On February 28, 2008, the Michigan Court of Appeals reversed a grant of summary disposition entered by the Wayne County Circuit Court in favor of the insured (Vernor’s Dollars Discount, Inc.) and, instead, entered judgment in favor of Fremont Insurance Company.
In Vernor’s Dollars Discount, Inc v Fremont Ins Co, No. 276541, Sarah Zebib ("Zebib") had owned a number of "dollar stores" in the past. Zebib also had suffered fires at some of her stores, most recently in August, 2000. In July, 2002, Zebib started a "new" corporate entity, Vernor’s Dollars Discount, Inc. ("VDD"), which applied for insurance with Fremont in November, 2002.
The application asked for all losses in the last three years. Zebib, who signed the application in her individual capacity, indicated that because VDD was "new," VDD had no prior losses. When VDD had a fire in February, 2003, Fremont discovered Zebib’s prior fire losses involving her dollar stores.
The Court of Appeals agreed with Fremont’s argument: VDD’s failure to disclose in the insurance application the August, 2000 fire was a material misrepresentation that voided the insurance contract. Specifically, the Court of Appeals "pierced the corporate veil" of VDD’s corporate status because VDD was a mere instrumentality of Zebib, the corporate status was used to avoid having to disclose Zebib’s prior fire losses, and it would be unjust to compel Fremont to pay a substantial loss claim solely because it did not anticipate that Zebib would form a separate entity to conceal her prior loss history.
On behalf of Fremont, the appellate brief was written by Mark J. Colon and the case argued before the Court of Appeals by Lawrence Korolewicz, both of the Grand Rapids office of Foster, Swift, Collins & Smith, P.C.