Michigan Court of Appeals; Docket #360908; Unpublished
Judges Hood, Cameron, and Garrett; 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
SUMMARY:
In this unanimous, unpublished, per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiff Wanda Smith’s action for no-fault PIP benefits against Defendant Progressive Marathon Insurance Company (“Progressive”). The Court of Appeals held that there were genuine issues of material fact as to whether the equities weighed in favor of rescinding the subject no-fault policy with respect to Wanda Smith, an innocent third-party thereunder.
Wanda Smith was driving her son, Shalonda Treadway’s, Buick LeSabre when she was involved in an accident. She sought PIP benefits after the accident from Progressive—Treadway’s commercial automobile insurer—but Progressive denied her claim, and moved to rescind Treadway’s policy, based on numerous misrepresentations he made regarding the garaging address for the LeSabre. Smith later filed suit against Progressive, and Progressive moved for summary disposition, arguing that rescission was proper and that the equities weighed in favor of rescission as to Smith, an innocent third party. The trial court agreed with Progressive and granted its motion, basing its ruling on the fact that Smith and Treadway were related Smith’s regular use of the LeSabre——both of which indicated, according to the trial court, that Smith likely knew about Treadway’s misrepresentations.
The Court of Appeals reversed the trial court’s summary disposition order, holding that a question of fact existed as to whether the equities weighed in favor of rescission as to Smith, an innocent third-party. The Court of Appeals observed that the factors for consideration when weighing the equities to determine whether rescission is appropriate with respect to an innocent third party are as follows:
(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 determined that the first factor was neutral because there was no evidence to suggest that Progressive could have discovered Treadway’s misrepresentations and because Progressive had no duty to investigate whether Treadway’s representations were true. The Court determined that questions of fact existed as to the second factor because the parties disputed the extent to which Smith had knowledge of Teadway’s fraud, and that the trial court erred by failing to properly analyze that factor. The Court determined that questions of fact existed as to the third factor because the parties disputed whether Smith was negligent in causing the subject accident, and that the trial court erred by failing to properly analyze that factor. The Court determined that the fourth factor weighed in favor of Progressive because Smith waited until after the one-year deadline for applying for benefits with the Michigan Assigned Claims Plan to file a claim with Progressive. Lastly, the Court determined that the fifth factor was neutral. Thus, because questions of fact existed as to factors two and three, the Court of Appeals remanded to the trial court.
“The fourth factor favors Progressive. The first and fifth factor of the equity-balancing test favors neither party. Genuine issues of material fact exist with respect to the second and third factors. Those factual disputes must be resolved by the trial court. See Zurcher v Herveat, 238 Mich App 267, 297; 605 NW2d 329 (1999) (indicating that absent the consent of the parties, equitable remedies are decided by the trial court without a jury). Because there is a factual dispute regarding factors two and three of the equity-balancing test, Smith may still be entitled to equitable relief as an innocent third party. The trial court, therefore, erred in granting summary disposition to Progressive.”
