Michigan Court of Appeals; Docket #353759; Unpublished
Judges Gleicher, Cavanagh, and Letica ; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Allowable Expenses: Reasonable Charge Requirement [§3107(1)(a)]
TOPICAL INDEXING:
Cancellation and Recission of Insurance Policies
Innocent Third Party Doctrine
SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s denial of Citizens Insurance Company of the Midwest’s (“Citizens”) motion for summary disposition, in which Citizens sought dismissal of Plaintiffs Shaina Breece and Detroit Medical Center’s (“DMC”) first-party action. The Court of Appeals also affirmed the trial court’s denial of DMC’s motion for summary disposition, in which DMC asked that the court rule as, a matter of law, that the amounts it charged for the treatment it provided to Breece after the subject motor vehicle collision were reasonable for purposes of the no-fault act. With respect to Citizens’s motion, the Court of Appeals held that the trial court did not abuse its discretion in denying Citizens’ attempt to rescind the policy Shaina was covered under after discovering that Shaina’s mother had committed fraud in its procurement. Shaina was an innocent third-party to the fraud and the trial court did not abuse its discretion in concluding that a balancing of the equities weighed against rescission of the policy with respect to Shaina. Regarding DMC’s motion, the Court of Appeals held that a genuine issue of material fact existed as to whether DMC’s charges were reasonable, notwithstanding the fact that DMC subjected those charges to an independent audit. The Court reasoned that “[t]he amount determined to be compensable by [the auditing entity] was relevant evidence of reasonableness, but was not dispositive of the issue.”
Shaina Breece’s mother, Tammy Breece, filed an application for no-fault insurance with Citizens, and on the application, responded “no” to the question, “are any vehicles for which insurance is requested not solely owned by and registered to the applicant?” She also indicated that all the insured vehicles were kept at her address and that she was the only driver. Sometime thereafter, Tammy added a Pontiac G6 to the policy, which she co-owned with Shaina and which was registered to Shaina’s address, but did not advise Citizens of Shaina's co-ownership. Approximately six months later, Shaina was injured while driving the G6 and incurred $42,487.35 in charges for her treatment at DMC.
After Citizens failed to pay her claims for PIP benefits, Shaina filed a lawsuit against Citizens, who in turn brought Tammy and DMC into the action, and sought rescission of the policy as a result of Tammy’s misrepresentations. Both Citizens and DMC then moved for summary disposition, with the former arguing that Tammy committed fraud and that it was therefore entitled to rescission, and the latter arguing that it was entitled to $38,713.30 from Citizens based on an audit of its charges by an independent auditing group, Corvel Corporation. The trial court denied both motions, but determined that equity weighed against rescission with respect to Shaina. Citizens filed an application for leave to appeal regarding the issue of rescission, and in lieu of granting the application, the Court of the Appeals vacated the trial court’s order and remanded for a proper balancing of the equities based on the test set forth in Pioneer State Mut Ins Co v Wright, 331 Mich App 396 (2020). On remand, the trial court applied the Pioneer test and ruled, again, that equity weighed against rescission.
The Court of Appeals affirmed the trial court’s denial of Citizens' motion for summary disposition regarding the issue of rescission, holding that the trial court properly applied the Pioneer test to the facts of this case in ruling that equity weighed against rescission. The five factors set forth in Pioneer are:
"(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, 331 Mich App at 411, citing Farm Bureau, 503 Mich at 906-907 (MARKMAN, J., concurring).]"
With regard to these factors, the Court held: that the first factor did not weigh in either Citizens’ or Shaina’s favor; that the second factor weighed in Shaina’s favor, because there was no evidence that she was involved in or had any knowledge of Tammy’s fraudulent statements; that the third factor weighed in Shaina’s favor, because even though she was not wearing her seatbelt at the time of the collision, she did not cause the collision; that the fourth factor weighed in favor of Shaina, because the one-year-back rule precluded Shaina from pursuing benefits from any other insurer; and that the fifth factor did not apply in this case. In light of this analysis, the Court of Appeals determined that the trial court did not abuse its discretion in denying Citizens’s motion for summary disposition regarding the issue of rescission.
The Court of Appeals also affirmed the trial court’s denial of DMC’s motion for summary disposition regarding the reasonableness of its charges. DMC argued on cross-appeal that Shaina’s charges were audited by an independent auditor which conclusively established the reasonable amount owed by Citizens. The Court of Appeals disagreed, holding that such audits are relevant evidence of reasonableness, but are not dispositive.
"DMC submitted a medical bill to Corvel listing 22 services it had provided to Shaina. Corvel reviewed and repriced 19 of the line items. The amount determined to be compensable by Corvel was relevant evidence of reasonableness, but was not dispositive of the issue. Although DMC claims that Citizens’ representative Michelle Nowak told a DMC representative that the insurer would have issued a payment for $38,713.30 to DMC but for the fact that it was seeking rescission, this discussion was undocumented.
Whether the medical services were reasonably necessary, 'must be assessed by using an objective standard.' Douglas, 492 Mich at 264 (cleaned up). In support of its claim that the expenses were reasonably necessarily, DMC argues that the medical care provided was mandated under the Emergency Medical Treatment and Active Labor Act, 42 USC 1395dd, which required that the DMC provide Shaina with necessary stabilizing treatment. This does not support that each of the 22 specific services rendered were objectively and reasonably necessary. Although this issue may eventually resolve in DMC’s favor, the evidence was insufficient to support summary disposition."
