Failure to Read Application for Insurance & Policy is no Excuse for Failing to Protect

Waiver Cannot be Inferred From Silence

Post 4869

In Northfield Insurance Company v. Michigan 32, LLC, No. 25-1866, United States Court of Appeals, Sixth Circuit (October 15, 2026) in its 2021 and 2022 applications for commercial property insurance, Michigan 32, LLC (M32) represented that its premises were protected by an “ADT Central Station Theft and Fire” alarm monitored by a central station.

Its authorized representatives signed both applications, attesting that the statements were true and acknowledging that false statements could lead to liability for insurance fraud.

In fact, the premises never had a fire alarm. Based on the 2022 application, Northfield Insurance Company issued a policy that included a protective safeguards endorsement (PSE) requiring a centrally monitored automatic fire alarm. The policy also excluded losses if the insured failed to comply with the PSE and voided coverage for intentional misrepresentation of a material fact concerning the covered property.

M32’s owner, Raymond Karam, admitted that his office received the policy but that he did not review it. In August 2022, Melissa Ellison, a Travelers Risk Control consultant, conducted a telephone underwriting survey with Karam. The fire alarm was never discussed, and her follow-up letter made no further recommendations.

A fire occurred in June 2023, and M32 submitted a claim nine months later. Northfield denied the claim, rescinded the policy for misrepresentation, and refunded the premium. It then sued for a declaratory judgment, and the district court granted summary judgment to Northfield on both the rescission and PSE-exclusion grounds. M32 appealed, arguing waiver and estoppel.

LAW:

The court reviews summary judgment de novo, and summary judgment is proper when there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law (Fed.R.Civ.P. 56(a)). Sitting in diversity, the court applies Michigan substantive law.

Under Michigan law, when an insured makes a material misrepresentation in an application, the insurer may rescind the policy and declare it void ab initio and the insurer has no duty to investigate or verify the applicant’s representations. Waiver is the intentional and voluntary relinquishment of a known right. It may be implied from decisive, unequivocal conduct, but it cannot be inferred from mere silence. Equitable estoppel requires that (1) a party intentionally or negligently induced another to believe facts, (2) the other party justifiably relied and acted on that belief, and (3) the other party would be prejudiced if the first party could deny those facts.

DISCUSSION:

M32 did not dispute that its fire-alarm representation was false. Instead, it argued that Ellison’s August 2022 underwriting survey and letter led it to believe it was complying with the policy, so Northfield had waived, or should be estopped from asserting, the misrepresentation defense.

The Sixth Circuit found that the district court properly held that Northfield was entitled to rescind. The court did not reach the alternative PSE-exclusion ground. It also held that M32 forfeited its remaining arguments by failing to raise them below, finding no exceptional circumstances to warrant considering them for the first time on appeal.

ANALYSIS:

Waiver.

Even assuming Ellison’s conduct and knowledge could be imputed to Northfield, there was no waiver. Northfield, by contrast, rescinded the policy and returned the premium once it learned of the misrepresentation. Ellison and Karam never discussed the fire alarm, waiver cannot be inferred from silence, and Northfield had no duty to verify M32’s representations.

Estoppel.

For similar reasons, Northfield did not induce M32 to believe that it had a compliant fire alarm. There was no inducement even though the insurer’s inspections had noted the missing sprinkler system. Northfield’s position was even stronger because Ellison’s survey said nothing about the fire alarm. Since the topic never came up, there was no inducement, and the first element of estoppel failed.

Conclusion:

Affirmed. M32’s material misrepresentation that it had a centrally monitored fire alarm entitled Northfield to rescind the policy and declare it void ab initio. Northfield neither waived its right to rescind nor was estopped from asserting it, because the underwriting survey never addressed the fire alarm and Northfield had no duty to investigate. The court did not reach the PSE exclusion, and M32’s remaining arguments were forfeited.

Because the Sixth Circuit affirmed 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.

ZALMA OPINION

This very simple decision of the Sixth Circuit established that it can be very expensive for an insured to not read the policy of insurance that the insured required. The policy had a condition that required a fire alarm system. It did not. Promising a protective service that does not exist violates the protective safeguards endorsement and allows a fire claim to be rejected. In addition, misrepresenting a fire insurance system on an application allows an insurer to rescind the policy. Northfield Insurance Company denied the claim for violation of the PSE and rescinded.