Attempted Recission of a No-Fault Insurance Policy Via Electronic Refund of Premiums was Invalid

Plaintiffs were involved in an automobile accident and were insured by Defendant Insurer at the time of the accident. Prior to trial, Defendant Insurer discovered a discrepancy between the Plaintiff insured’s address on the insurance application and the accident police report. Subsequently, Defendant Insurer sent Plaintiff Insured a letter of recission and refunded Plaintiff Insured’s premium through an electronic funds transfer (EFT). However, Plaintiff stated she did not use the refund; rather, she “set it aside.” Plaintiff Insured and Plaintiff Passenger then filed a No-Fault lawsuit alleging that Defendant Insurer owed PIP benefits. Defendant Insurer moved for summary disposition, arguing that Plaintiffs were not entitled to PIP benefits because the insurance policy was rescinded ab initio and Plaintiff Insured had consented to the recission. 

The central issue was whether a genuine issue of material fact existed regarding whether Plaintiff Insured had consented to the recission of the insurance policy. While it is well settled that an insurer is entitled to rescind a policy ab initio based on a material misrepresentation made in an insurance application, to constitute a mutual recission there must be a mutual release of further obligations under the contract and a restoration of the status quo. Defendant Insurer argued that Plaintiff Insureds’ acceptance of the ETF return of the premiums created the necessary mutual assent to rescind the contract.

The Defendant Insurer cited several cases where mutual recission occurred, but the Appellate Court noted that in each referenced case the refund was made in the form of a check which the insured in those cases had cashed. The Appellate Court noted that “Because the trial court had no evidence that Smith used or ‘cashed’ the money refunded to her, viewing the evidence in a light most favorable to [Plaintiff Insured], reasonable minds could differ regarding whether [Plaintiff Insured] consented to the rescission of the insurance policy.” The Trial Court’s denial of Defendant Insurer’s Motion for Summary Disposition was affirmed.

The case is Latrice Smith and Zachery Carr as Plaintiffs-Appellees, et. al. vs. Auto Club Group, et. al. Defendant-Appellant. The unpublished court opinion was dated April 29, 2021, No. 352662, Wayne Circuit Court, LC No. 16-017708-NF. Click on the link to read the appellate court opinion.