Michael F. Schmidt Obtains Reversal of Court of Appeals Decision by the Michigan Supreme Court
Meemic Insurance Company v Jones, ___ Mich ___, (Supreme Court Docket No. 161865, June 14, 2022). The court made important rulings on issues of rescission and subrogation. The case involved a homeowner policy which was rescinded due to misrepresentations made by the insured in the application. The policy contained a standard mortgage clause which the court held creates two contracts within the single policy: one contract is between the insured and the insurer (the risk contract) and the second contract is between the lienholder identified by the mortgage clause and the insurer (the lienholder contract). The standard mortgage clause protects the mortgagee as provided in the policy and cannot be impaired by any acts of the insured/mortgagor. However, the policy also contained a provision that if the insurer had to pay the mortgagee but denied payment to the insured, the insurer would be subrogated to the extent of its payment to all rights of the mortgagee under the mortgage on the property. The trial court granted summary disposition in favor of Meemic to enforce the subrogation clause. The Court of Appeals reversed holding that the rescission of the policy based on the misrepresentation in the application rescinded the policy, both the risk contract with the insured and the lienholder contract with the lienholder/mortgagee, thus the insurer could not proceed in subrogation against the insured to recover the amount the insurer had to pay the lienholder/mortgagee. The Supreme Court reversed agreeing with our arguments holding first that portions of a rescinded contract may nonetheless be enforceable, and if there is evidence from the contract language that the parties intended a portion of the contract to remain enforceable notwithstanding rescission, courts must execute the intent of the parties. Secondly, the court held that the subrogation clause in the policy, subrogating the insurer to the rights of the lienholder/mortgagee, is part of the separate contract with the lienholder/mortgagee and thus survives rescission of the policy. These are two very important rulings. First, that the rescission does not necessarily rescind all portions of a contract, and second, that the rights of the insurer to subrogate against the insured for any payments the insurer has had to make to the lienholder/mortgagee survives the rescission.