Court affirms reformation of military member’s auto insurance policy

The Michigan Court of Appeals has affirmed a trial court’s decision to reform an automobile insurance policy because there were no genuine issues of material fact regarding the insurer’s knowledge that the insured, an active-duty U.S. Marine stationed in North Carolina, was a Michigan resident at the time it issued its policy.

In Hahn v. Geico Indem. Co. (MiLW 07-107694, 8 pages), Judge Mark T. Boonstra said the trial court made no error when it ruled that reformation of the policy under MCL 500.3012 to include mandatory coverage for personal protection insurance, or PIP, benefits was appropriate.

“[T]here is no genuine issue of material fact that Geico knew, or should have known, that Waller was a Michigan resident when it issued the policy,” Boonstra explained. “Contrary to Geico’s argument, it was not necessary for plaintiff to additionally demonstrate that Geico issued the policy as one purporting to be compliant with Michigan law.”

Judges Michael F. Gadola and Stephen L. Borrello joined Boonstra’s opinion.

Military spouse

In July 2015, Zachary Waller and Kaitlin Hahn were driving in Monroe County around 4 a.m. Zachary, who is Kaitlin’s husband, fell asleep at the wheel and lost control of his GMC pickup truck. Kaitin sustained serious injuries and was rendered a quadriplegic.

Waller’s truck was insured under an auto policy issued by Geico in North Carolina. Hahn and Waller were from Michigan but, as an active-duty U.S. Marine, Waller had been stationed at Camp Lejeune in North Carolina since 2013. Hahn traveled to North Carolina in April 2015 and married Waller there in May.

Geico informed Hahn in February 2016 that its liability for benefits was limited to $500,000 under MCL 500.3163.

Hahn filed suit against Geico; she sought a declaration of her rights and entitlement to Michigan no-fault benefits. Geico filed a motion for summary disposition.

The Oakland County Circuit Court said MCL 500.3163 did not apply. Since Waller was in the military, he still was domiciled in Michigan and Hahn, as his spouse, also was domiciled in Michigan.

While the trial court said Geico’s liability for no-fault benefits should be determined under MCL 500.3012, it found there were genuine issues of material fact regarding the application of this statute.

Interlocutory appeal

Geico’s interlocutory application for leave to appeal was granted by the appeals court.

In 2018, the Court of Appeals, relying on Farm Bureau Ins Co v. Allstate Ins Co, affirmed the lower court’s decision.

The Farm Bureau court said its ruling “indicates that if an insurer knows, or has reason to know, that the individual seeking insurance is a Michigan resident, but the insurer nonetheless issues a policy that does not provide Michigan no-fault coverage, MCL 500.3012 may be invoked to reform the policy to one providing Michigan no-fault coverage.”

Summary disposition for Hahn on this issue was premature, however, because only limited discovery had been done and had not been completed as to the possible applicability of MCL 500.3012.

The Michigan Supreme Court denied leave to appeal in a 2020 order. In a partial dissent, then-Justice Stephen J. Markman he said he would grant leave to appeal on “the narrower and preserved question of whether the insurance policy issued by Geico purported to be a Michigan insurance policy.”

The justice said it was “regrettable” that the high court passed up the opportunity to provide lower courts with some clarification and guidance.

“Thus, in my opinion, when the trial court embarks upon determining whether a policy ‘purports’ to be a Michigan policy, it must, in addition to assessing the insured’s residency, further consider: (1) the representations and interactions between the insured and the insurer when forming the policy, (2) the language of the policy, and (3) any other circumstance that reasonably bears upon the intentions of the insured and the insurer in purchasing and delivering the policy,” he wrote. “Such an analysis would provide a more complete and accurate framework than does Farm Bureau and its progeny for determining whether the parties intended to form a Michigan insurance policy subject to reformation under MCL 500.3012.”

Back at the trial court

Additional discovery was completed when the case returned to Oakland County. Geico again moved for summary disposition, arguing that reformation wasn’t available under MCL 500.3012 because it issued the policy as a North Carolina policy. That motion was denied.

Hahn moved for summary disposition under MCR 2.226(C)(10) on the issue of liability, which the trial court granted.

The parties then stipulated that Hahn’s damages were $1.2 million. The trial court entered a final judgment for Hahn, preserving Geico’s right to appeal the court’s prior decisions denying the insurer’s motion.

Geico appealed.

Reformation

While Geico did not dispute that it knew or should have known that Waller was a Michigan resident when it issued its policy, it claimed the trial court erred in determining that this knowledge alone was enough to justify reformation of the policy under MCL 500.3012.

“Geico maintains that reformation requires plaintiff to establish both that it knew or should have known that Waller was a Michigan resident when it issued the policy and that it issued the policy as one purporting to be a Michigan policy in compliance with Michigan law,” Boonstra noted. “It argues that the evidence failed to show that it purported to issue a Michigan policy, or that there are at least genuine issues of material fact with regard to that issue, thereby precluding summary disposition for plaintiff.”

The judge said the trial court made no error rejecting these arguments.

Geico’s additional arguments fared no better.

“[W]e do not agree with Geico that this Court in Farm Bureau Ins Co intended to adopt a two-part test under which, to obtain reformation under MCL 500.3012, it is necessary to prove that (1) the insurer knew, or had reason to know, that the insured was a Michigan resident, and (2) that the insurer issued a policy that purported to be a Michigan policy,” Boonstra wrote.

The Farm Bureau Ins Co court concluded that the policy “was not issued ‘in violation of’ the no-fault act because Allstate neither purported to issue a policy that complied with Michigan’s no-fault act nor knew that it was dealing with a Michigan resident.” (Emphasis added).

“The disjunctive indicates that reformation under MCL 500.3012 can occur if either (1) the insurer knew or should have known that it was dealing with a Michigan resident but nonetheless issued an out-of-state policy, or (2) the insurer issued a policy that purported to be compliant with Michigan law but in fact contained terms inconsistent with Michigan law,” Boonstra explained.

Here, the trial court correctly found there were no genuine issues of material fact as to Geico’s knowledge that Waller was a Michigan resident when it issued its policy.

“The evidence established that Geico was aware when it issued the policy that Waller had a valid Michigan driver’s license, and Waller listed a Michigan address on the face of the policy,” Boonstra said. “Geico was also aware that Waller was present in North Carolina because he was stationed in the military.”

In fact, the policy’s declarations page noted that Waller’s vehicles would be kept at a military base in North Carolina.

“Geico has not identified any additional evidence produced on remand that establishes a genuine issue of material fact regarding whether Geico was unaware of Waller’s Michigan residency when it issued its policy,” the judge wrote. “Geico also does not dispute that plaintiff, as Waller’s spouse, qualifies as an insured under Waller’s policy.”

Boonstra affirmed the trial court’s orders granting summary disposition in Hahn’s favor on the issue of Geico’s liability for PIP benefits and denying the insurer’s motion for summary disposition.