Michigan Supreme Court Upholds Progressive's Auto Insurance Rescission
The Michigan Supreme Court has upheld Progressive's decision to rescind an auto insurance policy, citing material misrepresentations made by the policyholder. This pivotal case involved Janice Sherman, who filed a claim for personal injury protection (PIP) benefits from Progressive after an auto accident in July 2021. Upon review, Progressive found significant inaccuracies regarding the garaging location of Sherman's vehicle and her household composition, impacting the determination of insurance premiums. These discrepancies would have led to an 83% premium increase if disclosed accurately.
Due to these misrepresentations, Progressive denied the claim, rescinded the policy, and refunded approximately $1,500 in premiums paid by Sherman. In response, Sherman sued, arguing that Progressive improperly denied her PIP benefits and breached their contract. She sought a court mandate for policy modification to reflect the increased premium rather than rescission.
The trial court initially sided with Sherman, ordering policy reformation and requiring her to return the refunded premium and pay an additional $1,126, reflecting a 75% premium increase. However, Progressive appealed successfully, and the Michigan Court of Appeals found that Sherman's inaccuracies justified the insurer's decision to rescind the policy and deny coverage.
Sherman appealed to the Michigan Supreme Court, which ultimately upheld the appellate ruling. The Supreme Court clarified that while insurers must pay PIP benefits under Michigan's no-fault insurance laws, they are entitled to accurate information during the application process. The Court stressed that the misrepresentations significantly altered the terms of the insurance contract, validating the rescission. Justice Brian K. Zahra highlighted that Progressive acted correctly based on the false information, with no misconduct attributed to the insurer.
This ruling fortifies the stance of Michigan auto insurers regarding application fraud, underscoring the crucial nature of accurate disclosures and potentially restricting policyholder options for contract reformation following misstatements. The decision highlights the essential role of truthful information in underwriting decisions, and it serves as a reminder that inaccuracies in disclosures about vehicle garaging or household composition can heavily impact both insurance premiums and claims outcomes.