Citizens Insurance allowed to rescind its umbrella policy after car accident

Cyrus Trent was killed in a motor vehicle caused by Hilda Mae Rippy, the mother of Barbara Goldmanl   The Estate of Trent sued Rippy but Citizens refused to honor the liability policy that would otherwise have provided umbrella protection to Rippy and the Goldman family.  Citizens argued that under the Oade v. Jackson National LIfe case, it owed no coverage because the Goldmans had not included Rippy--who lived above their garage--as a member of their "household" in their original application for the umbrella insurance policy.  In the Oade case, the insured's life insurance application had accurately stated that he had never been hospitalized with cardiac concerns when he submitted it, however, he had been seen in the Emergency Room and hospitalized with chest pain prior to the issuance of the policy.  His failure to up-date his application was deemed to be a material misrepresentation.

Citizens argued that regardless of any ambiguity about the Goldman household, the failure to include Rippy in the application constituted a "material" misrepresentation because communication of her presence 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."

The insureds argued for a different standard, asking the Court to rule that if Citizens would merely have increased the premium by a minor amount, but would not have canceled the policy, it should be obligated to honor the policy terms.  The Court of Appeals relied on Oade to reject the insureds' analysis.  The Court held that if the insurer would have charged even a minimal additional premium, the insurer wsa within its rights to cancel the policy and refuse to honor it.

The insureds also argued that the Lake Agency, who assisted the insureds in filling out the application and renewals, should be considered the insurance company's agent, making Citizens' bound by the Lake Agency's  alleged errors.  It pointed to facts that included Citizens Insurance staffing one office of the Lake Agency and answering phones under the Lake Agency name.  Despite the identified questions of fact with regard to the agency relationship or apparent agency relationship between Citizens and Lake, the Court summarily disposed of the insured's agency argument:  it pointed to the fact that Lake also sold coverage for 20 other insurers as grounds for this conclusion.

Careful review of Michigan law on the topic of insurance companies and insurance agencies leaves one with the conclusion that insureds disproportionately lose these arguments--i.e., that the agent is considered to be the agent of the insurer when it comes to giving the insured advice--and therefore the agent is immune from mistakes--while the agent is the agent of the insured when the question is whether the insurer is "bound" by the agent's actions and must provide coverage.