Michigan Court of Appeals; Docket # 323425; Published
Judges Ronayne Krause, Sawyer and Stephens; Non-unanimous Opinion by Judge Ronayne Krause; Judge Sawyer concurring in part and dissenting in part
Official Michigan Reporter Citation: Not Applicable; Link to Majority Opinion
Link to concurring/dissenting opinion
Cancellation and Rescission of Insurance Policies
Intervention by Service Providers and Third-Party Payors in PIP Claims
Motor Vehicle Code (Financial Responsibility Act) (MCL 257.501, et seq.)
In this published Opinion by Judge Ronayne Krause involving fraud in the procurement of a no-fault insurance policy, the Court of Appeals held that, if not bound by the prior published ruling in Bazzi v Sentinel Ins Co, it would find that the innocent third-party rule precluded defendant Allstate from rescinding the insured's no-fault policy based on fraud, and that plaintiffs would be entitled to PIP benefits under the innocent third-party rule.
Although the Court of Appeals said Bazzi required the trial court's grant of summary disposition for plaintiffs be reversed and the case remanded, the Court said:
"However, we agree with the dissenting opinion in [Bazzi] and, were we not bound, we would decline to continue the trend of eroding injured plaintiffs' recovery options and conclude that the innocent third party doctrine remains a viable part of the law in Michigan; we would therefore affirm. Consequently, we declare a conflict with Bazzi pursuant to MCR 7.215(J)(2)."
Plaintiff Jamie Letkemann was injured while a passenger in a vehicle that was rear-ended. Plaintiff Southeast Michigan Surgical Hospital treated Letkemann's injuries and brought this action for payment against defendant Allstate, which had issued a no-fault policy to Letkemann. Because Letkemann filed his own first-party action the claims were consolidated for discovery purposes. During discovery, Allstate learned that Letkemann had obtained the no-fault policy on the basis of fraudulent misrepresentations. Thus, Allstate moved for summary disposition, claiming it was entitled to rescind the policy based on fraud. Plaintiffs, however, argued that even if the policy had been obtained fraudulently, Letkemann was an innocent third party and, therefore, Allstate could not rescind coverage. The trial court held the policy had been procured by fraud, but agreed that Letkemann was an innocent third party. Therefore, the trial court denied Allstate's motion for summary disposition and granted summary disposition to plaintiffs.
The Court of Appeals held that, based on the evidence, the trial court properly found the no-fault policy was obtained through fraud, but that Letkemann was an innocent third party. The Court said:
"Clearly, Letkemann was not involved in, or knowledgeable of, the initial obtaining of coverage. The trial court's factual findings are affirmed."
Turning to the innocent third-party rule, the Court of Appeals noted that there was previously a difference under Michigan law between liability insurance policies and no-fault PIP policies. The Court explained that, under MCL 257.520, "an insurer is required to insure the owner of the policy and authorized persons driving the covered vehicle at a minimum dollar amount for liability arising from injury to other persons or property." The Court noted that, with respect to the statutorily-mandated liability coverage, "[o]nce an innocent third party is injured in an accident in which coverage was in effect with respect to the relevant vehicle," the insurer cannot invoke the common-law rule to avoid mandatory coverage and "is estopped from asserting fraud to rescind the insurance contract."
Next, the Court of Appeals noted that, in Titan Ins Co v Hyten, 491 Mich 547 (2012), the Michigan Supreme Court held that when an insurance contract providing liability coverage in excess of the statutory minimum is obtained through fraudulent misrepresentation, the insurer "may invoke the traditional remedy to rescind the excess coverage 'notwithstanding that the fraud was easily ascertainable and the claimant is a third party.'" However, the Court of Appeals pointed out that Hyten did not address an insurer's responsibility for PIP benefits under the no-fault system, which requires vehicle owners to obtain PIP coverage. In this regard, the Court said: "Accordingly, there is no need to contract for excess personal protection benefits coverage."
The Court of Appeals further explained that, while an insurer may avoid paying PIP benefits when a policy was procured by fraud, there are numerous published appellate opinions which find that, although fraud has generally been a valid basis to rescind a no-fault policy, such rescission "did not avoid a no-fault insurer's obligation to pay benefits to innocent third parties."
But despite these prior published appellate decisions, the Court of Appeals noted it was bound by Bazzi's holding that the innocent third-party rule in the context of no-fault PIP coverage is no longer available after the Hyten decision. In this regard, the Court said:
"Hyten involved the avoidance of contractual insurance entitlements in excess of the statutory minimum; here, the alleged innocent third party's insurance entitlement is statutorily mandated, not contractual. ... We have not found any authority other than Bazzi that invalidates the innocent third party doctrine in the context of an insurer's responsibility for statutorily mandated personal protection benefits, and were we not bound by Bazzi, we would find that the innocent third party doctrine is still viable in the context of an innocent third party's claim for PIP benefits under Michigan's no-fault insurance act. Furthermore, we agree completely with the dissenting opinion authored by Judge BECKERING in Bazzi, and we adopt it in its entirety herein."
Therefore, the Court of Appeals held it was required by Bazzi to reverse the trial court and remand for further proceedings. "However, we do so strictly because MCR 7.215(J)(1) requires us to do so, and we call for the convening of a special conflict panel pursuant to MCR 7.215(J)(2)," the Court stated.
In reaching its conclusion, the Court of Appeals also rejected plaintiffs' two alternative grounds for affirming summary disposition, including (1) that Allstate never asserted fraud as an affirmative defense and, therefore, waived it; and (2) that Allstate was equitably estopped from rescinding the no-fault policy.
Judge Sawyer, who authored the Bazzi decision, issued a separate opinion, concurring in part and dissenting in part. He said:
"Once the trial court determined that the policy was obtained through fraud, defendant was entitled to summary disposition. ... [S]ince Letkemann is barred from recovering no-fault benefits under the rescinded policy, so is Southeast Michigan Surgical Hospital, L.L.C. ... I also agree with the majority's conclusion that neither of the alternative grounds advanced by plaintiff to affirm the case have merit. But, because I believe that Bazzi was correctly decided, I disagree with the majority's conclusion that it was incorrectly decided, and I dissent from the majority's call to convene a conflict panel pursuant to MCR 7.215(J)(2)."