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Michigan Spine & Brain Surgeons, PLLC v Home-Owners Ins Co (COA – UNP 2/18/2021; RB #4220)


Michigan Court of Appeals; Docket # 349367; Unpublished
Judges Stephens, Servitto and Letica; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion

One-Year Back Rule Limitation [§3145(1)]

Collateral Estoppel and Res Judicata
Medical Provider Standing (Post-Covenant)
Cancellation and Rescission of Insurance Policies

In this unanimous unpublished per curiam opinion, the Court of Appeals reversed the trial court’s order granting summary disposition to defendant Home-Owners Ins Co on the issue of whether recission of the insured’s insurance policy was appropriate as against the plaintiff medical provider. In doing so, the Court found that the doctrine of res judicata barred the fraud claim against plaintiff Michigan Spine & Brain Surgeons, PLLC, because Home-Owners had previously failed to prevail on the fraud claim in a lawsuit between the injured person and Home-Owners, and as the injured person’s assignee, Michigan Brain & Spine possesses the same rights as Hosey, and therefore, is protected by res judicata from defendant’s fraud allegations in this case.

This case arose from a motor vehicle accident in which the injured person, Amelia Hosey was rear-ended by a bus while coming to a stop at a traffic light. Hosey was insured by Home-Owners, and her policy with Home-Owners  stated that Home-Owners  would “not cover any person seeking coverage under this policy who has made fraudulent statements or engaged in fraudulent conduct with respect to procurement of this policy or to any occurrence for which coverage is sought.” Following the accident, Hosey applied for PIP benefits from defendant, alleging injuries of headaches, lightheadedness, neck and mid back pain, lower back pain, shoulder pain, and pain radiating into arms. Hosey also claimed that she had not experienced the same or similar symptoms before the afficent, and that she had never made a prior insurance claim. Hosey further sought reimbursement for replacement services that she alleged had occurred. At some point after the accident, Hosey underwent surgery with plaintiff, and Hosey executed several medical lien and assignment agreements. Shortly after the accident, Home-Owners  stopped paying PIP benefits to Hosey, and Hosey sued, resulting in a settlement between Home-Owners  and Hosey. Based on an assignment from Hosey, Plaintiff Michigan Spine & Brain also brought its own lawsuit, alleging Home-Owners  failed to pay invoices submitted to the defendant. In response, Home-Owners  filed a motion for summary disposition, contending that it did not have to pay Michigan Brain & Spine because Hosey “misrepresented her need for replacement services, her preexisting medical conditions, and her previous automobile insurance claims.” The trial court agreed and granted defendant’s motion.

On appeal, Michigan Spine & Brain argued that the trial court erred when it concluded that there was no genuine issue of material fact that Hosey made fraudulent statements on her application for PIP benefits. Michigan Spine & Brain  also argued that the trial court erred when it rejected its argument that recission of the insurance policy was improper because plaintiff was an innocent third party. Finally, Michigan Spine & Brain  argued that Home-Owners  was barred from raising a defense of fraud based on the doctrines of res judicata and collateral estoppel.

In analyzing plaintiff’s first argument, the Court noted that Hosey’s described symptoms following the accident were also shown in medical records obtained before the accident. Further, the Court noted that the records of several insurance companies supported that Hosey had previously filed an insurance claim for injuries sustained prior to the current accident. Thus, the Court found that it was “not an error for the trial court to conclude that her statement on the application for PIP benefits – that she had no previous insurance claims – was false.”

The Court then turned to Michigan Spine & Brain’s second argument that recission of the insurance policy was inappropriate under the innocent third-party rule. The Court disagreed, finding that Michigan Spine & Brai, as a medical provider, was not an innocent third-party, but rather an assignee of Hosey. Thus, the Court clarified “Hosey was subject to the fraud provisions in the insurance policy, and plaintiff was as well.”

The Court then rejected Michigan Spine & Brain ’s final argument that Home-Owners  was barred under res judicata and collateral estoppel from raising the issue of fraud, because Home-Owners  failed to raise the issue against Hosey. In doing so, the Court noted that “for collateral estoppel to apply three elements must be satisfied: (1) a question of fact essential to the judgment must have been actually litigated and determined by a valid and final judgment; (2) the same parties must have had a full and fair opportunity to litigate the issue; and (3) there must be mutuality of estoppel.” The Court held that the first prong could not be met because the issue of whether Hosey made false statements was not actually litigated in the lawsuit between Hosey and Home-Owners. Therefore, the Court rejected Michigan Spine & Brain’s argument that collateral estoppel barred  Home-Owners from raising the issue of fraud

On the other hand, regarding res judicata, the Court agreed with Michigan Spine & Brain that res judicata barred Home-Owners from raising the issue of fraud.  In reaching its holding, the Court noted that “[f]or  res  judicata  to  preclude  a  claim,  three elements must be satisfied: (1) the prior action was decided on the merits, (2) both actions involve the same parties or their privies, and (3) the matter in the second case was, or could have been, resolved in the first.” The Court explained that the first element was satisfied because a settlement agreement is treated as a decision on the merits for purposes of the doctrine, and that the second element was met because the Court had recently concluded that “in the context of a provider-assignee that such provider is in privity with the insured-assignor for purposes of claims under the no-fault act. However, turning to the third element, the Court examined HomeOwners’  argument that “it was not able to raise the issue of fraud in its litigation with Hosey because the dispositive motion cutoff date assed before it knew of Hosey’s fraud.” The Court disagreed, finding that the evidence presented showed that Home-Owners  had been investigating Hosey’s false claims before she had even filed her complaint. Thus, the Court found that “as an assignee of Hosey, Michigan Spine & Brain ‘stands in the position of [Hosey], possessing the same rights and being subject to the same defenses[,]’” and as a result of the settlement between defendant and Hosey, “defendant [was] precluded from raising the issue of fraud against Hosey.   Accordingly, the Court held that “the trial court plainly erred in granting summary disposition to defendant when res judicata barred the fraud claim against plaintiff.”

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