Michigan Court of Appeals; Docket #358501; Unpublished
Judges Gadola, Cavanagh, and Kelly; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
Innocent Third Party Doctrine
In this unanimous, unpublished, per curiam decision, the Court of Appeals affirmed the trial court’s summary disposition order in favor of Defendant Foremost Insurance Company Grand Rapids Michigan (“Foremost”) in Foremost’s no-fault priority dispute with Co-Defendant Auto Club Insurance Company (“Auto Club”). The Court of Appeals held that the trial court did not abuse its discretion in finding that Auto Club could not rescind the subject policy for fraud with respect to Plaintiff Shaun Finn, an innocent third-party.
Shaun Finn was injured in a car accident while traveling as a passenger in a vehicle driven by Ricky Marsh, owned by Karen Marsh, Ricky Marsh’s wife, and insured by Foremost. At the time of the accident, Shaun lived with Kyle Finn, his son, who was insured by Auto Club. After the accident, Shaun sought no-fault PIP benefits from both Foremost and Auto Club, and during the proceedings, Auto Club discovered that Kyle had failed to disclose that Shaun was living with him on his original application for coverage. Kyle testified that, when he first applied for coverage, he did not list Shaun as a domiciled relative because his Shaun was planning on moving into a house with his girlfriend shortly thereafter. After Shaun’s plans fell through, despite having an obligation under his policy to notify Auto Club of any changes in his living status within 30 days, Kyle did not notify Auto Club that Shaun was continuing to live with him, testifying that ‘it was the last thing on [his] mind to get a hold of [Auto Club] and switch it to two people in the home.’ After its discovery, Auto Club sent Kyle a letter rescinding the policy ab initio, and denied Shaun’s claim thereunder. Shaun proceeded to file a first-party action against both Auto Club and Foremost, and Foremost moved for summary disposition, arguing that a balancing of the equities did not weigh in favor of rescission of Kyle’s policy with respect to Shaun, an innocent third-party to Kyle’s fraud. The trial court agreed, granting Foremost’s motion and finding that Auto Club was the highest priority insurer.
The Court of Appeals affirmed the trial court’s summary disposition order, holding that the trial court did not err in finding—after considering the relevant factors set forth in Pioneer State Mut Ins Co v Wright, 331 Mich App 396 (2020)—that Auto Club could not rescind Kyle’s policy with respect to Shaun’s claim thereunder. Those factors 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.”
The Court of Appeals found that the first factor weighed in favor of rescission as to Shaun, because Shaun “did not have a valid driver’s license and did not own a vehicle, meaning there was no independent search Auto Club could have performed through reasonable diligence which would uncover plaintiff’s residency in Kyle’s home.” The Court found that the second factor weighed against rescission as to Shaun, as “[t]here was no evidence indicating plaintiff was aware of Kyle’s misrepresentation.” The Court found that the third factor weighed against rescission as to Shaun, as Shaun “was a passenger in the [vehicle] and did not cause the accident.” The Court found that the fourth factor weighed in favor or rescission as to Shaun, because Shaun “had potential alternate avenues for recovery from Foremost.” And the fifth factor, the Court noted, was inapplicable “because Kyle was not involved in the accident, and has no personal liability to plaintiff.” Thus, because two factors weighed in favor of rescission as to Shaun, and two factors weighed against rescission as to Shaun, the Court of Appeals held that the trial court did not abuse its discretion in determining that rescission of the policy as to Shaun was inappropriate.