Michigan Court of Appeals; Docket #346734; Unpublished
Judges Murray, Jansen, and Markey; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Requirement That Benefits Were Unreasonably Delayed or Denied [§500.3148(1)]
Calculating Attorney Fees Not Based on Contingent Fee
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Fraud/Misrepresentation
SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s decision to set aside its prior summary disposition order dismissing the plaintiff’s claims against defendant Everest National Insurance Company. The trial court originally granted summary disposition in Everest’s favor upon concluding that the plaintiff, Lakisha Johnson, committed fraud in the procurement of her no-fault insurance policy with Everest, and that her son, Gregory Graham III, who was catastrophically injured in a motor vehicle collision, therefore could not collect no-fault PIP benefits under that policy. After the Michigan Supreme Court decided Bazzi v. Sentinel Ins. Co., 502 Mich. 390 (2018) (“Bazzi II”), however—in which the Court abrogated the innocent third-party rule and held that a trial court must balance the equities before determining whether rescission of a no-fault policy is an appropriate remedy with respect to claims under that policy by innocent third parties—the trial court did, in fact, balance the equities, and set aside its summary disposition order in Everest’s favor. On appeal, the Court of Appeals determined that the trial court did not err either in its decision to revisit its prior summary disposition order in favor of Everest, or in its determination that a balancing of the equities weighed against allowing Everest to rescind Johnson’s policy with respect to Graham III’s claim.
Lakisha Johnson’s ward and son, Gregory Graham III, was catastrophically injured in a motor vehicle collision, and Johnson turned to her own insurer, Everest, for no-fault PIP benefits related to Graham III’s medical treatment. A priority dispute arose between Everest and USAA Casualty Insurance Company—the latter being the insurer of the vehicle Graham was traveling in at the time of the collision—but after reviewing Johnson’s initial application for insurance, Everest determined that Johnson had committed fraud and sought to rescind her policy altogether. Everest then moved for summary disposition, which the trial court granted. While the plaintiff’s first-party action was still pending against USAA, however, the Supreme Court decided Bazzi II, and abrogated the innocent third-party rule and held that a trial court must balance the equities before determining whether rescission is an appropriate remedy with respect to a claim made under the policy by an innocent third party. USAA then filed a motion under MCR 2.604 requesting that the trial court set aside its prior summary disposition order in light of the Supreme Court’s decision in Bazzi II, which the trial court granted. The trial court then balanced the equities and determined that rescission was not an appropriate remedy under the circumstances. It thus set aside its previous order, and ultimately granted summary disposition in USAA’s favor, as well as Johnson’s motion for declaratory judgment, interest, and attorney fees.
On appeal, Everest argued that the trial court erred by revisiting and setting aside its prior summary disposition order and by determining that a balancing of the equities weighed against rescission with respect to Graham III’s claim under the policy. The Court of Appeals rejected this argument, finding both that the trial court had the authority under MCR 2.604(1) to set aside its previous order and that the trial court properly balanced the equities in determining that rescission was not appropriate under the circumstances.
Everest criticizes the trial court’s ruling by claiming that the court “eschewed the traditional equity maxims” of Michigan law and instead fashioned its own factors for determining whether to allow Everest to rescind the no-fault policy. At the hearing on USAA’s motion to set aside the prior summary disposition order, the trial court asked counsel for Everest not to focus on the maxims of equity because they were not applicable and did not address the facts of the case. The court stated that it was instead guided by the Supreme Court’s directive in Bazzi II, 502 Mich at 410, that it balance the equities as between Everest and Graham in deciding whether the remedy of rescission should be granted. Moreover, a review of the trial court’s extended dialogue with counsel for Everest and USSA, as well as its decision, makes it clear that the court was very aware of its obligation to exercise discretion to grant or deny the remedy of rescission in a manner that was just and equitable, and that it bore the serious responsibility of deciding, as between Graham and Everest, who should assume the loss. See id. at 410-411 (recognizing that the remedy of rescission should not be granted if the ultimate result would be unjust or inequitable, and the trial court must decide which blameless party, between two innocent parties, should carry the burden of a loss). Therefore, we reject Everest’s argument that the trial court erred by ignoring pertinent equitable considerations.
The Court of Appeals next held that the court did not err in granting attorney’s fees to Johnson. Everest argued that its denial of Graham III’s claim was justified because it believed that rescission of Johnson’s policy was appropriate pursuant to Bazzi I. The Court of Appeals disagreed, however, holding that “Everest was not permitted to unilaterally and automatically absolve itself of responsibility to tender no-fault benefits with the trial court ordering rescission of the no-fault policy.” Rather, Everest “still was responsible to tender payment of PIP benefits in accordance with the terms of the policy (unless rescinded by the trial court), the no-fault act, and then later the trial court’s orders.” Having failed to fulfill that responsibility, Everest’s denial of Graham III’s claim was deemed unreasonable, and Johnson was therefore entitled to attorney’s fees pursuant to MCL 500.3148(1).
On cross-appeal, Johnson argued that the trial court erred by failing to consider Johnson’s contingency-fee agreement with counsel in calculating a reasonable attorney’s fee award. The Court of Appeals noted, however, that contrary to Johnson’s contention, the trial court did consider the contingency-fee agreement, and properly concluded “that it did not warrant an increase in plaintiff’s attorney fees under the circumstances.”
