Wilmore-Moody v Zakir, et al (UNP – COA 5/6/2021; RB # 4260)
Michigan Supreme Court; Docket #163116
Before the Entire Bench (except Justice Bolden); Per Curiam
Official Michigan Reporter Citation: Not Applicable, Link to Opinion
STATUTORY INDEXING:
Disqualification of Uninsured Owners / Operators for Noneconomic Loss [§3135(2)(c)]
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
SUMMARY:
In this unanimous (6-0) decision authored by Justice Cavanagh, the Supreme Court held that if an insurer rescinds a policy ab initio after a loss, that does not mean the policyholder was uninsured on the date of loss for purposes of MCL 500.3135(2)(c).
Adora Wilmore-Moody was sitting in a parked car outside her son’s school when another driver rear-ended her vehicle, causing her serious injuries. Wilmore-Moody was insured at the time by Everest National Insurance Company (“Everest”), but Everest denied Wilmore-Moody’s claim for PIP benefits following the crash, claiming she made a material misrepresentation on her original application for coverage, entitling Everest to rescind her policy ab initio. Wilmore-Moody later filed suit against Everest and the driver who rear-ended her, Mohammad Zakir, and the trial court granted summary disposition in Everest’s favor on the issue of rescission. Zakir then moved for summary disposition with respect to Wilmore-Moody’s liability claim, arguing that because Wilmore-Moody’s policy had now been rescinded ab initio, she was uninsured at the time of the crash for purposes of MCL 500.3135(2)(c). The trial court agreed with Zakir and granted summary disposition in his favor, as well.
The Court of Appeals reversed the trial court’s summary disposition order, adopting its holding in Bernard Estate v Avers, unpublished per curiam opinion of the Court of Appeals, issued April 8, 2021 (Docket No. 348048). The Court was faced with the same issue in Avers and held that rescission is an equitably remedy which does not ‘alter the past,’ or render a person uninsured at a past point in time.
“We find the above reasoning persuasive and adopt it as our own for purposes of this case as well. In this case, it was undisputed that Wilmore-Moody had an insurance policy with Everest at the time of the accident and that Everest subsequently rescinded the policy on the basis of fraud. Hence, the bar to recovery in MCL 500.3135(2)(c) does not apply with respect to Wilmore- Moody’s third-party negligence claim against Zakir. Bernard Estate, unpub op at 12-13. We reverse the trial court’s grant of summary disposition in favor of Zakir and remand for further proceedings not inconsistent with this opinion.”
The Supreme Court affirmed the Court of Appeals’ conclusion for two reasons. First, it noted that rescission is a contractual remedy intended to restore the parties to the contract to their pre-contracting status; Zakir was not a party to the contract between Wilmore-Moody and Everest, and thus not allowed to “rely on Everest’s chosen contractual remedy to defend against [Wilmore-Moody’s] statutory negligence claim.” Second, rescission is “a legal fiction available as a contractual remedy,” not a “DeLorean time machine”; it does not create an “alternate reality” in which persons like Wilmore-Moody were not, in fact, insured at past points in time.
“Zakir urges the Court to conclude that Everest’s after-the-fact rescission of the insurance policy means that plaintiff was not insured ‘at the time the injury occurred.’ We reject this argument for two related reasons. First, rescission is a contractual remedy intended to restore the parties to the contract to their relative precontract positions. Esurance, 507 Mich at 516. Zakir was not a party to the contract and did not incur any obligation on the basis of the contract, nor did he benefit from the contract. Accordingly, Zakir was entirely unaffected by plaintiff’s misrepresentations and disconnected from Everest’s discretionary decision to seek rescission of the contract. Given that he was unaffiliated with the contract, Zakir may not rely on Everest’s chosen contractual remedy to defend against plaintiff’s statutory negligence claim. . . .
Second, while rescission is a legal fiction available as a contractual remedy for the defrauded party, it does not alter reality or act as a DeLorean time machine. In other words, although courts may engage in ‘revisionist history,’ Esurance, 507 Mich at 495 (CLEMENT, J., dissenting), when rescission is deemed an appropriate contractual remedy, that legal fiction does not actually create an alternate reality. As this Court has noted, rescission ‘extends no further than is necessary to protect the innocent party in whose favor it is invoked.’ Zucker v Karpeles, 88 Mich 413, 430; 50 NW 373 (1891). Zakir offers no persuasive argument that the Legislature intended to incorporate this legal fiction, traditionally applied to contractual relationships, into the statutory exemption for third party claims under MCL 500.3135(2)(c).”
It should be noted that Zakir also made a public policy argument which the Court rejected: he argued “that “allowing a claimant to recover noneconomic damages against a third-party tortfeasor under MCL 500.3135(2)(c) when an insurance policy is rescinded post-accident will encourage motorists to commit fraud when purchasing policies.” In its disagreement, the Court wrote that “to allow the rescission doctrine to act as a statutory defense in instances such as these would heap an undeserved windfall onto negligent drivers seeking to avoid liability for serious injuries they are alleged to have caused.”