Adora Wilmore-Moody v. Mohammed Zakir ( 2023 )

Michigan Supreme Court
Lansing, Michigan
Syllabus
Chief Justice: Justices:
Elizabeth T. Clement Brian K. Zahra
David F. Viviano
Richard H. Bernstein
Megan K. Cavanagh
Elizabeth M. Welch
Kyra H. Bolden
This syllabus constitutes no part of the opinion of the Court but has been Reporter of Decisions:
prepared by the Reporter of Decisions for the convenience of the reader. Kathryn L. Loomis
WILMORE-MOODY v ZAKIR
Docket No. 163116. Argued on application for leave to appeal December 8, 2022. Decided
May 31, 2023.
Adora Wilmore-Moody, individually and as next friend of her minor son, brought an action
in the Wayne Circuit Court against Mohammed Zakir and Everest National Insurance Company,
alleging that Zakir had negligently rear-ended her vehicle and seeking personal protection
insurance benefits from Everest for the injuries she and her son incurred as a result of the collision.
Everest did not pay the benefits but instead rescinded plaintiff’s policy on the ground that plaintiff
had failed to disclose that she had a teenaged granddaughter living with her when she applied for
the insurance policy. Everest then brought a counterclaim seeking declaratory relief and moved
for summary disposition of plaintiff’s claim against it under MCR 2.116(C)(10), arguing that it
was entitled to rescind plaintiff’s policy because she had made a material misrepresentation in her
insurance application. The trial court, John H. Gillis, Jr., granted Everest’s motion for summary
disposition. After this ruling, Zakir also moved for summary disposition under MCR
2.116(C)(10), arguing that plaintiff was barred from recovering third-party noneconomic damages
from him under the no-fault act, MCL 500.3101 et seq., because once Everett rescinded plaintiff’s
insurance policy, she did not have the security required under MCL 500.3135(2)(c) at the time the
injury occurred. The trial court granted Zakir summary disposition as well. Plaintiff appealed.
The Court of Appeals, BORRELLO and SWARTZLE, JJ. (GLEICHER, P.J., concurring in part and
dissenting in part), in an unpublished per curiam opinion issued May 6, 2021 (Docket No. 352411),
affirmed the grant of summary disposition to Everest, reversed the grant of summary disposition
to Zakir, and remanded the case for further proceedings. Zakir sought leave to appeal this decision.
The Michigan Supreme Court, in lieu of granting leave to appeal, ordered oral argument on the
application. 509 Mich 881 (2022).
In a unanimous opinion by Justice CAVANAGH, the Supreme Court held:
An insurer’s decision to rescind an automobile insurance policy after a motor vehicle
collision does not operate to alter the past by rendering the insured as having been without no-fault
insurance at the time they were injured in that collision for purposes of MCL 500.3135(2)(c),
which prohibits a person from recovering third-party benefits for injuries resulting from a collision
if they were operating their own motor vehicle at the time the injury occurred and did not have an
insurance policy in effect for that vehicle. Accordingly, plaintiff had the required insurance at the
time she and her son were injured, despite Everest’s subsequent rescission of the policy, and Zakir,
as a nonparty to the contract, was not entitled to use Everest’s rescission as a defense against
plaintiff’s negligence claim.
1. Apart from certain enumerated exceptions, the no-fault act abolished tort liability for
harm caused while owning, maintaining, or using a motor vehicle in Michigan. The relevant
exception in this case was MCL 500.3135, which allows claims for noneconomic loss caused by
the ownership, maintenance, or use of a motor vehicle that resulted in death, serious impairment
of body function, or permanent serious disfigurement. However, there are circumstances that bar
recovery under this statute, including operating one’s own vehicle at the time the injury occurred
and failing to have the required no-fault insurance policy in effect for that motor vehicle under
MCL 500.3101 at the time the injury occurred.
2. When a person commits fraud in the application for an insurance policy, the blameless
contracting party may avoid its contractual obligations through the application of traditional legal
and equitable remedies, such as rescission. Rescission abrogates a contract and restores the parties
to the relative positions that they would have occupied if the contract had never been made.
Rescission does not function by automatic operation of the law, but rather may be granted only in
the sound discretion of the court.
3. The trial court erred by granting Zakir summary disposition on the ground that Everest’s
rescission of the insurance policy barred plaintiff’s third-party claim under MCL 500.3135(2)(c).
To be eligible to sue for third-party noneconomic damages resulting from a motor vehicle collision,
the owner or registrant of the vehicle must have maintained the required security “at the time the
injury occurred” under MCL 500.3135(2)(c). It was undisputed in this case that, at the time the
injury occurred, plaintiff held an insurance policy issued by Everest. Everest’s subsequent
rescission of the policy did not mean that plaintiff was not insured at the time the injury occurred.
Rescission is a contractual remedy intended to restore the parties to the contract to their relative
precontract positions. Zakir was not a party to plaintiff’s contract with Everest, nor did he incur
any obligation or receive any benefit from the contract. Given that Zakir was unaffiliated with the
contract, he could not rely on Everest’s chosen contractual remedy to defend against plaintiff’s
statutory negligence claim under MCL 500.3135. Further, while rescission is a legal fiction
available as a contractual remedy for the defrauded party, it does not alter reality or act as a time
machine. Rather, rescission extends no further than is necessary to protect the innocent party in
whose favor it is invoked. Zakir offered 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).
Court of Appeals judgment affirmed; case remanded to the trial court for further
proceedings.
Justice BOLDEN did not participate in the disposition of this case because the Court
considered it before she assumed office.
Michigan Supreme Court
Lansing, Michigan
OPINION
Chief Justice: Justices:
Elizabeth T. Clement Brian K. Zahra
David F. Viviano
Richard H. Bernstein
Megan K. Cavanagh
Elizabeth M. Welch
Kyra H. Bolden
FILED May 31, 2023
STATE OF MICHIGAN
SUPREME COURT
ADORA WILMORE-MOODY, Individually
and as Next Friend of DAIMLER AAKU,
Plaintiff/Counterdefendant-
Appellee,
v No. 163116
MOHAMMED ZAKIR,
Defendant-Appellant,
and
EVEREST NATIONAL INSURANCE CO.,
Defendant/Counterplaintiff-
Appellee,
and
PDB INVESTMENTS & INSURANCE
CO., MICHIGAN ASSIGNED CLAIMS
PLAN, and MICHIGAN AUTOMOBILE
INSURANCE PLACEMENT FACILITY,
Defendants.
BEFORE THE ENTIRE BENCH (except BOLDEN, J.)
CAVANAGH, J.
Under Michigan’s no-fault act, MCL 500.3101 et seq., a person injured in an
automobile accident typically may file two different actions: a claim against the responsible
insurer for “first-party benefits” such as medical expenses, work loss, and replacement
services, and a claim against the at-fault driver for what are colloquially referred to as
“third-party benefits”—noneconomic damages for death, serious impairment of a bodily
function, or permanent serious disfigurement. These third-party benefits are not
recoverable, however, if the injured person was operating their own motor vehicle at the
time the injury occurred and did not have an insurance policy in effect for that vehicle.
MCL 500.3135(2)(c). The issue presented in this case is whether a motorist is without the
required insurance “at the time the injury occurred,” MCL 500.3135(2)(c), if their
insurance company rescinded their insurance policy after the accident.
We hold that an insurer’s decision to rescind a policy postaccident does not trigger
the exclusion in MCL 500.3135(2)(c). Rescission is an equitable remedy in contract,
exercised at the discretion of the insurer, and does not alter the reality that, at the time the
injury occurred, the injured motorist held the required security. Rescission by the insurer
postaccident is not a defense that can be used by a third-party tortfeasor to avoid liability
for noneconomic damages. Accordingly, we affirm the Court of Appeals’ reversal of the
trial court’s grant of summary disposition to defendant Mohammed Zakir.
I. UNDERLYING FACTS & PROCEEDINGS
The material facts of this case are not in dispute. On April 6, 2017, plaintiff, Adora
Wilmore-Moody, and her minor son were parked outside his school when Zakir rear-ended
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plaintiff’s vehicle. According to plaintiff, as a result of the collision she and her son
suffered serious injuries to their heads, necks, and backs. At the time of the collision,
plaintiff held an insurance policy issued by defendant Everest National Insurance
Company. Following the collision, plaintiff submitted a claim to Everest for first-party no-
fault benefits. Rather than paying plaintiff benefits, Everest notified her that it would be
rescinding her policy and returning her premiums because it concluded that she had made
a material misrepresentation in her insurance application. 1
On March 6, 2018, plaintiff filed suit on behalf of herself and her son. Relevant
here, she asserted a claim against Everest for first-party personal protection insurance (PIP)
benefits and a third-party tort claim against Zakir for his alleged negligence in causing the
collision. 2 Everest moved for summary disposition under MCR 2.116(C)(10), arguing that
it had a right to rescind plaintiff’s insurance policy because of the material
misrepresentations she made in her insurance application. 3 The trial court agreed, granted
Everest’s motion for summary disposition, and dismissed the first-party claim.
1
When plaintiff first obtained insurance through Everest in August 2016, she was asked to
identify all household members aged 14 or older. Although her teenaged granddaughter
was living in her home at that time, plaintiff did not disclose her as a household member.
According to Everest, if plaintiff had disclosed this information, it would have charged her
additional premiums of $1,532 for six months of coverage.
2
Plaintiff also asserted a claim for first-party PIP benefits against the Michigan Assigned
Claims Plan and the Michigan Automobile Insurance Placement Facility on behalf of her
son. These claims are not at issue in this appeal.
3
Everest also brought a counterclaim seeking declaratory relief with respect to its argument
that it was entitled to rescind the insurance policy. The trial court does not appear to have
ruled separately on this counterclaim. In any event, it is not at issue in this appeal.
3
Following this ruling, Zakir also moved for summary disposition under MCR
2.116(C)(10). Zakir argued that plaintiff was barred from recovering third-party
noneconomic damages because, he reasoned, once the contract was rescinded plaintiff no
longer had the required security “at the time the injury occurred.” MCL 500.3135(2)(c).
The trial court agreed and granted Zakir summary disposition.
Plaintiff appealed. Germane to this appeal, she argued that the trial court erred by
granting summary disposition in Zakir’s favor on the basis of Everest’s rescission of the
insurance policy. 4 The Court of Appeals agreed, reversing the trial court in part and
remanding for further proceedings. Wilmore-Moody v Zakir, unpublished per curiam
opinion of the Court of Appeals, issued May 6, 2021 (Docket No. 352411).
Zakir then sought leave to appeal in this Court. On March 23, 2022, we ordered
oral argument on the application, directing the parties to address “whether the rescission of
an insurance policy under the no-fault act, MCL 500.3101 et seq., bars recovery of
noneconomic damages under MCL 500.3135(2)(c) on the basis that the claimant ‘did not
have in effect . . . the security required by [MCL 500.3101(1)] at the time the injury
occurred.’ ” Wilmore-Moody v Zakir, 509 Mich 881, 881-882 (2022).
4
Plaintiff also argued that the trial court erred when it held that Everest was justified in
rescinding her insurance policy. The Court of Appeals majority rejected this argument
over a dissent authored by Judge GLEICHER. Plaintiff did not seek leave to appeal regarding
this issue. Therefore, whether rescission was an appropriate contractual remedy in this
case is not before this Court.
4
II. STANDARD OF REVIEW
We review de novo a trial court’s decision to grant summary disposition. El-Khalil
v Oakwood Healthcare, Inc, 504 Mich 152, 159; 934 NW2d 665 (2019). A motion for
summary disposition submitted pursuant to MCR 2.116(C)(10) tests the factual sufficiency
of a claim. Taxpayers for Mich Constitutional Gov’t v Dep’t of Technology, Mgt, and
Budget, 508 Mich 48, 61; 972 NW2d 738 (2021). Summary disposition is appropriately
granted only when no genuine issue of material fact exists. Id.We also review de novo questions of statutory interpretation. Esurance Prop & Cas
Ins Co v Mich Assigned Claims Plan, 507 Mich 498, 508; 968 NW2d 482 (2021). The key
purpose of statutory interpretation is to “ascertain the legislative intent that may reasonably
be inferred from the statutory language.” Krohn v Home-Owners Ins Co, 490 Mich 145,
156; 802 NW2d 281 (2011) (quotation marks and citation omitted). “The most reliable
evidence of that intent is the plain language of the statute.” Rouch World, LLC v Dep’t of
Civil Rights, 510 Mich 398, 410; 987 NW2d 501 (2022) (quotation marks, brackets, and
citation omitted).
Finally, the application of an equitable doctrine such as rescission is also reviewed
de novo. Esurance, 507 Mich at 509.
III. LEGAL & EQUITABLE PRINCIPLES
In this case we are asked to examine provisions of the no-fault act, particularly MCL
500.3135(2)(c). Zakir asserts that this case also calls for our attention “to the law of
contracts and rescission in equal measure with statutory interpretation.” We therefore
begin by summarizing the applicable legal principles, both statutory and contractual.
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A. RELEVANT NO-FAULT ACT PROVISIONS
“Michigan’s no-fault insurance system is a comprehensive scheme of compensation
designed to provide sure and speedy recovery of certain economic losses resulting from
motor vehicle accidents.” Bazzi v Sentinel Ins Co, 502 Mich 390, 398; 919 NW2d 20(2018). As part of this system, the no-fault act requires registrants and operators of motor
vehicles to maintain compulsory no-fault insurance. MCL 500.3101(1); Shavers v Attorney
General, 402 Mich 554, 579; 267 NW2d 72 (1978).
Apart from certain enumerated exceptions, the no-fault act abolished tort liability
for harm caused while owning, maintaining, or using a motor vehicle in Michigan.
American Alternative Ins Co v York, 470 Mich 28, 30; 679 NW2d 306 (2004). The relevant
exception here is MCL 500.3135, which allows claims for noneconomic loss caused by the
ownership, maintenance, or use of a motor vehicle that resulted in death, serious
impairment of body function, or permanent serious disfigurement. MCL 500.3135(1).
However, there are circumstances that bar recovery under this statute. At the time of the
motor vehicle collision at issue, MCL 500.3135(2)(c) provided:
Damages shall not be assessed in favor of a party who was operating
his or her own vehicle at the time the injury occurred and did not have in
effect for that motor vehicle the security required by [MCL 500.3101] at the
time the injury occurred.[5]
5
MCL 500.3135(2)(c), as amended by 2012 PA 158. This provision has since been
amended to substitute the word “must” for the word “shall.” See 2019 PA 21; 2019 PA 22.
6
In other words, one consequence of failing to maintain no-fault insurance is that the injured
motorist loses the opportunity to seek third-party noneconomic damages from a negligent
tortfeasor.
B. RESCISSION AS A CONTRACTUAL REMEDY
“[F]raud in the application for an insurance policy may allow the blameless
contracting party to avoid its contractual obligations through the application of traditional
legal and equitable remedies.” Titan Ins Co v Hyten, 491 Mich 547, 570; 817 NW2d 562(2012). One equitable remedy that may be available is rescission. Id. at 558. “Rescission
abrogates a contract and restores the parties to the relative positions that they would have
occupied if the contract had never been made.” Bazzi, 502 Mich at 409; see also United
Security Ins Co v Comm’r of Ins, 133 Mich App 38, 42; 348 NW2d 34 (1984). Rescission
is, stated simply, a “legal fiction” meant to restore the contracting parties to the status quo.
Esurance, 507 Mich at 524 (CLEMENT, J., dissenting); see also Wall v Zynda, 283 Mich
260, 264; 278 NW 66 (1938).
Rescission, notably, does not “function by automatic operation of the law.” Bazzi,
502 Mich at 411. Instead, because rescission is an equitable remedy, it should be “granted
only in the sound discretion of the court.” Lenawee Co Bd of Health v Messerly, 417 Mich
17, 31; 331 NW2d 203 (1982); see also Bazzi, 502 Mich at 411 (“Equitable remedies are
adaptive to the circumstances of each case . . . .”).
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IV. APPLICATION
The Court of Appeals concluded that the trial court erred by granting Zakir summary
disposition on the ground that Everest’s rescission of the insurance policy barred plaintiff’s
third-party claim under MCL 500.3135(2)(c). We agree.
As we must, we start our analysis with an examination of the plain language of the
statute. Rouch World, 510 Mich at 410. To be eligible to sue for third-party noneconomic
damages, MCL 500.3135(2)(c) requires that the owner or registrant maintained the
required security “at the time the injury occurred.” The statute uses the past-tense phrase
“at the time the injury occurred” twice. This signals the Legislature’s intent concerning
the time that is relevant when considering whether a claimant is barred from suing for
noneconomic damages. It is undisputed in this case that, “at the time the injury occurred,”
plaintiff held an insurance policy issued by Everest and that the policy was not rescinded
until much later.
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
8
to defend against plaintiff’s statutory negligence claim. 6 See Whitley v Tessman, 324 Mich
215, 222; 36 NW 724 (1949) (noting that third parties who were not defrauded may not
“mak[e] themselves the avengers of some alleged wrong”).
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).
Zakir asserts 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
postaccident will encourage motorists to commit fraud when purchasing policies. To the
extent this policy consideration is relevant to our decision, 7 we note that motorists who
6
Rescission does not operate automatically and is only one remedy out of many that a
defrauded insurer can choose to pursue. Titan, 491 Mich at 558-559. Zakir fails to explain
why a motorist’s right to sue a third party in tort should hinge on an insurance company’s
chosen remedy.
7
See Calovecchi v Michigan, 461 Mich 616, 624; 611 NW2d 300 (2000) (“[P]olicy
questions are properly directed toward the Legislature rather than to this Court. Our duty
is to construe the text of the statute before us . . . .”).
9
intentionally defraud insurance companies to secure lower premiums face considerable
negative consequences for their misrepresentations. For example, because of Everest’s
rescission in this case, plaintiff will be unable to recover economic damages from Everest
and any tort recovery she obtains may be subject to subrogation or reimbursement claims
from insurers who have paid benefits on her behalf. 8 See MCL 500.3177; Cooper v
Jenkins, 282 Mich App 486, 487; 766 NW2d 671 (“[A]n insurer assigned to pay benefits
arising from an accident involving an uninsured motor vehicle has the right to seek
reimbursement from the owner of that vehicle . . . .”). Where the statutory language does
not require it, we decline to impose an additional harsh consequence under MCL
500.3135(2)(c). Were we to weigh policy considerations, however, we note 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.
V. CONCLUSION
In sum, rescission of an insurance policy is a contractual remedy between the
insured and insurer. It does not operate to alter the past by rendering the insured as having
been without no-fault insurance at the time of the accident for purposes of the prohibition
contained in MCL 500.3135(2)(c). In this case, plaintiff had insurance “at the time the
injury occurred.” Although Everest later rescinded the policy, that rescission did not alter
8
Zakir suggests that our ruling today could affect whether benefits can be obtained under
MCL 500.3113 (first-party benefits) and MCL 500.3172 (benefits from the Michigan
Assigned Claims Plan). Those provisions are not before us in this appeal, and we leave
those questions for another day.
10
the past vis-à-vis Zakir. Therefore, Zakir, as a nonparty to the contract, is not entitled to
use Everest’s rescission as a defense against claims of negligent driving. We affirm the
Court of Appeals judgment and remand this case to the trial court for further proceedings
consistent with this opinion.
Megan K. Cavanagh
Elizabeth T. Clement
Brian K. Zahra
David F. Viviano
Richard H. Bernstein
Elizabeth M. Welch
BOLDEN, J., did not participate in the disposition of this case because the Court
considered it before she assumed office.
11