Michigan Court of Appeals; Docket # 319710; Published
Judges Riordan, Murphy and Boonstra; Unanimous Opinion by Judge Boonstra; Judge Murphy concurring
Official Michigan Reporter Citation: Not Applicable; Link to Majority Opinion Link to concurrence
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Fraud/Misrepresentation
Intervention by Service Providers and Third-Party Payors in PIP Claims
CASE SUMMARY:
In this published Opinion by Judge Boonstra in a case on remand from the Michigan Supreme Court involving alleged fraud in the procurement of a no-fault policy, the Court of Appeals held that the "innocent third-party rule" did not bar defendant-QBE Insurance's claim of fraud as a defense to the insurance contract. As a result, the Court of Appeals held the trial court erred in denying QBE's motion for summary disposition.
William Johnson ran a red light in his Grand Prix while being pursued by police, striking Martin Bongers, who was riding a motorcycle. State Farm insured Bongers' personal vehicle, but did not insure the motorcycle. Although the Grand Prix was titled and registered to Johnson's girlfriend, Whitney Gray, it was uninsured. QBE Insurance (QBE) insured an Oldsmobile Cutlass driven by Gray, which was titled and registered to a person named Tina Poole. The QBE policy on the Cutlass listed Gray as the named insured, and QBE claimed it did not know that Poole was listed as the Cutlass's title and registered owner. QBE moved for summary disposition, claiming the Cutlass policy should be rescinded on the grounds of fraud because the Cutlass was not registered to Gray nor owned by her, and it would not have issued the policy had it known this. The trial court denied QBE's summary disposition motion, finding that no-fault coverage could not be rescinded as to an innocent third-party.
QBE appealed and argued that the innocent third-party rule was abrogated by the Michigan Supreme Court in Titan Ins Co v Hyten, 491 Mich 547 (2012). The Court of Appeals, in a February 2015 opinion, rejected QBE's argument. Relying on then-existing precedent, the Court of Appeals held that an insurer is estopped from asserting fraud and rescinding no-fault PIP benefits to an innocent third party. Accordingly, the Court of Appeals affirmed the trial court's denial of summary disposition for QBE.
QBE further appealed to the Michigan Supreme Court, which, in lieu of granting leave to appeal, vacated the Court of Appeals opinion with respect to QBE and remanded the case. The Supreme Court instructed the Court of Appeals to hold its decision in the case pending the outcome of Bazzi v Sentinel Ins Co, ___ Mich App ___ (2016). In light of the June 2016 decision in Bazzi, the Court of Appeals held:
"As Bazzi has now been decided, we consider the instant case, and conclude that the 'innocent third-party rule' did not bar QBE's claim of fraud as a defense to an insurance contract, and that the trial court therefore erred in denying QBE's claim of summary disposition. We vacate the portion of the trial court's order denying summary disposition to QBE under the 'innocent third-party rule' and remand for further proceedings consistent with this opinion."
The Court of Appeals emphasized that Bazzi is "precisely on point with respect to the issue presented in the instant case, and is precedentially binding." The Court further said it agreed with Bazzi that the public policy concerns arising from the abrogation of the innocent third-party rule should be considered by the Legislature, and not the courts.
The Court of Appeals remanded to the trial court the issue of whether fraud was committed and said:
"In denying QBE's motion, the trial court stated that 'there is some question, I guess, factually as to whether in fact there was fraud.' It further opined that while it was inclined to believe that 'there was fraud in obtaining the insurance just from what's before me,' 'there at least could be some triable issues' in that regard. Based on our review of the record, we see no reason to disturb that finding."
Judge Murphy, in a concurring opinion, agreed that the trial court wrongly denied QBE's summary disposition motion based on Bazzi. However, Judge Murphy wrote separately state such a holding did not comport with the Michigan Supreme Court's decision in Titan. That is, Judge Murphy stated that Titan stands for the principle that the innocent-third party doctrine can be applied only to benefits that that are not required by statute. As such, Judge Murphy said the innocent-third party doctrine should not be applied to bar statutorily-mandated no-fault PIP benefits:
"I write separate to simply express my view that there is language in our Supreme Court's opinion in Titan that plainly and unambiguously reflects that the Supreme Court itself accepted the notion that remedies for actionable fraud are limited in relation to statutorily-mandated insurance coverage and benefits. . . . [T]he opinion in Titan cannot be interpreted as abolishing the innocent third-party rule in the context of statutorily-mandated automobile insurance coverage, as to reach such a conclusion would require a wholesale disregard of Titan's footnote 17."