Michigan Court of Appeals; Docket # 349608; Unpublished
Judges Ronayne Krause, Sawyer, and Boonstra; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s denial of plaintiff AAA Member Select Insurance Company’s motion for summary disposition, in which AAA sought to rescind its insured’s policy for fraud, thereby discharging its duty to pay no-fault PIP benefits to defendants Clara Williams and Sharon Leftwich. Williams and Leftwich were injured in a motor vehicle crash while traveling as a passenger in a vehicle owned by AAA’s insured, Steven T. Johnson, and sought no-fault PIP benefits after the crash from AAA. AAA sought to rescind the policy on the basis of Johnson’s fraud, thereby discharging its obligation to pay Williams’s PIP benefits under the policy, but the trial court properly weighed the equities, pursuant to the Supreme Court’s decision in Bazzi v Sentinel Ins Co, 502 Mich 390 (2018), and determined that AAA was not entitled to rescission.
Williams and Sharon Leftwich were injured in a motor vehicle crash while traveling as passengers in a vehicle owned by Steven T. Johnson and driven by Jonathan Parker. After the collision, Williams and Leftwich filed a lawsuit against Johnson, prompting AAA to file the underlying action seeking to rescind Johnson’s policy for fraud. AAA moved for summary disposition, and shortly thereafter, the Supreme Court issued its decision in Bazzi v Sentinel Ins Co, 502 Mich 390 (2018), “holding, in relevant part, that the rescission of an insurance policy is an equitable decision that falls within a trial court’s discretion.” The trial court weighed the equities, and determined that AAA was not entitled to rescission.
On appeal, AAA first argued that “reversal [was] required because the trial court lacked the discretion declined to enforce the ‘Concealment and Fraud’ provision on the basis of equity.” The Court of Appeals disagreed, noting that, “the question in this case is the same question the Supreme Court addressed in Bazzi.” Accordingly, the Court of appeals held that the trial court properly followed Bazzi in exercising its discretion to balance the equities and determine that AAA was not entitled to rescission.
In this case, the trial court followed Bazzi. At the outset, it determined that Johnson engaged in fraudulent conduct. As a result, it declared Johnson’s AAA policy void ab initio. These specific decisions are not challenged. Next, the trial court recognized that rescission was not automatic; rather, the court correctly explained, the decision whether to rescind the policy was a discretionary one that required it to balance the equities. The trial court then exercised that discretion. Stated simply, the trial court’s analysis in this case was consistent with Bazzi. We find no error in this regard.
AAA argued that Bazzi was not applicable in the underlying lawsuit because, in Bazzi, “‘common-law remedies’” were at issue in Bazzi, whereas in the underlying lawsuit, AAA was seeking contractual remedies—i.e. remedies pursuant to the policy’s “Concealment and Fraud” provision. The Court of Appeals rejected this distinction, noting that the Bazzi Court explicitly held that insurers are not categorically entitled to rescission. If, however, The Court of Appeals enforced the Concealment and Fraud provision in Johnson’s policy as “automatically entitl[ing AAA] to rescission . . . the insurer would always—or, stated differently, ‘categorically’—be entitled to rescission.”
However, if this Court were to accept AAA’s argument, insurers would, at least in the vast majority of cases, be “categorically entitled to rescission” in the event of fraudulent conduct by an insured, an outcome the Supreme Court squarely rejected. Bazzi, 502 Mich at 408. This is because, like the AAA policy, most—if not all—automobile-insurance contracts include provisions that the insurer will “not provide coverage” when “an insured person has concealed or misrepresented any material fact or circumstance relating to this insurance or any claim for which coverage is sought under this policy.” If such a provision automatically entitles the insurer to rescission (or something practically identical to rescission), the insurer would always—or, stated differently, “categorically”—be entitled to rescission. AAA has not identified, and there does not appear to be, any legal authority supporting such an understanding.
Rather than reach such a legally unsupported conclusion, it is our view that the fraudulent conduct of an insured, whether that fraudulent conduct be based on common-law or a contractual provision, should be treated the same. See also Meemic Ins Co v Fortson, ___ Mich ___; ___ NW2d ___ (No. 158302, decided 7/29/20), slip op at 10 (“It would make little sense to say that an insurer can invoke common-law defenses when sued but cannot place those defenses in its contract.”). In both circumstances, an insured is entitled to seek to have the policy declared void ab initio. Bazzi, 502 Mich at 412. Then, if declared void ab initio, the insurer may pursue rescission. Id at 409. The party seeking to rescind a contractual agreement has the burden of establishing that rescission is warranted. Gardner v Thomas R Sharp & Sons, 279 Mich 467, 469; 272 NW2d 871 (1937). And, as indicated above, the trial court then has the discretion to determine whether rescission is warranted by balancing the equities based on the specific facts and circumstances of each case. Bazzi, 502 Mich at 410. That is precisely what the trial court did in this case, and we find no error in this regard.
AAA argued second that, even if the trial court did perform a proper analysis pursuant to Bazzi, it reached an incorrect result nonetheless. In reviewing the trial court’s equity decision, the Court of Appeals relied on the “‘nonexclusive list of factors’ that a trial court might consider when exercising discretion in deciding whether to rescind an insurance policy,” set forth in Farm Bureau Gen Ins Co of Mich v ACE American Ins Co, 503 Mich 903 (2018):
(1) the extent to which the insurer could have uncovered the subject matter of the fraud before the innocent third party was injured; (2) the relationship between the fraudulent insured and the innocent third party to determine if the third party had some knowledge of the fraud; (3) the nature of the innocent third party’s conduct, whether reckless or negligent, in the injury-causing event; (4) the availability of an alternate avenue for recovery if the insurance policy is not enforced; and (5) a determination of whether policy enforcement only serves to relieve the fraudulent insured of what would otherwise be the fraudulent insured’s personal liability to the innocent third party. [Pioneer State Mut Ins Co, ___ Mich App at ___; slip op at 7, quoting Farm Bureau Gen Ins Co of Mich, 503 Mich at 906-907 (MARKMAN, J., concurring).]
The Court of Appeals addressed each of the five factors set forth in Farm Bureau, and accordingly held that the trial court did not abuse its discretion in ruling that AAA was not entitled to rescission.
Regarding the first factor, i.e., “the extent to which the insurer could have uncovered the subject matter of the fraud before the innocent third party was injured,” Auto Owners and Williams contend that AAA should have been alerted to Johnson’s fraudulent conduct given that he owned six vehicles for purportedly personal use. As this Court recognized in Pioneer State Mut Ins Co, ___ Mich App at ___; slip op at 7 n 7, however, “[t]he first factor does not impose a duty to investigate upon insurers . . . .” The mere fact that Johnson purportedly had numerous vehicles does not appear to be sufficiently suspicious to warrant such an investigation. For this reason, we would conclude that this factor weighs relatively evenly between the parties.
Regarding the second factor, i.e., review of “the relationship between the fraudulent insured and the innocent third party to determine if the third party had some knowledge of the fraud,” Auto Owners and Williams correctly assert that this factor weighs against rescission because there is no evidence that Williams (or Leftwich) was aware of Johnson’s fraudulent conduct. See Pioneer State Mut Ins Co, ___ Mich App at ___; slip op at 8 (explaining that the second factor “weighs against rescission” when “there is no evidence that the injured person was ever aware of [the insured’s] representations”). This factor weighs against rescission.
Regarding the third factor, i.e., “the nature of the innocent third party’s conduct, whether reckless or negligent, in the injury-causing event,” Auto Owners correctly asserts that this factor weighs against rescission. As this Court explained in Pioneer State Mut Ins Co, ___ Mich App at ___; slip op at 8, “[t]he third factor—the innocent third party’s conduct in the event that caused the injury—also weighs against rescission because [the innocent third party] was simply a passenger in [the insured’s] car and was not involved in the operation of the vehicle.”
Regarding the fourth factor, i.e., “the availability of an alternate avenue for recovery if the insurance policy is not enforced,” the trial court largely dismissed this factor, concluding that there would almost always be an alternative avenue for recovery in light of the Michigan Assigned Claims Plan (MACP). See Spectrum Health Hosp v Mich Assigned Claims Plan, ___ Mich App ___, ___; ___ NW2d ___ (2019) (Docket No. 343563), p 1 (“The purpose of the MACP is to ensure prompt coverage for persons injured in motor vehicle accidents when coverage cannot be found or is unavailable.”). AAA takes issue with this analysis, claiming that there are situations in which the MACP would not be an alternative source of recovery, such as when a claimant fails to comply with the MACP’s one-year notice requirement. See MCL 500.3174 (“A person claiming through the assigned claims plan shall notify the Michigan automobile insurance placement facility of his or her claim within 1 year after the date of the accident. . . .”). Regardless, it is unclear how much weight the availability of alternative sources of recovery should be afforded in a case like this. Indeed, turning to those alternative sources of recovery would bring in even more innocent parties. Here, for example, it would mean that Auto Owners, Williams’ automobile insurer, and GEICO Indemnity Company, Leftwich’s automobile insurer, would be responsible for PIP and uninsured-motorist benefits despite being just as innocent as AAA, Williams, and Leftwich. If it were a situation where, for example, Johnson, the party that actually engaged in the wrongdoing, was collectible, such a factor might be deemed to strongly favor permitting rescission because the at-fault party would experience the consequences of his or her wrongdoing. But, in a situation like this, where potential “alternative sources of recovery” are equally innocent, these circumstances, in and of themselves, would not necessarily tip the scales one way or the other.
However, even if the availability of other sources of recovery was a crucial factor in a case like this, the record reflects that there is evidence in the record to support the notion that an alternative source of recovery may not have been available. At a hearing with respect to Leftwich, the trial court recognized that “[t]here’s evidence that [Leftwich] has an alternative avenue for some recovery absent enforcement of the policy, but evidence also shows that she has reached or will reach her . . . under-insured policy limits.” Indeed, Leftwich presented both argument and evidence that the injuries that she suffered in the accident exceeded her personal automobile policy’s uninsured-motorist coverage policy limits. That Leftwich’s injuries resulted in expenses that exceeded her own policy’s limits means that this factor would weigh heavily against allowing rescission. Williams has not presented similar evidence, but has argued that, in the event Johnson’s AAA policy is rescinded, her insurance premiums will be increased. AAA merely asserts—without any citation to the record—that Leftwich can recover from GEICO and Williams can recover from Auto Owners. “An appellant may not merely announce his position and leave it to this Court to discover and rationalize the basis for his claims, nor may he give issues cursory treatment with little or no citation of supporting authority.” Peterson Novelties, Inc v City of Berkley, 259 Mich App 1, 14; 672 NW2d 351 (2003) (citations omitted). “An appellant’s failure to properly address the merits of his assertion of error constitutes abandonment of the issue.” Id. Because AAA ignores Leftwich’s evidence that her injuries resulted in expenses that exceeded her policy limits, and because AAA points to no evidence whatsoever to support its assertion that alternative sources of recovery exist and will not be exhausted, we conclude that this argument is abandoned. We note, however, that Auto Owners and Williams make a persuasive point in arguing that, in the event the AAA policy is not rescinded, AAA will have precisely the same opportunity for recovery against Johnson, its insured, that Auto Owners and Williams would have. “A plaintiff . . . is not required to elect between the remedies of rescission and damages. Furthermore, when a contract is not rescinded, the defrauded insurer may still recover damages on the basis of fraud.” Bazzi, 502 Mich at 410 n 11 (citations omitted); Glover v Radford, 120 Mich 542, 544; 79 NW 803 (1899) (“If there was fraud, and he did not succeed in rescinding the contract, he certainly ought to have the right to recover damages for the injury he had suffered, if any.”); Hedler v Manning, 252 Mich 195, 197; 233 NW 223 (1930) (“A bill for rescission with alternative prayer for damages for fraud if rescission be impracticable is well laid.”). Because each party would presumably have the same ability to pursue recovery against Johnson, this factor would not necessarily weigh strongly one way or the other even if there are alternate sources of recovery.
Finally, regarding the fifth factor, i.e., “whether policy enforcement only serves to relieve the fraudulent insured of what would otherwise be the fraudulent insured’s personal liability to the innocent third party,” the trial court commented that Johnson “should not be relieved” “from his bad acts in this case, his personal liability,” but did not necessarily weigh the factor. AAA claims that “[t]his factor, like the previous one, weighs in favor of allowing rescission,” because “[r]equiring [AAA] to provide liability coverage would ‘transfer liability to the innocent third party from the insured who committed the fraud to the insurer that did not commit wrongdoing.’ ” AAA appears to be correct, but it is unclear how much weight this factor should be given, especially in light of the other factors discussed above.
