Smith v. Globe Life Insurance

Kelly, J.

(concurring in part and dissenting in part). In addition to joining Justice Cavanagh’s dissenting opinion regarding plaintiff’s Michigan Consumer Protection Act claim, I respectfully dissent from the majority’s resolution of plaintiff’s breach of contract claim. I disagree that defendant is entitled to summary disposition 1 because Robert Smith made a *469 material misrepresentation in an insurance application, absent any showing that defendant relied on the misrepresentation.

When a material misrepresentation of fact affects acceptance of the risk or hazard assumed by an insurer, MCL 500.2218; MSA 24.12218 permits the insurer to void the policy. Wiedmayer v Midland Mut Life Ins Co, 414 Mich 369, 374 ; 324 NW2d 752 (1982). The statute provides, in pertinent part:

The falsity of any statement in the application for any disability insurance policy covered by chapter 34 of this code may not bar the right to recovery thereunder unless such *470 false statement materially affected either the acceptance of the risk or the hazard assumed by the insurer.

(1) No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless the misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract.

(2) A representation is a statement as to past or present fact, made to the insurer by or by the authority of the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof A misrepresentation is a false representation, and the facts misrepresented are those facts which make the representation false. [MCL 500.2218; MSA 24.12218 (emphasis added).]

Although the majority finds it “significant that § 2218 does not expressly mention reliance,” and purports to rely on In re Certified Question, Wickersham v John Hancock Mut Life Ins Co 2 as authority for its holding, it avoids the following analysis in Wickersham:

A review of all the subsections under this statute fails to support the claim of plaintiff that a causal relation between the false statement and loss is required. In 1957, the Legislature amended MCL 500.2218; MSA 24.12218 by adding the four numbered paragraphs to this section. 1957 PA 91 . The added paragraphs, in part, define misrepresentation and materiality. These additional provisions further indicate a legislative intent to determine materiality at the time the insured signs the application and the insurer decides whether to issue a policy to the applicant.

* * *

*471 That materiality is to be tested well before the loss occurs is also demonstrated by subsection (2). This statutory language defines representation and misrepresentation as a statement “at or before the making of the insurance contract as an inducement to the making thereof.” [Id. at 65 (emphasis added).][ 3 ]

Because § 2218(2) expressly requires an insurer to establish that the prospective insured misrepresented a fact that induced 3

4 the insurer to contract, an express reference to reliance would be surplusage.

*472 Interpreting § 2218, the Court of Appeals has formulated a test. It succinctly provides that, to void a policy on the basis of a misrepresentation under the statute, an insurance company must

(1) demonstrate that [a] misrepresentation was in fact made; (2) show that the insurer relied upon the statement; and, (3) prove that the misrepresentation was material to the risk and hazard accepted by the insurer. [Howard v Golden State Mut Life Ins Co, 60 Mich App 469, 477 ; 231 NW2d 665 (1975); see United of Omaha Life Ins Co v Rex Roto Corp, 126 F3d 785 (CA 6, 1997).]

The majority observes that the Howard decision did not consider the precise language used in § 2218. However, it neglects to mention that the Howard panel formulated this test immediately after quoting § 2218. Id., 476-477.

As noted above, the majority cites Wickersham, supra at 63 for the proposition that a misrepresentation affecting the hazard assumed by the insurer, as distinguished from the risk accepted, does not require reliance. 5 However, in Wickersham, this Court merely addressed the narrow question

whether [§ 2218] requires that there be a causal relation between a material misrepresentation and the loss insured against before a right to recover under an insurance policy is barred. [Id., 62.]

In Wickersham, the plaintiff filed a claim against an insurer for recovery of life insurance proceeds after her husband died in a swimming accident. Id., 60. The *473 plaintiff conceded that her husband had misrepresented his medical record before he applied for the policy. She argued that the misrepresentation was not material, because it involved an undisclosed health problem that was unrelated to his death. However, the defendant insurer countered that the misrepresentation deceived it into accepting the insurance application, which otherwise it would have rejected.

This Court explained that, for a misstatement to be material to the hazard assumed, it must have affected the hazard assumed or contributed to the loss. 6 Id., 62. On the basis of the narrow question presented for review, this Court held that the misrepresentation did not affect or contribute to the hazard assumed. 7 Id., 62-63. Consequently, it was ruled not material to the hazard assumed. Id.

We held that, as regards a material misrepresentation, § 2218 does not require establishing a causal relationship between the misrepresentation and the circumstances of the loss before recovery is barred. Id., 65. We also explained:

It is important to note that the instant case involves a narrow question based upon a limited record. We are not presented with a record involving questions of good-faith answers, errors in writing the application, concealment of trivial or clearly nonmaterial ailments, reliance, or other questions of fact. [Id., 70-71 (emphasis added).]

*474 By omitting portions of Wickersham, and misconstruing the remainder, the majority reached an erroneous conclusion: that Wickersham supports the proposition that defendant was not required to establish reliance in order to avoid payment under the policy. Although Wickersham failed to expressly address the issue of reliance, the majority fails to provide any explanation for Wickersham’s pointed reference to it. Id., 71.

An insurer has the burden of establishing a claim of misrepresentation. Szlapa v Nat’l Travelers Life Co, 62 Mich App 320, 325 ; 233 NW2d 270 (1975). Defendant moved for summary disposition. Therefore, it had the burden of establishing the absence of a genuine issue of material fact on the three elements required to void the insurance policy for misrepresentation. It was obligated, as well, to support its position by affidavits, depositions, admissions, or other documentary evidence. Quinto v Cross & Peters Co, 451 Mich 358, 362 ; 547 NW2d 314 (1996).

Defendant submitted an affidavit by a former underwriter to support its claim that the misrepresentation was material to its acceptance of the risk or hazard assumed. The affidavit stated that defendant would have refused to insure Smith had it been aware of his medical condition at the time it issued the policy.

Unlike the defendant insurer in Wickersham, defendant Globe failed to allege that it was deceived by Smith’s misrepresentation. The affidavit asserted that knowledge of the misrepresentation would have adversely affected its decision to insure Smith. However, it failed to declare that defendant received the *475 application before insuring plaintiff or that it relied on it. 8

Therefore, defendant omitted to allege reliance on the misrepresentation by affidavit or other documentary evidence. It failed to meet its burden of establishing this element of the Howard test, and failed to establish a misrepresentation under the definition provided by the Legislature in MCL 500.2218(2); MSA 24.12218(2). Therefore, it was not entitled to summary disposition on the breach of contract claim.

I believe that the majority erred in concluding that the defendant insurer was entitled to summary disposition with regard to plaintiff’s breach of contract claim. By awarding defendant insurer summary disposition absent any allegation of reliance, the majority encourages insurers to search their records in an effort to find any inconsequential mistake to deny coverage. I would affirm the Court of Appeals judgment on this issue and remand for further proceedings.

I also dissent from the majority’s attempt to create a new standard for reviewing motions for summary disposition under the guise of McCart v J Walter Thompson USA, Inc, 437 Mich 109, 115, n 4 ; 469 NW2d 284 (1991). In McCart , this Court explained:

[A] mere promise to offer factual support at trial was categorized as a “pleading” under the pre-1985 court rules, see e.g., Rizzo v Kretschmer, 389 Mich 363, 377 ; 207 NW2d 316 (1973), and, as such, *469 is precisely what is now insufficient under the new requirements of MCR 2.116(G)(4), enacted in 1985.

The observation addressed nothing more than the production of documentary evidence sufficient to survive a motion for summary disposition. But the majority here, without providing supporting authority, intimates that the observation rejected the longstanding rule regarding the standard for reviewing motions for summary disposition under MCR 2.116(C)(10). Michigan appellate courts have interpreted the rule in a consistent fashion for the past thirteen years. The interpretation is that an award of summary disposition is inappropriate unless it is impossible for the nonmoving party to support its claim at trial because of a deficiency that cannot be overcome. Lytle v Malady (On Rehearing), 458 Mich 153, 176 ; 579 NW2d 906 (1998) (Weaver, J.); Paul v Lee, 455 Mich 204, 210 ; 568 NW2d 510 (1997); Horton v Verhelle, 231 Mich App 667, 672 ; 588 NW2d 144 (1998); Berry v J & D Auto Dismantlers, Inc, 195 Mich App 476, 479 ; 491 NW2d 585 (1992); Dzierwa v Michigan Oil Co, 152 Mich App 281, 284 ; 393 NW2d 610 (1986). In fact, in McCart itself, we reiterated the continuing vitality of the previous standard of review by citing with approval the decision in Ewers v Stroh Brewery Co, 178 Mich App 371 ; 443 NW2d 504 (1989). In that case, the Court of Appeals provided, “[bjefore judgment may be granted, the court must be satisfied that it is impossible for the claim asserted to be supported by evidence at trial.” Id. at 374 . Therefore, although courts are now required to review documentary evidence as provided in McCart , MCR 2.116(C)(10), when adopted, did not alter the way this evidence is to be examined. The majority provides no rationale for rejecting our consistent interpretation of a longstanding court rule. Therefore, I dissent from what, regrettably, amounts to an attempt to lower the bar for granting summary disposition.

413 Mich 57 ; 318 NW2d 456 (1982).

In Wickersham, this Court expressly noted that “the Legislature has limited in other ways an insurer’s power to avoid an insurance policy on grounds of material misrepresentation.” Id., 66. Citing MCL 500.4014; MSA 24.14014, this Court explained that an insurance policy “generally ‘shall be incontestable after it shall have been in force during the lifetime of the insured for 2 years.’ ” Id. This limitation strengthens the logical conclusion that reliance is required to avoid a contract because it emphasizes that the “two-year limit permits full investigation by an insurance company of any matters which formed part of the decision to make the contract.” Id., 66-67 (emphasis added).

The majority demonstrates the weakness of its statutory analysis by creating a distinction where none exists, stating:

The statute clearly does not state that the misrepresentation must have induced the insurer to contract. Rather, it simply defines a representation as one that is made “as an inducement to the making” of a contract.

While that distinction obviously eludes the dissent, we believe it to be an important one. Clearly, an applicant may make a misrepresentation “as an inducement to the making” of a contract without the inducement actually causing the insurer to contract. Our construction, contrary to the dissent’s, gives meaning to the Legislature’s use of “either” and “or,” which use, as stated, indicates that the terms “acceptance of the risk” and “hazard assumed” have different meanings. [Ante at 460, n 6.]

According to Black’s Law Dictionary, inducement is “[t]o cause [a] party to choose one course of conduct rather than another.” Black’s Law Dictionary (6th ed), p 775 (emphasis added). To circumvent the meaning of § 2218(2), the majority creates its own distinction by eliminating the causation element of inducement. No authority exists to support this surprising distinction.

The majority concedes that an insurer “necessarily must have relied on a false statement in an insurance application in order for such a statement to have materially affected the insurer’s ‘acceptance of the risk Ante at 459.

Unlike the defendant in Wickersham, the insurer here failed even to allege that it was deceived by Smith’s misrepresentation.

Section 2218 requires an insurer to establish that knowledge of the misrepresented facts would have led it to refuse to contract. Although the majority attributes great weight to the Legislature’s use of the word “either,” it ignores the meaning of the word “affect” by failing to explain how a misrepresentation, which may never have been received by the insurer, affected the hazard assumed.

Similarly, during oral argument, defense counsel declined to represent that defendant received Smith’s application or relied on the misrepresentation in it.