Material misrepresentation; Innocent third party; Rescission; Balancing the equities; Request for dismissal

The court affirmed the trial court’s denial of defendant-insurer’s (Auto Club) motion for summary disposition on grounds that (1) it was premature and (2) “even if Auto Club was entitled to rescind its policy with [insured-David Sr.], there is a question of fact whether [plaintiff-David Jr.] is an innocent third party.” But it reversed the trial court’s dismissal of defendant-Citizens because there remained “a question of fact whether David Jr. is an innocent third party.” With the errors corrected, the court remanded the case back to the trial court for further proceedings. “David Jr. was injured in a vehicle collision and tried to claim benefits under a policy issued by Auto Club to” David Sr. Auto Club first contested “the trial court’s conclusion that Auto Club’s evidence was insufficient to establish that David Sr. made a material misrepresentation in his application for insurance.” Concluding that there was “no question of fact that David Sr. made a material misrepresentation in his application for insurance at this stage—before the close of discovery—would be premature, and the trial court properly denied Auto Club’s motion for summary disposition, albeit not on the correct grounds.” The court held that even “if Auto Club established that it was entitled to rescind the policy it issued to David Sr., that still leaves the question whether equity favored extending that rescission to David Jr. as an innocent third party. The trial court addressed whether the equities favored rescinding Auto Club’s policy with respect to David Jr. in the context of competing motions for summary disposition.” The court noted that to “the extent that the trial court weighed the equities as part of addressing Auto Club’s motion for summary disposition, Auto Club was the moving party, and the trial court had to consider the evidence in the light most favorable to the nonmoving parties.” But it also noted that “to the extent that the trial court weighed the equities as part of addressing Citizens’ request to be dismissed, Citizens was the moving party, and the trial court had to consider the evidence in the light most favorable to Auto Club as the nonmoving party.” Reviewing the trial court’s ruling, the court concluded “that the trial court properly viewed the evidence in the light most favorable to the nonmoving parties to conclude that Auto Club was not entitled to summary disposition. But that was the only analysis the trial court conducted—the court did not conduct a separate analysis to consider Citizens’ request to be dismissed. It follows that, when the trial court granted Citizens’ request for dismissal, it never viewed the evidence in the light most favorable to Auto Club as a nonmoving party.” The court next addressed “the trial court’s analysis of whether, assuming Auto Club established that it was entitled to rescind its policy with David Sr., the equities favored extending that rescission to David Jr.” It found that “to the extent that the trial court weighed the equities as part of considering Auto Club’s motion for summary disposition, the trial court did not err by concluding that the first, second, and third factors weighed against rescission, but it did err by concluding that the fourth favor weighed against rescission. Despite this error, the trial court’s conclusion that rescission was not warranted when the evidence was viewed in the light most favorable to the nonmoving parties was within the range of reasonable and principled outcomes, so we affirm that conclusion.”