Northfield Ins. Co. v. Michigan 32, LLC

COLE, Circuit Judge. Following a building fire in 2023, Michigan 32, LLC (M32) filed an insurance claim with Northfield Insurance Company. Northfield denied M32’s claim and rescinded the commercial property insurance policy because M32 had misrepresented in its application that it maintained a policy-compliant fire alarm. Northfield then filed this declaratory judgment action. The district court granted summary judgment to Northfield, finding that Northfield was entitled to rescind the policy based on M32’s material misrepresentation, rendering the policy void ab initio. We affirm.

I.

M32 submitted insurance applications to Northfield in 2021 and 2022, stating that its premises were protected by an “ADT Central Station Theft and Fire” alarm monitored by a central station. M32’s authorized representatives signed both applications, declaring all statements to be true and acknowledging false statements may yield liability for insurance fraud. In reality, there was never a fire alarm on the premises.

Based on M32’s 2022 application for insurance, Northfield issued the policy covering the relevant time period. The policy contains a protective safeguards endorsement (PSE) which, in relevant part, requires the insured to maintain an automatic fire alarm monitored by a central station (or reporting to a public or private fire alarm station) as a condition of insurance. Relatedly, the policy excludes coverage for loss or damage if, prior to the fire, the insured failed to comply with the PSE. Lastly, the policy’s provisions void coverage if the insured, “at any time, intentionally . . . misrepresent[s] a material fact concerning . . . [t]he [c]overed [p]roperty[.]” During discovery, Raymond Karam, M32’s owner, stated that his office received a copy of the issued policy, but he did not review it.

In August 2022, shortly after the policy was issued and ten months before the fire, Melissa Ellison, a risk control consultant from Travelers Risk Control, called Karam to conduct an underwriting survey over the phone. On the same day, Ellison sent Karam a letter summarizing the survey. The letter stated that M32’s “management policies and procedures” effectively provided “property loss control,” and Ellison had no further recommendations.

The fire occurred in June 2023, within the coverage period of the policy. Nine months after the fire, M32 submitted an insurance claim for damage to business personal property and the building. A few months later, Northfield denied the claim and rescinded the policy because M32 had falsely represented in its application that it maintained a compliant fire alarm on the premises. Northfield also refunded M32 for the policy premium.

Northfield later brought this declaratory judgment action against M32, seeking a declaration that the policy is void ab initio or, alternatively, M32’s losses are excluded from coverage under the policy because M32 violated the PSE. The district court, sitting in diversity jurisdiction, granted summary judgment to Northfield on both grounds. M32 appeals, arguing Northfield has waived or should be estopped from alleging misrepresentation because Northfield’s conduct led M32 to believe that it complied with the policy. M32 also appeals the judgment in a related case, which involves breach-of-contract and negligence claims.

II.

We review the district court’s grant of summary judgment de novo. Branham v. Gannett Satellite Info. Network, Inc., 619 F.3d 563, 568 (6th Cir. 2010). Summary judgment is appropriate when there are no genuine disputes of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).

Further, as a federal court sitting in diversity jurisdiction, we must apply the substantive law of the forum state. See SHH Holdings, LLC v. Allied World Specialty Ins. Co., 65 F.4th 830, 836 (6th Cir. 2023). Here, Michigan law governs this insurance contract dispute.

III.

The district court properly found that Northfield was entitled to rescind the policy based on M32’s misrepresentation in its application. Under Michigan law, it is well-settled that “where an insured makes a material misrepresentation in the application for insurance, . . . the insurer is entitled to rescind the policy and declare it void ab initio.” Lake States Ins. Co. v. Wilson, 586 N.W.2d 113, 115 (Mich. Ct. App. 1998) (per curiam). Further, “an insurer has no duty to investigate or verify the representations of a potential insured.” Titan Ins. Co. v. Hyten, 817 N.W.2d 562, 576 (Mich. 2012). M32 argues that, through the underwriting survey and Ellison’s accompanying letter circulated in August 2022, Northfield induced M32 to believe it was compliant with the policy. Thus, M32 contends, Northfield has waived or should be estopped from asserting the misrepresentation defense.

“Waiver is defined as the intentional and voluntary relinquishment of a known right.” Moore v. First Sec. Cas. Co., 568 N.W.2d 841, 844 (Mich. Ct. App. 1997). A waiver may be implied based on “a party’s decisive, unequivocal conduct reasonably inferring the intent to waive.” Home-Owners Ins. Co. v. Perkins, 939 N.W.2d 705, 714 (Mich. Ct. App. 2019) (per curiam) (quoting Patel v. Patel, 922 N.W.2d 647, 651 (Mich. Ct. App. 2018) (per curiam)). But “conduct that does not express any intent to relinquish a known right is not a waiver, and a waiver cannot be inferred by mere silence.” Moore, 568 N.W.2d at 844.

Even assuming that as a Travelers risk consultant, Ellison’s conduct and knowledge can be imputed to Northfield, Northfield did not waive its right to rescind the policy. In Burton v. Wolverine Mutual Insurance Co., the Michigan Court of Appeals found that an automobile insurer had waived its right of rescission when, upon discovery of the insured’s misrepresentation in its application, the insurer chose to issue a notice of cancellation effective upon a later date rather than rescind the policy. 540 N.W.2d 480, 482 (Mich. Ct. App. 1995). Unlike the insurer in Burton, Northfield rescinded the policy and returned the premium once it learned of M32’s misrepresentation. Ellison’s actions could not have even impliedly waived Northfield’s right of rescission because Ellison and Karam did not discuss the fire alarm at all during the underwriting survey. A waiver cannot be inferred from mere silence, and Northfield had no duty to investigate the truth of M32’s representation in its application. See Moore, 568 N.W.2d at 844; Hyten, 817 N.W.2d at 576. Accordingly, no waiver occurred.

For similar reasons, estoppel does not apply because Northfield did not induce M32 to believe it was covered by the policy. “The principle of estoppel is an equitable defense that prevents one party to a contract from enforcing a specific provision contained in the contract.” Morales v. Auto-Owners Ins. Co., 582 N.W.2d 776, 779 (Mich. 1998). “Equitable estoppel may arise where (1) a party, by representations, admissions, or silence intentionally or negligently induces another party to believe facts, (2) the other party justifiably relies and acts on that belief, and (3) the other party is prejudiced if the first party is allowed to deny the existence of those facts.” W. Am. Ins. Co. v. Meridian Mut. Ins. Co., 583 N.W.2d 548, 550 (Mich. Ct. App. 1998) (per curiam). In 23771 Blackstone, LLC v. Conifer Insurance Co., the Michigan Court of Appeals found no inducement even though the insurer had performed regular inspections that noted the premises did not have the required sprinkler system. No. 364333, 2023 WL 7982350, at *5 (Mich. Ct. App. Nov. 16, 2023) (per curiam). Here, Northfield stands in an even stronger position because Ellison’s survey did not make any notes about the fire alarm system. Thus, because the topic was not discussed at all, Northfield could not have induced M32 into believing it had a policy- compliant fire alarm.

IV.

Because we affirm the district court’s grant of summary judgment on the basis that Northfield was entitled to rescind the policy, we need not address the parties’ arguments regarding M32’s violation of the PSE. M32 has forfeited its other arguments because it failed to raise them below, and we see no exceptional circumstances that would warrant consideration in the first instance on appeal. See Bannister v. Knox Cnty. Bd. of Educ., 49 F.4th 1000, 1011 (6th Cir. 2022).

V.

For these reasons, we affirm the district court’s judgment.