Doa Doa Inc v. Primeone Insurance Company

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.

STATE OF MICHIGAN

COURT OF APPEALS

DOA DOA, INC., and GARDEN CITY REAL UNPUBLISHED
ESTATE, LLC, October 31, 2019

Plaintiffs-Appellees,

v No. 339215
Wayne Circuit Court
PRIMEONE INSURANCE COMPANY, LC No. 16-003251-CB

Defendant-Appellant.

Before: CAVANAGH, P.J., and BECKERING and GADOLA, JJ.

PER CURIAM.

This insurance dispute arises out of a fire that destroyed a bar. Bar 153 owner, Doa Doa,
Inc (DDI), and property owner, Garden City Real Estate, LLC (GCRE), filed this lawsuit after
defendant PrimeOne Insurance Company rescinded DDI’s insurance policy and declined to
cover the incident. At the core of this case is DDI’s representation in its insurance application
that police were only called to the bar once in the year preceding submission of its insurance
application; defendant’s subsequent investigation revealed there were actually numerous police
calls to Bar 153 in the prior year. Following discovery, the parties filed cross motions for
summary disposition, which the trial court denied, reasoning that there was a genuine issue of
material fact as to whether DDI’s answer to the police call question on the insurance application
constituted a material misrepresentation. Defendant sought leave to appeal and this Court
peremptorily reversed the trial court, concluding that defendant was entitled to rescind the policy
ab initio and that neither plaintiff may recover.1 Plaintiffs sought relief in the Supreme Court. In
lieu of granting leave to appeal, the Supreme Court vacated the portion of our November 22,

1
Doa Doa, Inc v PrimeOne Ins Co, unpublished order of the Court of Appeals, entered
November 22, 2017 (Docket No. 339215).

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2017 order reversing the trial court’s order, and it remanded the case to this Court for
consideration as on leave granted.2 We now reverse in part and remand for further proceedings.

I. RELEVANT FACTS AND PROCEDURAL HISTORY

On October 23, 2015, Bar 153 was destroyed by fire, the cause of which was
“undetermined.” Bar 153 was a bar and restaurant business located in Garden City, Michigan.
Jeffrey Jonna owned and operated the bar through his company, DDI, while his brother David
Jonna, through his company, GCRE, owned the building and premises where the bar was
located.

At the time of the fire, defendant insured DDI under a policy with coverage provisions
for general liability and property damage. DDI had applied for coverage on January 24, 2015,
and defendant issued the policy on February 6, 2015, eight months before the fire. The insurance
policy identified DDI, doing business as Bar 153, as the named insured, and listed GCRE as an
additional insured. Notably, GCRE was listed only under the general liability section of the
policy, not on the property section. Thomas Dickow, the independent insurance agent who had
processed the insurance application, had worked with plaintiffs in the past and was aware that
GCRE owned the building housing Bar 153, and that DDI owned the business itself. Dickow
testified in his deposition that he listed GCRE as the building owner and additional insured in the
general liability section of the insurance application, and his intention was that the policy would
cover GCRE as an additional insured and building owner under both the property and general
liability provisions of the insurance policy. However, the property section of the insurance
application lacks any reference to GCRE as the building owner and additional insured; that
portion of the application was left blank. The parties dispute whether the policy should be
reformed to add GCRE as an additional insured under the property section.

As noted, at the core of this case is DDI’s response to a question in defendant’s insurance
application seeking the “[n]umber of police calls within the past year[.]” DDI replied, “[one]
call to report a fight that broke out outside the bar[.]” In the portion of the application regarding
its prior claims history, DDI responded that the date of loss for a prior claim with a previous
insurer was August 9, 2014, nothing was paid on the claim but the status was “open,” and it was
regarding a “[f]ight [that] started outside [the] bar after [the] bar was closed.” Dickow testified
that he did not know how many times police were called to Bar 153 in the year preceding the
insurance application. He said that Jeffrey Jonna gave him this information, that he relied on the

2
Doa Doa, Inc v PrimeOne Ins Co, 502 Mich 881; 912 NW2d 862 (2018) (Mem). In rendering
its decision, the trial court gave as one of its reasons for denying defendant’s motion for
summary disposition that the police-calls question was “susceptible to different meanings.” In
our November 22, 2017 order, we held that “the term ‘police calls’ unambiguously means an
occasion when the police were commanded or asked to come to the bar. . . . Jonna’s disclosure of
one police call shows he clearly understood the ordinary use of this term . . . . and the fact that
employees of the bar were aware of the five undisclosed police call[s] imputes that knowledge to
[DDI].” The Supreme Court’s order vacating our November 22, 2017 order did not disturb these
holdings.

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truth of the information given him, and that he did not undertake any independent investigation
to verify the information.

After the fire, DDI submitted sworn statements to prove its losses, claiming $350,000 in
losses for personal property and contents, and $1,142,727.76 for the building. Defendant
conducted an investigation that revealed multiple instances of criminal activity at the bar in the
year preceding DDI’s submission of the insurance application, including several incidents
involving police calls to the bar that DDI had not reported on its application for insurance. A
sampling of these incidents follows.

On February 23, 2014, the Garden City Police Department (Garden City police) received
a report about an assault and battery that took place at Bar 153, in which a patron was punched in
the head several times by another patron, knocked off of a bar stool, and attacked as she lay on
the floor. The police report indicated that the investigating officer spoke with “the owner” of
Bar 153 about the incident and that the victim would be returning to Bar 153 to review
surveillance footage of the incident.

On April 13, 2104, Garden City police arrived at Bar 153 after receiving a report that a
disorderly individual was throwing rocks at the bar. The individual was found in the middle of
the street near the bar and after he was apprehended, Garden City police spoke to one of the
bouncers at Bar 153 who shared that the individual was trying to fight with everyone at the bar
and did not want to leave. According to the police report, Bar 153 declined to press charges, but
asked that the individual not return to Bar 153.

On May 4, 2014, Garden City police visited Bar 153 after receiving a call about a fight at
the bar. When Garden City police arrived, the fight was already over and one of the individuals
involved in the fight was driven home for safety.

On July 9, 2014, Garden City police investigated a suspected fraud perpetration by
Jeffrey Jonna. Specifically, the police were called after a patron stated that Jeffrey Jonna had
asked to use his credit card to purchase items for Bar 153, apparently because the bar only deals
in cash, and the patron subsequently discovered $235 in unauthorized charges to his credit card.

On August 9, 2014, Garden City police arrived at Bar 153 after a fight broke out as
patrons were leaving the bar and two patrons assaulted a third patron.3 When the police arrived,
the victim had blood coming out of his nose and ears and was unconscious in the parking lot of
the bar. The Garden City police spoke to Jeffrey Jonna on August 13, 2014, who confirmed that
Bar 153 would likely have surveillance video of the assault. A prosecution was not pursued
regarding this incident because the victim was not cooperative.

On September 4, 2014, Garden City police were called to Bar 153 after it was reported
that an underage girl was selling alcohol to patrons. When the police arrived, they observed the
underage girl attempting to provide liquor to a patron, and when they spoke to her she had an

3
This incident apparently led to the prior claim referenced in DDI’s insurance application.

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odor of liquor on her breath. During this call, the police spoke with both David Jonna and Bar
153 employee Richard Latimer, both of whom identified themselves as managers of the bar.
David Jonna was cited for contributing to the delinquency of a minor and the underage girl was
subsequently cited for being a minor in possession of alcohol and tobacco.

On October 7, 2014, Garden City police were called to Bar 153 because of an intoxicated
patron who refused to leave the bar. On that date, Latimer spoke with the police and the
intoxicated patron was apprehended as he attempted to drive away from Bar 153.

On October 18, 2014, Garden City police visited Bar 153 and spoke to Jeffrey Jonna after
one of the go-go dancers at the bar alleged that she was not being paid for her work. Shortly
after, one of Jeffrey Jonna’s friends physically groped the employee. Following an investigation
and communication with the prosecutor’s office, Jeffrey Jonna was cited on February 20, 2015,
for maintaining a house of “indecent and improper conduct.”

On December 2, 2014, Garden City police visited Bar 153 after being informed that
minors were drinking inside the bar. When Garden City police arrived, they spoke with David
Jonna, and after observing several patrons under the age of 21, one of whom police placed under
arrest for being a minor in possession of alcohol, the police told David Jonna that a complaint
would be filed against Bar 153 with the Michigan Liquor Control Commission.

After discovering these incidents, as well as others, defendant rescinded DDI’s insurance
policy, returned DDI’s $11,425 premium, and denied plaintiffs’ claim.

II. DISCUSSION

Defendant contends that the trial court erred in denying its motion for summary
disposition because there was no genuine issue of material fact that DDI made a material
misrepresentation on its application for insurance, entitling defendant to rescind the policy.
Upon careful review of the record evidence, we agree.

A. STANDARD OF REVIEW

This Court reviews de novo the trial court’s decision regarding a motion for summary
disposition. Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). While defendant
moved for summary disposition under both MCR 2.116(C)(7) and (C)(10), a review of the trial
court’s bench ruling confirms that the court denied summary disposition under MCR
2.116(C)(10), concluding that genuine issues of material fact for trial existed concerning the
materiality of DDI’s alleged misrepresentation.

A motion under MCR 2.116(C)(10) . . . tests the factual sufficiency of a
claim. Johnson v VanderKooi, 502 Mich 751, 761; 918 NW2d 785 (2018). When
considering such a motion, a trial court must consider all evidence submitted by
the parties in the light most favorable to the party opposing the motion. Id. A
motion under MCR 2.116(C)(10) may only be granted when there is no genuine
issue of material fact. Lowrey v LMPS & LMPJ, Inc, 500 Mich 1, 5; 890 NW2d
344 (2016). “A genuine issue of material fact exists when the record leaves open
an issue upon which reasonable minds might differ.” Johnson, 502 Mich at 761

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 (quotation marks, citation, and brackets omitted in original). [El-Khalil v
Oakwood Healthcare, Inc, ___ Mich ____, ___; ___ NW2d ___ (2019) (Docket
No. 157846); slip op at 7.]

B. ACTIONABLE FRAUD

“[B]ecause insurance policies are contracts, common-law defenses may be invoked to
avoid enforcement of an insurance policy, unless those defenses are prohibited by statute.” Titan
Ins Co v Hyten, 491 Mich 547; 554; 817 NW2d 562 (2012). Defendant asserted the common-
law defense of fraud as an affirmative defense to avoid the contract with DDI. Fraud in the
procurement of a contract may provide grounds “to retroactively avoid contractual obligations
through traditional legal and equitable remedies such as cancellation, rescission, or reformation.”
Id. at 558. “Fraud in the inducement to enter a contract renders the contract voidable at the
option of the defrauded party[.]” Bazzi v Sentinel Ins Co, 502 Mich 390, 408; 919 NW2d 20
(2018) (citation and quotation marks omitted). Accordingly, when an insured procures an
insurance policy by fraud, the insurer has the prerogative to declare it “void ab initio[.]” Id.
From a legal standpoint, it is as if the insurance policy did not exist. Id. See also Co of Ingham v
Mich Co Rd Comm Self Ins Pool (On Remand), ___ Mich App ___, ___; ___ NW2d ___ (2019)
(Docket No. 334077); slip op at 15.

Under Michigan law, there are several closely related doctrines that form “the rubric of
fraud[.]” “These doctrines include actionable fraud, also known as fraudulent misrepresentation;
innocent misrepresentation; and silent fraud, also known as fraudulent concealment.” Titan, 491
Mich at 555. At issue in the present case is actionable fraud. Generally, the party asserting
actionable fraud must establish

(1) That [the alleged defrauder] made a material representation; (2) that it was
false; (3) that when he made it he knew that it was false, or made it recklessly,
without any knowledge of its truth and as a positive assertion; (4) that he made it
with the intention that it should be acted upon by [the allegedly defrauded party];
(5) that [the allegedly defrauded party] acted in reliance upon it; and (6) that he
thereby suffered injury. Each of these facts must be proved with a reasonable
degree of certainty, and all of them must be found to exist; the absence of any one
of them is fatal to a recovery. [Id. (citation omitted; emphasis added).]

The party asserting actionable fraud is not required to establish “that the fraud could not have
been discovered through the exercise of reasonable diligence.” Id. at 557.

The issue on appeal is whether DDI’s representation on its application for insurance that
Bar 153 had only one police call in the year preceding submission of the application was
“material.” MCL 500.2218 provides in relevant part,

(1) No misrepresentation shall avoid any contract of insurance or defeat recovery
thereunder unless the misrepresentation was material. No misrepresentation shall
be deemed material unless knowledge by the insurer of the facts misrepresented
would have led to a refusal by the insurer to make the contract. [Emphasis
added.]

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 In Oade v Jackson Nat’l Life Ins Co of Mich, 465 Mich 244, 253-254; 632 NW2d 126
(2001), our Supreme Court considered whether the insured’s misrepresentations in applying for
insurance were material as contemplated by MCL 500.2218. In Oade, after the insured applied
for insurance, but before the defendant insurance company approved his application and
delivered the policy, the insured was treated in a hospital for chest pains. Id. at 248. In his
application for insurance, the insured had denied being treated for chest pains, and while the
application imposed on him a duty to supplement the information provided, he did not inform the
defendant insurance company of the hospitalization for chest pains. Id. After the insured was
approved for insurance and subsequently died of a heart attack, the defendant conducted an
investigation, discovered the hospitalization that the insured had failed to disclose, and denied
payment under the terms of the policy. Id. at 249. After the plaintiffs filed an action in the trial
court, the court granted summary disposition in favor of the defendant insurance company
because the trial court concluded that the policy did not take effect because of the insured’s
failure to supplement his application. Id. at 249. The plaintiff appealed the case in this Court,
and this Court reversed. Our Supreme Court then granted leave to consider MCL 500.2218’s
requirement that a misrepresentation in an application for insurance be material to allow the
insurance company to avoid the contract in its entirety. Oade, 465 Mich at 246, 249-250.

In considering the issue, our Supreme Court looked to prior precedent, stating, “a fact or
representation in an application is ‘material’ where communication of it 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.’ ” Id. at 253-254, quoting Keys v
Pace, 358 Mich 74, 82; 99 NW2d 547 (1959). Our Supreme Court acknowledged that this
definition was consistent with the statutory language of MCL 500.2218(1). Oade, 465 Mich at
254.

In this case, the undisputed evidence presented to the trial court made clear that
the correct information would have led the insurer to charge an increased
premium, hence a different contract. Indeed, defendant’s underwriter stated in her
affidavit that defendant “may have been willing to offer a more expensive ‘rated’
insurance contract at approximately double the premium cost that Mr. Oade had
paid for the ‘standard’ insurance policy in this instance.” [Id.]

Concluding that genuine issues of material fact on the issue of materiality did not exist, our
Supreme Court held that the defendant insurer was entitled to summary disposition under MCR
2.116(C)(10). Oade, 465 Mich at 254.

Subsequently, in Montgomery v Fidelity & Guarantee Life Ins Co, 269 Mich App 126,
127; 713 NW2d 801 (2005), this Court affirmed the trial court’s order granting summary
disposition in favor of the defendant life insurance company. The plaintiff had filed suit after the
defendant insurance company rescinded its life insurance contract with the plaintiff’s decedent
after it determined that the plaintiff’s decedent had made a material misrepresentation, failing to
disclose that he used tobacco in the past, in the application for life insurance. Id. at 127-128.
This Court recognized that under MCL 500.2218, an insurance policy may be rescinded if the
insurer “discovers that an insured made a material misrepresentation on the application for
insurance and that the misrepresentation affected either the acceptance of the risk or the hazard

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assumed by the insurer.” Montgomery, 269 Mich App at 129. Specifically, this Court went on
to hold:

A misrepresentation on an insurance application is material if, given the correct
information, the insurer would have rejected the risk or charged an increased
premium. Oade, supra at 254. Because defendant’s underwriter stated in his
affidavit that defendant would not have issued the policy if it had been aware of
the decedent’s smoking habit, the misrepresentation about the decedent’s smoking
habit was material. If a misrepresentation is material, Michigan law does not
require that a causal connection exist between the misrepresentation and the
death. [In re Certified Question (Wickersham v John Hancock Mut Life Ins Co),
413 Mich 57, 63; 318 NW2d 456 (1982).] [Montgomery, 269 Mich App at 129
(emphasis added).]

See also Clark v John Hancock Mut Life Ins Co, 180 Mich App 695, 699-700; 447 NW2d
783 (1989) (observing that the correct focus of a materiality analysis under MCL 500.2218(1) “is
the reliance or nonreliance of the particular insurance company involved.”).

The thrust of defendant’s motion for summary disposition was that plaintiffs’ claim
alleging breach of contract was factually deficient because, as a result of DDI’s fraudulent
misrepresentations in procuring insurance from defendant, the insurance policy was void ab
initio and was rescinded, rendering it a legal nullity. The party moving for summary disposition
meets its burden under MCR 2.116(G)(4) by tendering affirmative evidence undermining a
dispositive element of the nonmoving party’s cause of action. Lowrey, 500 Mich at 7.4 In
support of its position that DDI’s misrepresentation of the number of police calls was material,
defendant presented the deposition testimony of Stephen Greenfield, defendant’s president of
operations, and Woodrow White, the underwriter who handled DDI’s application for insurance.
Both testified unambiguously that defendant would not have insured Bar 153 if they had known
that the bar had such extensive police activity in the year preceding submission of its
application.5

In response, plaintiffs presented evidence intended to bring into question the credibility
of Greenfield and White. See Oade, 465 Mich at 255 (indicating that a party opposing a (C)(10)
motion for summary disposition is “free to bring forth evidence drawing into question the

4
In their brief on appeal, plaintiffs advance a convoluted and difficult to discern argument
concerning the shifting burdens of proof when one party moves for summary disposition under
MCR 2.116(C)(10). However, in Lowrey our Supreme Court fairly recently highlighted and
explained the burdens of proof in a (C)(10) analysis and we have adhered to our Supreme
Court’s instructions in this opinion.
5
Greenfield testified that the one police call DDI reported on its insurance application, plus any
of the other police-call incidents uncovered by defendant’s investigation would have resulted in
rejection of DDI’s application. White testified that if he had known about DDI’s history of
police involvement, he would not have pursued issuance of a policy.

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testimony of [the] defendant’s underwriter” in a case in which the materiality of an alleged
misrepresentation is at issue). Plaintiffs produced defendant’s underwriting guidelines, which
made no mention of police calls, and discovery responses in which defendant admitted that the
police-calls question did not appear on its online applications for several months after defendant
first introduced them. In addition, plaintiffs submitted applications known as Acord
applications, which also did not contain a police-calls question. Plaintiffs pointed out that of the
58 insurance application packages defendant provided during discovery, 18 electronic
applications for insurance did not include a question concerning prior police calls and 23 paper
Acord applications did not contain the police-call question. In plaintiffs’ words:

Forty-one (41) applications of the fifty-eight (58) produced (71%) of all
the applications produced in discovery in this case do not contain a “number of
police calls in the past year” question. As such, if more than half of the applicants
are not asked this specific question, it cannot be a material question in
[defendant’s] underwriting process.[6]

Plaintiffs argued below and maintain on appeal that, given the evidence they produced, the trial
court properly denied defendant’s motion for summary disposition because to do otherwise
would have required the trial court to make an impermissible credibility determination. See
Skinner v Square D Co, 445 Mich 153, 161; 516 NW2d 475 (1994) (stating that the court may
not make findings of fact or weigh credibility in deciding a motion for summary disposition); see
also Debano-Griffin v Lake Co, 493 Mich 167, 180-181; 828 NW2d 634 (2013) (indicating that
where justification for an act was established by a witness whose credibility the opposing party’s
evidence called into question, there was an issue of fact for the finder of fact that precluded
summary disposition).

Plaintiffs’ argument is unavailing because it focuses too narrowly on the inquiry into the
number of police calls without considering that the police-call question has two parts. The query
as it appears on the application for insurance is, “Number of police calls within the past year (If
any describe in detail)[.]” Thus, in addition to reporting the number of calls, applicants must
also describe in detail the nature of the calls reported. Accordingly, had DDI reported the actual
number of police calls to Bar 153 in the year before submitting its insurance application to
defendant, it would also have had to reveal at least two incidents of assault and battery.
According to its underwriting guidelines, defendant would not insure “[a]ny risk with (2) or
more assault or battery incidents in the last 3 years.” Defendant’s underwriting guidelines
support Greenfield and White’s testimony that, had DDI answered the police-calls question
truthfully and reported two assault and battery incidents in the year prior to applying for
insurance with defendant, not to mention the other activities for which police were called to Bar
153, defendant would have rejected the application. Thus, even without Greenfield and White’s
testimony, the evidence indicates that DDI’s representation of the number of police-calls on its
insurance application was material because truthfulness would have triggered the underwriting

6
It appears from the record that the majority of these businesses were also operating as bars,
although the specific nature of each establishment is not clear.

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guidelines’ prohibition against insuring a business with two or more incidents of assault and
battery in the last three years. Oade, 465 Mich at 254 (“A misrepresentation on an insurance
application is material if, given the correct information, the insurer would have rejected the risk
or charged an increased premium.”).

Plaintiffs also contend that the fact that defendant did not ask the police-calls question on
all of its applications for insurance is evidence that the question was not material. However,
differently worded questions designed to collect information about risk do not bear upon the
question of whether, if presented with the information about the multiple prior police calls to Bar
153, defendant would have chosen to issue the particular insurance policy to DDI that is at
dispute in this appeal. See Oade, 465 Mich at 254 (indicating that the proper materiality
question is whether the insurer would have issued the same policy notwithstanding the
misrepresented facts). Plaintiffs’ proffered evidence, even if accepted as true and accurate by the
trier of fact, does not undermine and call into question defendant’s repeated assertion, supported
by its underwriting guidelines, that had it been aware of the prior police calls to Bar 153, it
would have rejected the risk of insuring DDI. Oade, 465 Mich at 253-54. In other words,
defendant’s use of differently worded questions in other applications to collect information
relative to risk does not render immaterial the police-calls question in the application DDI
completed.

Viewed in the light most favorable to plaintiffs, the evidence does not yield issues on
which reasonable minds could differ. Defendant presented evidence that DDI made a
representation about police calls that it knew was false, that the representation was material, that
it was made with the intent that defendant would rely on it to issue a policy of insurance, that
defendant did rely on that misrepresentation when issuing a policy to DDI, and that defendant
suffered injury. See Titan, 491 Mich at 555. Thus, defendant met its burden to establish that
DDI engaged in actionable fraud. Id.; Lowrey, Mich at 7. Plaintiffs disputed the materiality of
the police-calls inquiry by presenting evidence designed to call into question the deposition
testimony of Greenfield and White indicating the materiality of the police-calls question by
showing that defendant did not ask the same police-calls question on all of its applications for
insurance. As explained above, however, plaintiffs’ evidence does not set forth facts establishing
a genuine issue of material fact for trial regarding the materiality of the police-calls question. Id.
Accordingly, we conclude that defendant is entitled to summary disposition with respect to
DDI’s claim for coverage. Johnson, 502 Mich at 761.

We next address defendant’s argument that it is entitled to summary disposition with
respect to GCRE’s claim for coverage. In Bazzi, our Supreme Court confirmed that an insurer
may resort to traditional legal and equitable remedies on the ground of fraud in the application
for insurance, including rescission, even when doing so would affect an innocent third party.
Bazzi, 502 Mich at 401-403. The Supreme Court rejected, however, the defendant insurance
company’s contention that it was “categorically entitled” to rescission of an insurance policy
under circumstances in which an innocent third party was involved. Id. at 409. Because the
remedy of rescission was equitable in nature, it was not “a matter of right[,]” but could only be
granted in the trial court’s discretion. Id., quoting Amster v Stratton, 259 Mich 683, 686; 244
NW 201 (1932). Specifically, in Bazzi, our Supreme Court held:

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 When a plaintiff is seeking rescission, “the trial court must balance the
equities to determine whether the plaintiff is entitled to the relief he or she seeks.”
Johnson v QFD, Inc, 292 Mich App 359, 370 n 3; 807 NW2d 719 (2011).
Accordingly, courts are not required to grant rescission in all cases. For example,
“rescission should not be granted in cases where the result thus obtained would be
unjust or inequitable,” Amster, 259 Mich at 686, or “where the circumstances of
the challenged transaction make rescission infeasible,” CJS, § 11, p 507.
Moreover, when two equally innocent parties are affected, the court is “required,
in the exercise of [its] equitable powers, to determine which blameless party
should assume the loss . . . .” [Lenawee Co Bd of Health v Messerly, 417 Mich
17, 31; 331 NW2d 203 (1982)]. “[W]here one of two innocent parties must suffer
by the wrongful act . . . of another, that one must suffer the loss through whose
act or neglect such third party was enabled to commit the wrong.” Zucker v
Karpeles, 88 Mich 413, 430; 50 NW 373 (1891). “The doctrine is an equitable
one, and extends no further than is necessary to protect the innocent party in
whose favor it is invoked.” Id.

In this instance, rescission does not function by automatic operation of the
law. Just as the intervening interest of an innocent third party does not altogether
bar rescission as an equitable remedy, neither does fraud in the application for
insurance imbue an insurer with an absolute right to rescission of the policy with
respect to third parties. Equitable remedies are adaptive to the circumstances of
each case, and an absolute approach would unduly hamper and constrain the
proper functioning of such remedies. This Court has recognized that “[e]quity
jurisprudence molds its decrees to do justice amid all the vicissitudes and
intricacies of life” and that “[e]quity allows complete justice to be done in a case
by adapting its judgments to the special circumstances of the case.” Tkachik v
Mandeville, 487 Mich 38, 45-46; 790 NW2d 260 (2010) (quotation marks
omitted), citing Spoon-Shacket Co, Inc v Oakland Co, 356 Mich 151, 163; 97
NW2d 25 [1959], and 27A Am Jur 2d, Equity, § 2, pp 520-521; see also Lenawee,
417 Mich at 29 (adopting a case-by-case approach to rescission when a “mistaken
belief relates to a basic assumption of the parties upon which the contract is made,
and which materially affects the agreed performances of the parties”), and Am Jur
2d, § 2, pp 548-549. [Bazzi, 502 Mich at 410-411 (emphasis added).]

Our Supreme Court noted that if the defendant insurance company in that case could not rescind
as to the plaintiff third party, but could rescind regarding claims involving only the fraudulent
insured, the policy would not be considered fully rescinded, but reformed. Id. at 412 n 12.

In the present case, there is no indication in the record that GCRE was involved in
providing information to defendant in support of the application for insurance. The record
reflects that Jeffrey Jonna, as president of DDI, the named insured, provided the information to
defendant during the insurance application process. Moreover, Jeffrey Jonna testified that David
Jonna did not take part in securing insurance for DDI. Under such circumstances, we conclude
that remand to the trial court is necessary for it to determine whether rescinding the insurance
policy as between defendant and GCRE, named as an additional insured under the general
liability section of the policy, would be equitable. See id. at 412.

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 Defendant also argues on appeal that the trial court ought to have granted its motion for
summary disposition with respect to plaintiffs’ claim seeking reformation of the insurance policy
to include GCRE as an insured under the property coverage portion of the policy. Although
defendant’s motion for summary disposition included this issue, and plaintiffs filed a response,
the trial court declined to decide the matter, concluding that the parties had not been adequately
briefed it. Given that we are remanding this matter to the trial court, we elect to exercise judicial
restraint and leave this issue for the trial court to decide.

We reverse the trial court order denying defendant’s motion for summary disposition and
remand with instructions that the trial court enter judgment in favor of defendant with regard to
DDI’s claims only. On remand, we also direct the trial court to consider whether rescission of
the insurance policy is appropriate with respect to GCRE and, if not, whether defendant is
entitled to summary disposition of plaintiffs’ reformation claim.

Reversed in part and remanded for further proceedings consistent with this opinion. We
do not retain jurisdiction.

/s/ Mark J. Cavanagh
/s/ Jane M. Beckering
/s/ Michael F. Gadola

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