Michigan Court of Appeals; Docket #359681; Published
Judges Gadola, Borrello, and Hood; Authored by Judge Hood
Official Michigan Reporter Citation: Forthcoming; Link to Opinion
Assignments of Benefits – Validity and Enforceability
Cancellation and Rescission of Insurance Policies
In this unanimous, published decision authored by Judge Hood, the Court of Appeals reversed the trial court’s summary disposition order in which it dismissed Plaintiff C-Spine Orthopedics, PLLC’s (“C-Spine”) action for No-Fault PIP benefits against Defendant Progressive Michigan Insurance Company (“Progressive”). The Court of Appeals held that C-Spine was not bound by a judgment against its patient/assignor, Benjamin Moore, in Moore’s separate action against Progressive. That judgment resulted in Moore’s policy being rescinded and voided ab initio, which Progressive argued nullified the assignment C-Spine obtained from Moore, and therefore took this case outside the framework of Mecosta Co Med Ctr v Metro Group Prop & Cas Ins Co, 509 Mich 276 (2022). The Court of Appeals disagreed, noting that rescission is an equitable remedy and that “[t]he fact that the court in Moore’s case granted the equitable remedy of rescission does not affect C-Spine’s rights, because C-Spine was not involved in that case”—in other words, Mecosta still controlled in this case.
Benjamin Moore was injured in a motor vehicle accident, after which he received treatment from C-Spine. Moore assigned to C-Spine his rights to pursue No-Fault PIP benefits related to his treatment from C-Spine, and when Progressive failed to pay for said treatment, C-Spine filed suit. Moore later filed his own suit against Progressive—seeking benefits other than the ones he assigned to C-Spine—and Progressive moved for summary disposition in that case, arguing that Moore had committed fraud in the inducement of his policy. Specifically, Progressive argued that Moore failed to list his wife as a resident on his original application for insurance. The trial court in Moore’s separate action granted summary disposition in Progressive’s favor and ordered that Moore’s policy be rescinded. After the trial court issued its order, Progressive moved for summary disposition in C-Spine’s action, which it argued was now barred by res judicata. C-Spine opposed the motion, arguing that this case was controlled by Mecosta, and that it could not be bound by a judgment rendered against Moore after Moore assigned his rights to C-Spine. Progressive argued, in response, that this case was not controlled by Mecosta because, unlike the judgment against the insured in Mecosta, the trial court’s judgment against Moore rendered his policy void ab initio, which retroactively nullified C-Spine’s assignment. The trial court ultimately agreed with Progressive and granted its motion for summary disposition.
The Court of Appeals reversed the trial court’s summary disposition order, holding that this case was controlled by Mecosta despite the fact that the judgment against him granted rescission of his policy. The Court noted that rescission is an equitable remedy, and that the fact that it was granted in Moore’s separate action did not retroactively affect C-Spine’s rights as they existed at the time it obtained its assignment from Moore. Thus, Mecosta controlled and C-Spine’s action was not barred by res judicata.
“Mecosta stands for the basic principle that a party may not use the shield of res judicata or collateral estoppel against an assignee who received the assignment before the attendant judgment. Mecosta Co Med Ctr, 509 Mich at 279-280. The fact that the court in Moore’s case granted the equitable remedy of rescission does not affect C-Spine’s rights, because C-Spine was not involved in that case. It had no opportunity to argue against rescission in that litigation. A contrary position would allow an assignor to cut off an assignee’s rights without the latter having any notice or opportunity to be heard. See id. at 281. Rescission does not change this.
. . .
Progressive correctly observes that rescission renders a contract void ab initio—as if it never existed. But it ignores that rescission is not automatic. See Bazzi, 502 Mich at 411. It is an equitable doctrine that courts use relying on a legal fiction to restore the parties to the relative positions they would have occupied had the contract never been made, after balancing the equities. See Bazzi, 502 Mich at 409; Wright, 331 Mich App at 409-410. ‘When a plaintiff is seeking rescission, ‘the trial court must balance the equities to determine whether the plaintiff is entitled to the relief he or she seeks.’ ’ Bazzi , 502 Mich at 410, quoting Johnson, 292 Mich App at 370 n 3. The trial court in Moore’s proceeding avoided this balancing by finding that Moore made the misrepresentation and therefore was not an innocent party. That court was dealing with only Moore’s claims, and did not consider C-Spine’s interest when deciding that rescission was just and equitable. See Amster, 259 Mich at 686. Relying on rescission to circumvent Mecosta Co Med Ctr and apply res judicata (and collateral estoppel) to bar C-Spine’s arguments against rescission would upend both of these doctrines. In short, the fact that the prior judgment involved rescission does not take it out of Mecosta Co Med Ctr’s framework.”