Michigan Court of Appeals; Docket #361298; Unpublished
Judges Riordan, Borrello, and Boonstra; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Innocent Third Party Doctrine
Insurer Assigned Claims Reimbursement
SUMMARY:
In this unanimous, unpublished, per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order in favor of Plaintiff Nationwide Mutual Fire Insurance Company (“Nationwide”), which filed an equitable subrogation against Defendant Esurance Property & Casualty Insurance Company (“Esurance”). The Court of Appeals held that a balancing of the equities under Bazzi v Sentinel Ins Co, 502 Mich 390 (2018) weighed in favor of rescinding the subject Esurance no-fault policy with respect to Daniel Moore—a bicyclist who was injured when a motor vehicle insured by Esurance crashed into him, who subsequently applied for PIP benefits through the Michigan Automobile Insurance Placement Facility (“MAIPF”) and had his claim assigned to Nationwide.
Daniel Moore was riding his bicycle in 2015 when a truck driven by Derek Gregory crashed into him. The truck was insured by Esurance, but Moore filed an application for PIP benefits following the crash with the MAIPF. The MAIPF assigned Moore’s claim to Nationwide, who proceeded to pay a total of $454,871.09 in medical expenses on Moore’s behalf. Nationwide later filed an action against Esurance seeking reimbursement for the PIP benefits it paid to Moore, and Esurance responded by filing a third-party complaint against Nationwide and Gregory’s wife, alleging that Gregory’s wife had failed to disclose material facts on her original application for no-fault insurance, thereby entitling Esurance to rescind the policy. Nationwide then filed a motion for summary disposition, arguing that Blair was an innocent third party to Gregory’s wife’s fraud and that a balancing of the equities under Bazzi did not weigh in favor of rescission with respect to Moore. The trial court agreed, analyzing the following five factors set forth in Pioneer State Mut Ins Co v Wright, 331 Mich App 396 (2020) for determining whether rescission applies to innocent third parties:
“(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 trial court determined that the first and fifth factors were neutral, that the second and third factors weighed against rescission, and that the fourth factor weighed in favor of rescission. Adding up the factors for and against, then, the trial court ruled that the equities weighed against rescission as to Moore.
The Court of Appeals reversed the trial court’s summary disposition order, holding that a proper balancing of the equities weighed in favor of rescission as to Moore. The Court noted that the factors are ‘not to be merely counted up,’ and that, in this case, the fourth factor—which weighed heavily (not slightly, as the trial court determined) in favor of rescission—was far and away the most important. In so holding, the Court recognized that Moore has already recovered benefits from an alternate source, so if the policy is rescinded, neither Esurance nor Moore would, bear the burden of Blair’s fraud. The Court also noted that Supreme Court Justice Markman—the progenitor of the list of factors set forth in Pioneer—“specifically indicated that the availability of recovery from the MACP—which in this case incontrovertibly exists through Nationwide—is a factor that may result in the overall weight of the equities favoring rescission.”
“In totality, we conclude that the trial court abused its discretion by holding that Esurance had failed to show that rescission was warranted. See Farm Bureau II, 337 Mich App at 108. Overall, factor one was neutral; factor two weighed against rescission; factor three weighed slightly against rescission, factor four weighed heavily in favor of rescission and factor five was neutral. Although two factors weighed to some degree against rescission and one factor weighed heavily in favor, again, the factors are ‘not merely to be counted up’ but should be weighed to determine which innocent party should bear the burden of the insured’s fraud. Farm Bureau II, 337 Mich App at 108; see also Farm Bureau I, 503 Mich at 903 (MARKMAN, J., concurring) (explaining that ‘[t]he ultimate issue in innocent-third-party cases’ is which innocent party ‘should bear the ultimate burden of the insured's fraud’). In this case, Moore has already recovered benefits from an alternate source, and rescission will have no effect on that coverage. In other words, if the policy is rescinded, neither Esurance nor Moore would, in practical terms, bear the burden of Blair’s fraud. Under these circumstances, the trial court’s decision to deny rescission fell outside the range of principled outcomes. Pioneer, 331 Mich App at 405; see also Farm Bureau I, 503 Mich at 903 (MARKMAN, J., concurring) (‘Where the innocent third party possesses an alternative means of recovery, equity may weigh in favor of rescission because the insurer need not suffer loss because of the fraud.’)”
In addition to its principle holding, the Court of Appeals also made a noteworthy point of clarification in its analysis: Esurance had argued, on appeal, that the trial court balanced the equities between the wrong parties—Moore and Esurance—and should instead have balanced the equities between Nationwide and Esurance; the Court of Appeals disagreed, writing, “Caselaw clearly demonstrates that the equities must be balanced between the injured person and the party seeking rescission.”
