It Doesn’t Pay to Lie to Your Insurer

Post Acquisition Fraud Can Support Rescission in Michigan

Meemic Insurance Company appealed a trial court’s order granting summary disposition in favor of all defendants to its suit for declaratory  judgment that it had no duty to defend or indemnify under a no-fault policy issued to its insured, defendant Patricia Musser, in connection with an automobile accident.

In Meemic Insurance Company v. Estate Of Brendon Pearce, et al , No. 352724, Court of Appeals of Michigan (November 23, 2021) the Court of Appeals resolved the issue and returned the case to the trial court.


This appeal involves Meemic’s obligation to provide insurance coverage in connection with a motor-vehicle accident. Melissa Sue Musser was driving southbound in a 2002 Oldsmobile Silhouette registered to her mother, Patricia Musser, when the vehicle encountered a large water puddle. Melissa lost control of the vehicle, left the road, turned over, and struck a tree. Ryan Harston, Joseph Grinage, John Musser, Andrew Musser, and Brendon Pearce were all passengers in the vehicle. Melissa and Brendon sustained fatal injuries, and the others sustained nonfatal injuries. Brendon’s mother, Lynn Pearce, sought damages for Brendon’s death, and other occupants sought recovery of personal protection insurance benefits from Meemic under its no-fault policy issued to Patricia.

Meemic averred its insurance policy was void because of Patricia’s alleged fraud in procuring the policy and her alleged failure to inform Meemic about changes to the members of Patricia’s household.


In its complaint, Meemic alleged that it was entitled to rescind and void the policy because Patricia failed to inform it that:

  1. Melissa was a household member at the time of the execution of the policy;
  2. Melissa was a household member “during all or a portion of the effective dates of the policy”; and
  3. Melissa was operating a covered vehicle “during all or a portion of the effective dates of the policy.”
  4. Patricia failed to inform Meemic about “all persons living at the Residence” at the time of the initial application or when renewing the policy.

Although the house was broken into two residences, at the time of the accident, Patricia and Melissa lived together.

At the time of the accident, Patricia owned a Ford Focus and a Silhouette. Patricia purchased the Silhouette in 2014 to transport her family members to school activities. Patricia testified that Melissa did not drive the Focus because it had a manual transmission, which Melissa did not know how to operate.  According to a Meemic representative, if Meemic had known about Melissa’s alcohol-related conviction, it would not have continued to insure Patricia’s vehicles.


Meemic argues that the trial court erred by determining that it was not entitled to rescind its policy on the basis of fraud and granting summary disposition to defendants.

The current state of insurance-fraud litigation in Michigan separates fraud into two broad categories based on when it occurred:

fraud that occurred before the parties entered into an insurance contract (preprocurement fraud); and

  • fraud that occurred after the parties entered into an insurance contract (postprocurement fraud). Postprocurement fraud has further been divided into two types:
    1. fraud that occurred before litigation began; and
    2. fraud that occurred after litigation began.

The crucial distinction between the two types of postprocurement fraud is when the fraud occurred, not when it was discovered. Consequently, evidence of fraud obtained during the course of litigation can be used to void an insurance contract as long as it relates to fraud that occurred before litigation began.

In Meemic Ins Co v Fortson, 506 Mich. 287, 293; 954 N.W.2d 115 (2020), the Michigan Supreme Court concluded that antifraud provisions in insurance contracts “are valid when based on a defense to mandatory coverage provided in the no-fault act itself or on a common-law defense that has not been abrogated by the act.”

Rescission is available as a remedy for preprocurement fraud for even a regular, nonsubstantial-breach of contract. This distinction is important because not every breach of contract amounts to a substantial one. If fraud occurred before the parties entered into the insurance contract, then rescission is available as a remedy under the normal breach-of-contract standard.


Although Meemic, at least initially, appears to have relied on preprocurement fraud as justification for its claim, on appeal it makes only passing reference to the initial application and it relies solely on evidence of where Melissa was living at the time of the accident. Meemic, in a reply brief assereds, “While the Policy was not necessarily ‘obtained’ by fraud . . ., Meemic’s ‘antifraud provision’ and common law defenses apply nonetheless to Patricia’s ‘failure to perform a substantial part of the contract or one of its essential terms[.]'” In so doing the court concluded that Meemic abandoned any claim of preprocurement fraud.


To be entitled to rescission on the basis of postprocurement fraud, Meemic must demonstrate that Patricia substantially breached the insurance contract. The insurance contract required Patricia, in relevant part, to inform Meemic of any changes to her household as well as any changes to the drivers of her vehicles. The contract clearly stated that Patricia’s failure to do so would allow Meemic to “declare this policy null and void.”

Patricia opined that Melissa used the Silhouette three or four times per week and that she used the vehicle about as much as Patricia did. Importantly, Patricia was aware that Melissa had an alcohol-related driving offense, but she failed to disclose this to Meemic.

Patricia, therefore, gave Meemic some information about Melissa driving the Silhouette. The information Patricia provided to Meemic, however, did not cause Meemic to add Melissa as a “regular” driver of the Silhouette under Patricia’s insurance policy. And Patricia failed to inform Meemic about Melissa’s alcohol-related driving offense. Thus, Patricia gave Meemic some information about Melissa using the Silhouette, but not all of her available information.

Rescission is available as a remedy only if Patricia substantially breached the insurance contract. A substantial breach occurs when a party does not receive the benefit of the bargain. Indeed, Meemic has a policy not to insure vehicles driven by individuals with alcohol-related driving offenses. As such, if Patricia had sought to add Melissa to her policy as a driver of the Silhouette, then Meemic would have refused to insure the vehicle.

The record, however, did not provide the Court of Appeal with adequate information to decide this issue. Patricia testified that she contacted Meemic to see if Melissa would be covered while driving the Silhouette. When she did so, Patricia did not ask for Mellissa to be added to her insurance policy, and she did not notify Meemic about Melissa’s alcohol-related driving offense. That said, Patricia did tell Meemic that Melissa would frequently drive the Silhouette. Whether this level of disclosure was sufficient to notify Meemic that Melissa would be a “regular driver” of the Silhouette is a question of fact for the jury to decide.

Who drives a vehicle on a regular basis is an integral part of a car-insurance policy.  Thus, if Patricia failed to disclose sufficient information, then it amounted to a substantial breach of contract because Meemic no longer knew the actual terms of the contract it had entered into. Such a substantial breach would permit Meemic to rescind the contract.

The trial court’s order granting summary disposition to defendants was reversed and remanded for further proceedings consistent with this opinion.


Insurance companies are entitled to rely on the good faith of those they insure to advise the insurer of the risks they are being asked to take. When an insured lies on an application about facts material to the risk the insurer is taking will be sufficient grounds to rescind the policy. Similarly, if after the policy is in effect but before the event that resulted in a claim, the insured misrepresents or conceals a material fact rescission is appropriate in Michigan. From the evidence discussed by the appellate court Patricia lied about who lived in her residence, what vehicles existed in the residence and who drove the vehicles both before and after the inception of the policy. It is now up to the jury to determine if Meemic can prove the allegations even though the Patricia admitted the concealment and Meemic was able to show it would not have insured her if it knew the truth.

© 2022 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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