                          STATE OF MICHIGAN

                           COURT OF APPEALS



AUTO-OWNERS INSURANCE COMPANY,                                     UNPUBLISHED
                                                                   September 8, 2015
              Plaintiff/Counter-Defendant-
              Appellee,

v                                                                  No. 321059
                                                                   Montcalm Circuit Court
YAHIA MOTAN and MOTAN YAHIA, INC.,                                 LC No. 2013-017405-CK
d/b/a M&S QUICK STOP,

              Defendants/Counter-
              Plaintiffs/Third-Party Plaintiffs-
              Appellants,

and

JAMES M. ANDERSON and J.M. ANDERSON
AGENCY, L.L.C.,

              Third-Party Defendants-Appellees.


Before: TALBOT, C.J., and K. F. KELLY and SERVITTO, JJ.

PER CURIAM.

        In this declaratory judgment action, defendants/counter-plaintiffs/third-party plaintiffs
Yahia Motan and Motan Yahia, Inc. d/b/a M&S Quick Stop (collectively “Motan”), appeal as of
right the trial court’s order granting summary disposition in favor of both plaintiff/counter-
defendant Auto-Owners Insurance Company (“Auto-Owners’) as well as third-party defendants
James M. Anderson and J.M. Anderson Agency, LLC (collectively “Anderson”) pursuant to
MCR 2.116(C)(10). We affirm, but remand this case with instructions to the trial court to order
Auto-Owners to return all premiums paid to Auto-Owners by Motan.

        The instant litigation concerns a commercial insurance policy entered into between M&S
Quick Stop (the insured) and Auto-Owners (the insurer). In late June 2012, Najieb Jabbar, an
agent of Motan and M&S Quick Stop, contacted James Anderson, an independent insurance
agent, indicating that he wanted to purchase insurance for M&S Quick Stop. Subsequently, on
July 10, 2012, James Anderson and Jabbar met in person, and James Anderson filled out an
application for insurance using information given to him by Jabbar. There is no dispute that,

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after James Anderson completed the application, Jabbar signed it without reviewing it for
accuracy. There is also no dispute that the application contained numerous misrepresentations.
For instance, where the applicant is asked if any previous policy coverage had been declined,
cancelled, or non-renewed in the previous 3 years, Anderson checked the “no” box. In reality,
however, M&S Quick stop had two separate insurance policies cancelled or non-renewed within
that time frame, including one from Westfield Insurance Company that was non-renewed in July
2011, and a previous Auto-Owners policy that was cancelled in June 2012 for non-payment of
premiums. Next, in several different places on the application, Anderson indicated that M&S
Quick Stop had no prior losses or claims. In reality, however, M&S Quick Stop had several
previous claims, including one in April 2011 after a vehicle crashed into the store. Finally,
where the applicant is asked if it had any previous violations, suspensions, or revocations of its
liquor license in the previous five years, Anderson indicated “no.” In reality, however, between
May 2008 and May 2012, M&S Quick Stop was cited for numerous liquor license violations by
the Michigan Department of Licensing and Regulatory Affairs for non-sufficient funds checks.

       Based on the representations in the application, Auto-Owners issued an insurance policy
to M&S Quick Stop on July 10, 2012. Subsequently, however, it sent M&S Quick Stop a notice
of cancellation, indicating that the policy would cease to exist at 12:01 a.m. on October 6, 2012.
The cancellation was based on the fact that Auto-Owners had learned of the previously cancelled
Auto-Owners policy.

        On September 16, 2012—after the notice of cancellation was sent but before it became
effective—M&S Quick Stop was destroyed by a fire. Motan subsequently submitted a claim, but
Auto-Owners denied coverage and initiated this action seeking a declaratory judgment that the
insurance policy was void by virtue of several additional misrepresentations in the application.
Motan responded with a counter-complaint alleging breach of contract. It further initiated a
third-party complaint against Anderson alleging that he negligently filled out the application.

        The trial court granted summary disposition to Auto-Owners pursuant to MCR
2.116(C)(10), finding that Motan had made material misrepresentations in the application for
insurance which affected Auto-Owners’ acceptance of the risk, such that Auto-Owners could
properly rescind or void the insurance policy. The trial court further granted summary
disposition in favor of Anderson pursuant to MCR 2.116(C)(10), finding that the
misrepresentations in the application were attributable to Motan rather than Anderson. This
appeal followed.

       We review de novo a trial court’s decision on a motion for summary disposition. BC Tile
& Marble Co, Inc v Multi Bldg Co, Inc, 288 Mich App 576, 583; 794 NW2d 76 (2010). A
motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint. Maiden v
Rozwood, 461 Mich 109, 120; 597 NW2d 817 (1999). In deciding a motion under MCR
2.116(C)(10), the trial court considers affidavits, pleadings, depositions, admissions, and other
evidence submitted by the parties in the light most favorable to the nonmoving party. Id.
“Where the proffered evidence fails to establish a genuine issue regarding any material fact, the
moving party is entitled to judgment as a matter of law.” Id.

       With respect to whether summary disposition was appropriate in favor of Auto-Owners,
it is well-settled that an insurer may rescind an insurance policy because of a material

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misrepresentation in the application for insurance. Titan Ins Co v Hyten, 491 Mich 547, 558;
817 NW2d 562 (2012); Burton v Wolverine Mut Ins Co, 213 Mich App 514, 517; 540 NW2d 480
(1995). Here, the policy provided that the coverage would be “void in any case of fraud by you
as it relates to this Coverage Part at any time. It is also void if you or any other insured, at any
time, intentionally conceal or misrepresent a material fact concerning . . . the Covered
Property[.]”

        Motan does not dispute that the application for insurance contained numerous
misrepresentations. It argues, however, that Auto-Owners waived its right to rescind or void the
insurance policy once it chose, in August 2012, to cancel the policy at a specific future date and
thereafter required Motan to pay premiums for coverage up to the effective date of cancellation.
We disagree.

        We do not dispute the general proposition that an insurer may waive its right to rescission
by first seeking cancellation of an insurance policy on the same grounds. See Burton, 213 Mich
App at 517-518. However, “a litigant cannot be held estopped to assert a defense, or to have
waived his right thereto, because of facts he does not know[.]” Titan, 491 Mich at 562, quoting
Keys v Pace, 358 Mich 74, 84; 99 NW2d 547 (1959). Here, Auto-Owners based its cancellation
on the fact that Motan had failed to disclose that its previous Auto-Owners policy was cancelled
for non-payment.            Subsequently, however, Auto-Owners discovered additional
misrepresentations, including the failure to disclose the previous non-renewal of the Westfield
policy and the misrepresentations regarding previous claims and liquor license violations, which
prompted it to seek rescission. In other words, the misrepresentation that formed the basis for
Auto-Owners’ decision to cancel the policy was different from the misrepresentations that
formed the basis for its subsequent decision to void the policy. Cf. Burton, 213 Mich App at
517, wherein the insurer discovered material misrepresentation in the application and chose to
issue a notice of cancellation based on the misrepresentations rather than rescind the contract,
then thereafter attempted to rescind the contract based upon the same material
misrepresentations. Because there is no evidence that Auto-Owners was aware of these
additional misrepresentations at the time it cancelled the policy (nor did not base its cancellation
on the material misrepresentations), it did not waive its right to later rescind or void the policy on
those grounds. Titan, 491 Mich at 562.

       Motan additionally argues that Auto-Owners was not entitled to rescind or void the
policy because there are genuine issues of material fact as to whether the misrepresentations
were material or intentional. We disagree.

       First, as to materiality, “a fact or representation in an application is ‘material’ where
communication of it would have had the effect of ‘substantially increasing the chances of loss
insured against so as to bring about a rejection of the risk or the charging of an increased
premium.’ ” Oade v Jackson Nat’l Life Ins Co of Mich, 465 Mich 244, 253-254; 632 NW2d 126
(2001), quoting Keys, 358 Mich at 82. In this case, Auto-Owners provided an affidavit of one of
its underwriters, who averred that the misrepresentations were material and that Auto-Owners
would not have issued the insurance policy had it been aware of the various misrepresentations.
This has been held sufficient to establish materiality. Montgomery v Fidelity & Guaranty Life
Ins Co, 269 Mich App 126, 129; 713 NW2d 801 (2005); Lash v Allstate Ins Co, 210 Mich App
98, 103; 532 NW2d 869 (1995). Second, if the insurer relies on the misrepresentation, rescission

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is justified regardless of whether the misrepresentation was innocent or intentional. Lash, 210
Mich App at 103. “Reliance may exist when the misrepresentation relates to the insurer’s
guidelines for determining eligibility for coverage.” Lake States Ins Co v Wilson, 231 Mich App
327, 331; 586 NW2d 113 (1998), citing Lash, 210 Mich App at 101. Here, it is clear, based on
the affidavit of Auto-Owners’ underwriter, that Auto-Owners relied upon the misrepresentations
in the application to determine that Motan was eligible for insurance coverage and to determine
the premiums to be paid. Given its reliance, Auto-Owners was entitled to rescind the insurance
policy “even accepting that [the misrepresentations were] innocent.” Lash, 210 Mich App at
104.1 Summary disposition was thus properly granted in favor of Auto-Owners.

         Having reached the above conclusion, we nonetheless remand this case with instructions
to the trial court to order Auto-Owners to return all premiums paid to Auto-Owners by Motan.
Rescission, by its very nature, requires restitution because it is based on the idea that the parties
should be returned to the status quo. Lash, 210 Mich App at 102; Cunningham v Citizens Ins Co
of America, 133 Mich App 471, 479; 350 NW2d 283 (1984). Thus, when an insurer seeks to
rescind a contract, it must generally return all premiums paid by the insured. See Burton, 213
Mich App at 520. We find that the same applies with respect to Auto-Owners voiding the policy
in this case.

        We recognize that Auto-Owners claims that it voided the policy under the explicit
voiding clause contained therein, rather than rescind the policy, and thus was not required to
return the premiums. Auto-Owners cites to Cohen v Auto Club Ins Ass'n, 463 Mich 525; 620
NW2d 840 (2001) in support of this position. However, Cohen did not hold that when an insurer
voids a policy under explicit policy language it need not return premiums. Cohen did not even
address, for that matter, a misrepresentation on an initial application for insurance. Nor did any
of the other cases cited by Auto-Owners. See Bahri v IDS Prop Cas Ins Co, 308 Mich App 420;
864 NW2d 609 (2014)(fraud in procuring PIP benefits after an accident voids coverage); TBCI,
PC v State Farm Mut Auto Ins Co, 289 Mich App 39; 795 NW2d 229 (2010)(same). While these
policy-voiding cases did not mention a return of premiums, it does not necessarily follow that the
cases stand for the proposition that a return of premiums is never required when a policy is
voided. Auto-Owners has provided no authority holding that where an applicant makes a
material misrepresentation in the application for insurance, suffers a loss and seeks to enforce the
policy, and the insurer thereafter discovers the misrepresentations and seeks to void the policy
the premiums should be treated any differently than if the insurer had rescinded the policy.

        We are more persuaded by the language in Burton, 213 Mich App at 520, wherein a panel
of this Court stated that an insurer cannot earn a premium without having to provide coverage.
“Rather, it must either rescind the policy upon discovery of the misrepresentation and refund the
premium or cancel the policy, retaining the premium earned until the effective date of the



1
 Moreover, the policy also provides that “[t]his Coverage Part is void in any case of fraud by
you as it relates to this Coverage Part at any time.” There are several theories to establish fraud,
one of which is innocent misrepresentation. See, e.g., M&D Inc v W. B. McConkey, 231 Mich
App 22, 26; 585 NW2d 33 (1998).


                                                -4-
cancellation and provide coverage until the effective date of the cancellation. But it cannot have
its premium and deny coverage too.” Thus, the trial court erred in allowing Auto-Owners to void
the policy (after it had already issued a notice of cancellation) without ordering Auto-Owners to
return the premiums.

        With respect to whether summary disposition was appropriate in favor of Anderson, we
find instructive our opinion in Montgomery, 269 Mich App at 126. In that case, the plaintiff and
her husband applied for a life insurance policy with the defendant insurance company.
Montgomery, 269 Mich App at 127. Although the husband had a significant smoking habit, the
application for insurance represented that he had not used tobacco within the previous five years.
Id. After the defendant issued the policy, the husband was killed in a car accident. Id. The
plaintiff then filed a claim for life insurance benefits, but the defendant denied the claim on the
basis of the misrepresentation. Id. at 128. On appeal from the trial court’s grant of summary
disposition to the defendant, the plaintiff argued that it was the insurance agent, rather than she
or her husband, who completed the application, and that neither she nor her husband read the
application before signing it. Id. at 129. We found that it was “not material” who
misrepresented the husband’s tobacco use on the application because the plaintiff and her
husband each signed the application, thereby attesting that they had read the questions and
answers and that the information provided was complete, true, and accurate. Id. at 130. We
reiterated the long-standing principle that “[a] contracting party has a duty to examine a contract
and know what the party has signed, and the other contracting party cannot be made to suffer for
neglect of that duty.” Id. (citations omitted). Thus, because the plaintiff and her husband signed
the application after having an opportunity to review it, “there was no genuine issue of material
fact” that the material misrepresentation was attributable to the plaintiff and/or her husband. Id.

         The same holds true in this case. Obviously, the parties dispute whether the
misrepresentations in the application resulted from Jabbar providing misinformation to James
Anderson or from Anderson mischaracterizing the correct information given to him by Jabbar.
There is no dispute, however, that after Anderson filled out the application, Jabbar signed it. By
doing so, he ratified that all of the information in the application was complete and accurate. Id.
It is of no import that Jabbar failed to review the application for accuracy before signing it; his
signature is valid just the same. Id. Thus, regardless of whether the insurance application was
actually completed by Anderson, and regardless of whether Anderson may have mis-
characterized some of the information provided to him by Jabbar, the misrepresentations were
attributable to Jabbar, not Anderson. Accordingly, summary disposition was properly granted in
Anderson’s favor.

        We affirm the trial court’s order granting summary disposition in favor of Auto-Owners
and Anderson, but remand this case with instructions to the trial court to order Auto-Owners to
return all premiums paid to Auto-Owners by Motan. We do not retain jurisdiction.



                                                            /s/ Michael J. Talbot
                                                            /s/ Kirsten Frank Kelly
                                                            /s/ Deborah A. Servitto


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