Life insurance contract rescission; MCL 500.2218; “Material misrepresentations” about the insured’s driving history in a policy reinstatement application; Oade v Jackson Nat’l Life Ins Co of MI (MI); Whether the beneficiary was an “innocent third party” entitled to have the court “balance the equities” before rescission; Bazzi v Sentinel Ins Co (MI); Titan Ins Co v Hyten (MI); Whether the policy was void ab initio; “Third-party beneficiary” rights under MCL 600.1405(2)(a)

[This appeal was from the ED-MI.] The court affirmed the district court’s rescission of the insured’s (Ewanda) life-insurance policy contract where she made “material misrepresentations” in her application, rejecting plaintiff-beneficiary’s (Ferguson) claim that, because she was an “innocent third party,” the district court had to “balance the equities” before the policy could be rescinded. After her life insurance policy from defendant lapsed, Ewanda completed a reinstatement application in which she made material misrepresentations about her driving history—she had two prior operating while impaired convictions and her driving license had been revoked, but she indicated otherwise in the application. As a result, after Ewanda died in an auto accident, defendant informed Ferguson that it considered the “policy ‘void from the date of reinstatement’ and would not pay any death benefit.” She sued in state court. The case was removed to federal court. The district court rescinded the policy and granted defendant summary judgment. Ferguson argued that she was an innocent third party under Michigan law, entitling her to “equitable balancing” before rescission. But the court reviewed MCL 500.2218 and held that in Michigan, “when an applicant misrepresents facts when applying for life insurance and the insurer would not have issued the policy had it known the true facts, those misrepresentations are material and the insurer may rescind the policy. The rescission provision in Ewanda’s reinstatement application” tracked the language of the statute. The court found that under Bazzi, no balancing is necessary where material misrepresentations were made when procuring the policy. It concluded that Ferguson was a third-party beneficiary of the policy, and as such, her rights were governed by MCL 600.1405. That statute was fatal to her claim that she was entitled to equitable balancing. Under Michigan law, defendant “was entitled to rescind the policy based on Ewanda’s material misrepresentations, with no equitable balancing required. The fact that Ferguson did not make the material misrepresentations herself is irrelevant—she stands in the shoes of Ewanda, with no greater rights than Ewanda would have had, i.e., no right to equitable balancing before” the policy could be rescinded as a matter of law.