Supreme Court of Michigan leaves broader opening for insurance companies to void policies to detriment of innocent third parties

The Michigan Supreme Court this month entered a summary order vacating a prior judgment of the Court of Appeals and telling the lower court to re-examine an insurance dispute.  In State Farm Mutual v. MMRMA, et al., the high court demanded that the lower court hold the insurance dispute in abeyance until another panel of the court has decided an issue relating to an insurer's right to void a policy it argues that it would never have issued if it had known the truth about its insured.

For many decades, Michigan law held that an insurer couldn't simply "void" a policy after its insured created a debt to an innocent third-party.  The theory had been that, as between two innocent victims, the insurer--with time and opportunity to investigate its insureds--was in a better position to bear a loss than the typical accident victim.  The insurance-friendly Michigan Supreme Court majority, headed by Chief Justice Robert Young (formerly legal counsel for AAA), has recently rejected this public policy and opened the door for insurers to identify background questions which the insurer claims, after the fact, would have prevented it from writing a policy that is now payable to an innocent personal injury victim.

The recent State Farm case arose out of injuries suffered by Martin Bongers when he was struck by a State Police officer chasing an unlicensed man driving a car registered to his girlfriend.