hold an insurance company liable for a risk that it did not assume.
SUMMARY DISPOSITION OF THE COUNTERCLAIM
Reimbursement of the PIP benefits paid to Fatty was an appropriate
remedy following rescission. Because the claim was fraudulent and Farm
Bureau was the prevailing party, the award of attorney fees and costs
was also proper.
The trial court properly awarded attorney fees to Farm Bureau. Farm
Bureau was forced to defend against a claim pursued under a policy that
was procured by fraud. Therefore, the award is within the range of
reasonable and principled outcomes and was not an abuse of discretion.
Accordingly, the award of attorney fees and costs to Farm Bureau was
proper.