Michigan Court of Appeals; Docket #354808; Published
Judges Sawyer, Servitto, and Rick; Per Curiam
Official Michigan Reporter Citation: Forthcoming; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Innocent Third Party Doctrine
SUMMARY:
In this unanimous, published, per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiff University of Michigan Regents’ (“the University of Michigan” or “the University”) first-party action against Defendants Michigan Automobile Insurance Placement Facility (MAIPF) and Falls Lake National Insurance Company (“Falls Lake”). The Court of Appeals held that a trial court must balance the equities before allowing a no-fault insurer to rescind a policy on the basis of fraud and deny the claims of an innocent third-party thereunder, even if the rescission was mutual—such as in this case, where Falls Lake, upon discovering that its insured committed fraud in procuring his no-fault policy, issued a refund to its insured who, in turn, endorsed and cashed the refund check.
Sterling Pierson drove Valentino Trevino to a bar in a 2003 Chevy Malibu Pierson he obtained insurance for just nine days prior, from Falls Lake. After Pierson dropped Trevino off, Trevino exited the vehicle, opened the driver’s side door, and began attacking Pierson. Pierson tried to drive the vehicle away, but Trevino clung to the driver’s side door. Pierson swerved in an attempt to break Trevino’s grip on the door, but in so swerving, he crossed the center line and crashed into a parked car. Thereafter, Trevino sought no-fault PIP benefits for the injuries he sustained in the crash from Falls Lake, but Falls Lake attempted to rescind Pierson’s policy ab initio, based on misrepresentations Pierson made in his original application for insurance. Falls Lake mailed Pierson a refund check for the premium he paid for the policy, which Pierson endorsed and cashed.
Approximately three months later, one of Trevino’s assignee medical providers, the University of Michigan, filed a claim for PIP benefits related to the treatment it rendered to Trevino with the MAIPF. The MAIPF denied the University’s claim because an applicable insurer was identified in Falls Lake. The University of Michigan then filed the underlying first-party action against both the MAIPF and Falls Lake, both of whom filed motions for summary disposition. Rather than engage in a balancing of the equities, as is required under Bazzi, before determining whether Falls Lake could rescind the policy with respect to Trevino, an innocent third-party to Pierson's fraud, the trial court distinguished this case from Bazzi, based on the fact that, in this case, there was a mutual rescission of Pierson's policy. Therefore, the trial court concluded that it did not have to balance the equities and simply granted summary disposition in Falls Lake's favor.
The Court of Appeals reversed the trial court’s summary disposition order, holding that “trial courts are required to balance the equities between a defrauded insurer and an innocent third party before extending the mutual rescission of a no-fault insurance policy to an innocent third party.” The Court conceded that, in Bazzi, the no-fault insurer sought rescission of the subject policy by grant of the trial court, whereas, in this case, rescission was achieved by “mutuality of action, i.e., by return and acceptance of the premium.” However, the Court of Appeals held that this distinction was immaterial: in either case, a trial court must balance the equities before permitting an insurer to deny the claims of an innocent third party under a policy the insurer is either seeking to rescind or which was automatically rescinded by “mutuality of action.” Accordingly, the Court of Appeals remanded to the trial court for further proceedings consistent with its ruling.
“Notwithstanding the distinctions between the equitable remedy of rescission and the legal remedy of rescission, this Court has held on multiple occasions that trial courts are required to balance the equities between a defrauded insurer and an innocent third party before extending the mutual rescission of a no-fault insurance policy to an innocent third party. Estate of Audisho v Everest Nat’l Ins Co, unpublished per curiam opinion of the Court of Appeals, issued June 24, 2021 (Docket No. 352391), p 3; Alshabi v Doe, unpublished per curiam opinion of the Court of Appeals, issued January 23, 2020 (Docket No. 346700), p 3.1 While in another case, Green v Meemic Ins Co, unpublished per curiam opinion of the Court of Appeals, issued August 20, 2020 (Docket No. 348651), this Court reached the opposite conclusion, the Green panel makes no reference to our Supreme Court’s opinion in Bazzi, 502 Mich at 408-412, and does not address the injured party’s status as an innocent third party. In light of these omissions and this Court’s opinions in Alshabi and Estate of Audisho, we hold that trial courts are required to balance the equities between a defrauded insurer and an innocent third party before extending the mutual rescission of a no-fault insurance policy to an innocent third party. This conclusion is consistent with our Supreme Court’s recognition that courts of law have ‘considerable discretion, almost akin to that wielded by equity courts[,]’ when granting rescission. Meemic Ins Co, 506 Mich at 310 n 19. Furthermore, application of the Bazzi rule to matters involving rescission at law is a logical outgrowth of Bazzi.”
***
In sum, trial courts are required to balance the equities between a defrauded insurer and an innocent third party before extending the mutual rescission of a no-fault insurance policy to an innocent third party. Thus, the circuit court erred when it held that Falls Lake had rescinded Pierson’s policy of insurance without balancing the equities between Falls Lake, as a defrauded insurer, and Trevino, as an innocent third party. As such, remand is necessary in order for the circuit court to balance the equities between Falls Lake, as a defrauded insurer, and Trevino, as an innocent third party. See Bazzi, 502 Mich at 412 (holding that remand was required in order for the trial court to determine whether, in its discretion, rescission of the insurance policy was available). We therefore vacate the trial court’s summary disposition orders and remand this matter in order for the circuit court to balance the equities between Falls Lake, as a defrauded insurer, and Trevino, as an innocent third party."
