Nationwide Mutual Fire Ins Co v. Esurance Prop & Casualty Ins Co ( 2023 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
NATIONWIDE MUTUAL FIRE INSURANCE UNPUBLISHED
COMPANY, June 15, 2023
Plaintiff/Third-Party Defendant-
Appellee,
v No. 361298
Genesee Circuit Court
ESURANCE PROPERTY & CASUALTY LC No. 19-113053-NF
INSURANCE COMPANY,
Defendant/Third-Party Plaintiff-
Appellant,
and
DEREK ALLEN GREGORY and BLAIR
GREGORY,
Defendants/Third-Party Defendants.
Before: RIORDAN, P.J., and BORRELLO and BOONSTRA, JJ.
PER CURIAM.
Defendant/third-party plaintiff Esurance Property & Casualty Insurance Company
(Esurance) appeals by right the trial court’s order granting summary disposition under
MCR 2.116(C)(10) in favor of plaintiff/third-party defendant Nationwide Mutual Fire Insurance
Company (Nationwide), and denying Esurance’s request for summary disposition under
MCR 2.116(I)(2). We reverse and remand for entry of an order granting summary disposition in
favor of Esurance.
I. PERTINENT FACTS AND PROCEDURAL HISTORY
In 2015, defendant/third-party defendant Derek Gregory (Derek) was driving a truck
insured by Esurance and co-owned with his wife, defendant/third-party defendant Blair Gregory
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(Blair).1 The truck collided with Daniel Moore (Moore), who was riding a bicycle. Moore was
injured in the accident. Moore was uninsured, and his claim for personal protection insurance
(“PIP”) benefits2 was assigned to Nationwide via the Michigan Automobile Insurance Placement
Facility (MAIPF).3 Nationwide paid a total of $454,871.09 in medical expenses on behalf of
Moore.
Nationwide subsequently filed this lawsuit against Moore and Esurance seeking to recover
the PIP benefits it paid on Moore’s behalf. Relevant to this appeal, Nationwide alleged that, under
the no-fault act, MCL 500.3101 et seq., Esurance, as the insurer of the truck, was higher in priority
and therefore was required to reimburse Nationwide. Esurance subsequently filed a third-party
complaint against Nationwide and the Gregorys, alleging that Blair had failed to disclose several
material facts in her application for the insurance policy, including that she was married, that Derek
occasionally drove the truck, that Derek had been in prior accidents involving alcohol, that Blair
had been involved in prior accidents, and that Blair had filed prior claims with other insurance
providers. Esurance argued that Blair’s misrepresentations in her insurance application constituted
fraud, warranted rescission of the policy, and prohibited Nationwide from recovering from
Esurance as a higher-priority insurer. Nationwide filed a motion for summary disposition under
MCR 2.116(C)(10), arguing that, even if Blair had committed fraud in her application, rescission
was not warranted because Moore was an innocent third party and the balancing of the equities
did not support rescission. Esurance responded that balancing the equities weighed in favor of
rescission, and it in turn requested summary disposition under MCR 2.116(I)(2). The parties
agreed that Moore was an innocent third party.
After a hearing on Nationwide’s motion, the trial court issued a written opinion granting
summary disposition in favor of Nationwide. The trial court first determined that there was no
genuine issue of material fact regarding whether Blair had committed fraud in her application.4
However, the trial court noted that rescission is not automatically applicable in the face of fraud.
Rather, the trial court recognized that Moore was an innocent third party and that the court must
therefore balance the equities to determine whether rescission was warranted. Bazzi v Sentinel Ins
1
Derek and Blair are not parties to this appeal.
2
As our Supreme Court noted in Esurance Property & Casualty Ins Co v Michigan Assigned
Claims Plan, 507 Mich 498, 503 n 1; 968 NW2d 482 (2021) (citation and internal quotation marks
omitted), “What are commonly called ‘PIP benefits’ are actually personal protection insurance
(PPI) benefits by statute. MCL 500.3142. However, lawyers and others call these benefits PIP
benefits to distinguish them from property protection insurance benefits.”
3
“Under personal protection insurance an insurer is liable to pay benefits for accidental bodily
injury arising out of the ownership, operation, maintenance or use of a motor vehicle as a motor
vehicle, subject to the provisions of this chapter.” MCL 500.3105(1). Additionally, the MAIPF
maintains the “Michigan Assigned Claims Plan (the MACP).” Mich Head & Spine Institute, PC
v Mich Assigned Claims Plan, 331 Mich App 262, 265 & n 1; 951 NW2d 731 (2019). The MAIPF
and MACP essentially exist in order to provide coverage for those who do not otherwise have
automobile insurance. See id. at 273.
4
The parties appear to agree on appeal that Blair’s actions were fraudulent.
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Co, 502 Mich 390, 409-410; 919 NW2d 20 (2018). In doing so, the trial court examined the list
of five nonexhaustive factors set forth by Justice MARKMAN in his concurring statement in Farm
Bureau Gen Ins Co of Mich v ACE American Ins Co, 503 Mich 903; 919 NW2d 394 (2018) (Farm
Bureau I), which this Court adopted in Pioneer State Mut Ins Co v Wright, 331 Mich App 396;
952 NW2d 586 (2020). Analyzing each factor, the trial court determined that factors one and five
should be scored neutrally, that factor two weighed against rescission, that factor three weighed
slightly against rescission, and that factor four was neutral at best and arguably weighed in favor
of rescission. The trial court held that Esurance had failed to show that rescission was warranted,
and that Nationwide could stand in Moore’s shoes and recover from Esurance on the basis of
equitable subrogation. This appeal followed.
II. STANDARD OF REVIEW
“This Court reviews de novo a trial court’s decision on a motion for summary disposition,
as well as questions of statutory interpretation and the construction and application of court rules.”
Dextrom v Wexford Co, 287 Mich App 406, 416; 789 NW2d 211 (2010). A motion is properly
granted under MCR 2.116(C)(10) when “there is no genuine issue with respect to any material fact
and the moving party is entitled to judgment as a matter of law.” Dextrom, 287 Mich App at 415.
This Court “must examine the documentary evidence presented and, drawing all reasonable
inferences in favor of the nonmoving party, determine whether a genuine issue of material fact
exists. A question of fact exists when reasonable minds could differ as to the conclusions to be
drawn from the evidence.” Id. at 415-416. MCR 2.116(I)(2) provides that, “[i]f it appears to the
court that the opposing party, rather than the moving party, is entitled to judgment, the court may
render judgment in favor of the opposing party.” We also review de novo the application of the
doctrine of equitable subrogation. Esurance Prop & Cas Ins Co v Mich Assigned Claims Plan,
507 Mich 498, 509; 968 NW2d 482 (2021).
We review for an abuse of discretion a trial court’s decision to grant or deny rescission of
an insurance policy. Pioneer, 331 Mich App at 405. “An abuse of discretion occurs when the
decision falls outside the range of reasonable and principled outcomes.” Id. An error of law
necessarily constitutes an abuse of discretion. Id.
III. RESCISSION
Esurance argues that the trial court erred by granting summary disposition in Nationwide’s
favor. Specifically, Esurance contends that the trial court abused its discretion in concluding that
the balance of the equities weighed against rescission. We agree.
As our Supreme Court explained in Bazzi:
As a general rule, 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. The Insurance Code has
various requirements detailing the benefits that Michigan automobile insurance
policies must provide, including PIP benefits, which are payable to or for the benefit
of an injured person or, in the case of his death, to or for the benefit of his
dependents. Because PIP benefits are mandated by statute under the no-fault
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act, . . . the statute is the rule book for deciding the issues involved in questions
regarding awarding those benefits. [Bazzi, 502 Mich at 399 (quotation marks and
citations omitted; alteration in original).]
However, although the statutory language from the no-fault act plays an integral role, “automobile
insurance contracts are governed by a combination of statutory provisions and the common law of
contracts.” Id.PIP benefits are defined in MCL 500.3105. “Under personal protection insurance an
insurer is liable to pay benefits for accidental bodily injury arising out of the ownership, operation,
maintenance or use of a motor vehicle as a motor vehicle, subject to the provisions of this chapter.”
MCL 500.3105(1). If a person involved in an automobile accident does not have such insurance,
he or she may still claim PIP benefits through the MAIPF and Michigan Assigned Claims Plan
(MACP). See MCL 500.3172, as amended by 2012 PA 204; see also Mich Head & Spine Institute,
PC v Mich Assigned Claims Plan, 331 Mich App 262, 273; 951 NW2d 731 (2019). At the time
of accident in this case, MCL 500.3115 provided in relevant part:
(1) Except as provided in subsection (1) of section 3114, a person suffering
accidental bodily injury while not an occupant of a motor vehicle shall claim
personal protection insurance benefits from insurers in the following order of
priority:
(a) Insurers of owners or registrants of motor vehicles involved in the
accident.
(b) Insurers of operators of motor vehicles involved in the accident.
[Emphasis added.5]
Our Supreme Court has recently held “that an insurer who erroneously pays PIP benefits
may be reimbursed under a theory of equitable subrogation when the insurer is not in the order of
priority and the payments are made pursuant to its arguable duty to pay to protect its own interests.”
Esurance, 507 Mich at 503. In Esurance, the plaintiff, Esurance, had paid PIP benefits to Edwards,
the claimant, but the insurance policy was later voided. Id. at 502-503. The Court held that
“Esurance can stand in Edwards’s shoes and pursue a claim for equitable subrogation because it
was not in the order of priority and also was not a mere volunteer.” Id. at 504 (quotation marks
omitted).
5
MCL 500.3115, as well as other provisions of the no-fault act, were amended by 2019 PA 21effective June 11, 2019. In the trial court, the parties agreed on multiple occasions that, because
the accident in this case occurred in 2015, the amended version did not apply. Therefore, Esurance
has waived its assertion on appeal, which we in any event reject, that the recent no-fault
amendments apply, see LeFever v Matthews, 336 Mich App 651, 670 n 3; 971 NW2d 672 (2021),
and we will apply the prior version. See Howard v LM Gen Ins Co, ___ Mich App ___, ___; ___
NW2d ___ (2023) (Docket No. 357110); slip op at 4 n 6 (holding that the prior version of the no-
fault act applies to accidents that occurred prior to the 2019 amendment).
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“Equitable subrogation is a flexible, elastic doctrine of equity” that is decided on a “case-
by-case” basis. Esurance, 507 Mich at 510 (quotation marks and citations omitted). “Equitable
subrogation is the mode which equity adopts to compel the ultimate payment of a debt by one who
in justice, equity, and good conscience ought to pay it.” Id. (quotation marks and citation omitted).
As our Supreme Court recently explained, the doctrine “is a legal fiction through which a person
who pays a debt for which another is primarily responsible is substituted or subrogated to all the
rights and remedies of the other.” Id. (quotation marks and citation omitted). Furthermore, this
“doctrine has two prongs: the subrogee acquires no greater rights than those possessed by the
subrogor, and . . . the subrogee may not be a mere volunteer.” Id. (quotation marks and citation
omitted; alteration in original).
Our Supreme Court has held that “the plain language of the no-fault act does not preclude
or otherwise limit an insurer’s ability to rescind a policy on the basis of fraud.” Bazzi, 502 Mich
at 401. “Rescission abrogates a contract and restores the parties to the relative positions that they
would have occupied if the contract had never been made.” Id. at 409. “Although PIP benefits
are mandated by statute, the no-fault act neither prohibits an insurer from invoking the common-
law defense of fraud nor limits or narrows the remedy of rescission.” Id. at 406.
However, the presence of fraud by the insured does not automatically entitle an insured to
rescission. Id. at 408. When innocent parties are affected, rescission is left to the trial court’s
discretion, and “[w]hen a plaintiff is seeking rescission, the trial court must balance the equities to
determine whether the plaintiff is entitled to the relief he or she seeks.” Id. at 409-410 (quotation
marks and citation omitted). “[R]escission should not be granted in cases where the result thus
obtained would be unjust or inequitable” or in cases “where the circumstances of the challenged
transaction make rescission infeasible.” Id. at 410 (quotation marks and citations omitted). As the
Bazzi Court further explained:
Moreover, when two equally innocent parties are affected, the court is required, in
the exercise of [its] equitable powers, to determine which blameless party should
assume the loss . . . . [W]here one of two innocent parties must suffer by the
wrongful act . . . of another, that one must suffer the loss through whose act or
neglect such third party was enabled to commit the wrong. The doctrine is an
equitable one, and extends no further than is necessary to protect the innocent party
in whose favor it is invoked. [Id. at 410-411 (quotation marks and citations omitted;
alterations in original).]
Here, there is no dispute that Esurance is an innocent insurer and that Moore is an innocent third
party.
In Farm Bureau I, our Supreme Court vacated this Court’s decision “only to the extent it
held that Farm Bureau was automatically entitled to rescission as a matter of law,” and the Court
remanded for the trial court “to determine whether rescission is available as an equitable remedy
as between Farm Bureau and Robynn Rueckert.” Farm Bureau I, 503 Mich at 903. Farm Bureau
was the plaintiff insurance provider that sought rescission of an insurance policy with Robynn
Rueckert, which Robynn had obtained through her husband, after Robynn was injured in a motor
vehicle accident as a pedestrian. Farm Bureau Gen Ins Co of Mich v ACE American Ins Co, 337
Mich App 88, 92-93, 95; 972 NW2d 325 (2021) (Farm Bureau II). In his concurrence in Farm
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Bureau I, Justice MARKMAN set forth five nonexhaustive factors, which this Court adopted and
condensed in Pioneer, for trial courts to consider when balancing the equities between innocent
parties in the context of evaluating the availability of the equitable remedy of rescission. Pioneer,
331 Mich App at 410-411. These factors are:
(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. [Id. at 411.]
This Court has held that these factors are “not to be merely counted up” but are to be weighed to
determine which innocent party should bear the burden of the insured’s fraud. Farm Bureau II,
337 Mich App at 108. The burden is on the party seeking rescission to show that it is warranted.
Id.
Esurance argues that the trial court balanced the equities between the wrong parties and,
therefore, committed an error of law. According to Esurance, the trial court should have balanced
the equities between Nationwide and Esurance, not between Moore and Esurance. We disagree.
Caselaw clearly demonstrates that the equities must be balanced between the injured person and
the party seeking rescission. See Bazzi, 502 Mich at 410-412 (remanding for the trial court to
make such a determination between the injured person and the insurance company); Farm Bureau
I, 503 Mich at 903 (remanding for the trial court to determine if rescission was proper between the
injured person and the insurance company seeking rescission); Farm Bureau II, 337 Mich App at
100-107 (balancing the equities between the injured person and the insurance company seeking
rescission); Pioneer, 331 Mich App at 412-415 (balancing the equities between the injured person
and the insurance company seeking rescission). Esurance also argues that Nationwide should not
have been able to inherit Moore’s status and that Nationwide could not bring a claim for equitable
subrogation. But our Supreme Court has already rejected Esurance’s arguments and held that such
insurers may be reimbursed via equitable subrogation for PIP benefits paid on behalf of an
uninsured person. See Esurance, 507 Mich at 503-504. We therefore find no error of law in the
trial court’s identification of the parties between whom the equities should be balanced.
However, examining the five factors set forth by Justice MARKMAN, we conclude that the
trial court erred significantly regarding factor four, and abused its discretion in its ultimate decision
regarding rescission. We will briefly discuss each of the five factors.
The first factor is “the extent to which the insurer could have uncovered the subject matter
of the fraud before the innocent third party was injured.” Pioneer, 331 Mich App at 411 (emphasis
added). The trial court determined that factor one was neutral. We agree. There was no evidence
presented demonstrating that Esurance knew about this fraud before Moore was injured, and there
was no showing of how Esurance could have been more diligent in reviewing the insurance
application or in detecting the fraud. We reached a similar neutral conclusion in Pioneer based on
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similar circumstances. See Pioneer, 331 Mich App at 412. We note that both parties miss the
mark on this factor because they focus on whether each side could have investigated after Moore
was injured. However, the factor clearly addresses the time period before Moore was injured, not
afterward. See Pioneer, 331 Mich App at 411.
The second factor is “the relationship between the fraudulent insured and the innocent third
party to determine if the third party had some knowledge of the fraud.” Pioneer, 331 Mich App
at 411. The trial court determined that factor two weighed against rescission. We agree. There
was no evidence of any relationship whatsoever between Derek, the fraudulently insured, and
Moore, the innocent third party. Esurance mistakenly focuses on Nationwide’s relationship with
Moore, but the factor clearly demonstrates—as does caselaw—that the focus should be on Derek
and Moore. See Pioneer, 331 Mich App at 412.
The third factor is “the nature of the innocent third party’s conduct, whether reckless or
negligent, in the injury-causing event.” Pioneer, 331 Mich App at 411. The trial court determined
that factor three weighed slightly against rescission. There was some evidence presented, in the
form of deposition testimony by Blair and Derek, that it was Moore who ran his bicycle into the
truck. However, as the trial court noted, the extent of Moore’s injuries suggests that Moore did
not simply run into the truck while it was stopped, but that the truck struck him. Moreover, Derek
was allegedly intoxicated. The trial court noted that there was a factual dispute regarding the issue
of who possessed the right-of-way. This factor arguably could have been scored as neutral, but,
given the lack of positive evidence that Moore’s conduct was “reckless or negligent,” we conclude
that the trial court’s determination was within the range of principled outcomes. Pioneer, 331
Mich App at 405.
The fourth factor is “the availability of an alternate avenue for recovery if the insurance
policy is not enforced.” Pioneer, 331 Mich App at 411. The trial court determined that factor four
was “neutral at best and arguably weighs in favor of rescission.” In a footnote, the trial court stated
that “factor four above was not scored for rescission because Moore’s bills were paid.” This
statement suggests that the trial court in fact considered factor four as neutral or inapplicable. We
conclude that the trial court erred in its conclusion. The fourth factor “considers the present
situation” of the parties. Id. at 413. Moore had already received medical treatment and had that
treatment paid for by Nationwide, which means that, not only did an alternative avenue for
recovery exist, but recovery had already occurred; Moore’s claims were assigned to Nationwide,
who will continue to be his insurer if Esurance’s policy is rescinded. Moreover, rescission will
not result in any of Moore’s claims for recovery being barred by the one-year-back rule. See
Pioneer, 331 Mich App at 412-414. Notably, Pioneer’s short-form description of factor four
derives from Justice MARKMAN’s more comprehensive description:
Fourth, whether the innocent third party possesses an alternative avenue for
recovery absent enforcement of the insurance policy. Such an avenue for recovery
may include, for example, the assigned claims plan or health insurance. Where the
innocent third party possesses an alternative means of recovery, equity may weigh
in favor of rescission because the insurer need not suffer loss because of the fraud.
[Farm Bureau I, 503 Mich at 903 (MARKMAN, J., concurring) (emphasis added;
footnote omitted)].
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Justice Markman thus specifically indicated that the availability of recovery from the MACP—
which in this case incontrovertibly exists through Nationwide—is a factor that may result in the
overall weight of the equities favoring rescission. We conclude that this factor should have been
weighed heavily in favor of rescission.6
Finally, the fifth factor is “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.” Pioneer, 331 Mich App at 411. The trial court determined
that factor five was neutral, and the parties do not dispute that conclusion.
In totality, we conclude that the trial court abused its discretion by holding that Esurance
had failed to show that rescission was warranted. See Farm Bureau II, 337 Mich App at 108.
Overall, factor one was neutral; factor two weighed against rescission; factor three weighed
slightly against rescission, factor four weighed heavily in favor of rescission and factor five was
neutral. Although two factors weighed to some degree against rescission and one factor weighed
heavily in favor, again, the factors are “not merely to be counted up” but should be weighed to
determine which innocent party should bear the burden of the insured’s fraud. Farm Bureau II,
337 Mich App at 108; see also Farm Bureau I, 503 Mich at 903 (MARKMAN, J., concurring)
(explaining that “[t]he ultimate issue in innocent-third-party cases” is which innocent party
“should bear the ultimate burden of the insured's fraud”). In this case, Moore has already recovered
benefits from an alternate source, and rescission will have no effect on that coverage. In other
words, if the policy is rescinded, neither Esurance nor Moore would, in practical terms, bear the
burden of Blair’s fraud. Under these circumstances, the trial court’s decision to deny rescission
fell outside the range of principled outcomes. Pioneer, 331 Mich App at 405; see also Farm
Bureau I, 503 Mich at 903 (MARKMAN, J., concurring) (“Where the innocent third party possesses
an alternative means of recovery, equity may weigh in favor of rescission because the insurer need
not suffer loss because of the fraud.”)
6
Nationwide argues on appeal that “[a]ssigned claims are the insurers of last resort” and are not
“a source of reinsurance for insurance companies looking to rescind without justified reason.” We
agree that nothing in the no-fault act or the statutory underpinnings of the MAIPF or MACP
permits an insurer to rescind a policy “without justified reason.” But in this case, Esurance sought
rescission for a justified reason (fraud), which it established. In any event, the equity-balancing
analysis is between the innocent insured and the innocent third party; Nationwide has not provided
authority, and this Court has found none, indicating that factor four should also consider equity to
the alternate source of recovery. We note that Justice MARKMAN’s concurrence in Farm Bureau
I, while specifically mentioning the MACP as an alternate source of recovery, did not contemplate
consideration of the equity to the MACP. In any event, the MAIPF and MACP, and assigned
insurers, are only required to cover claims that are properly made to the MAIPF; we see no reason
why a rescinded policy should be analyzed any differently than the mere lack of a higher-priority
insurer. See Bazzi, 502 Mich at 409 (“Rescission abrogates a contract and restores the parties to
the relative positions that they would have occupied if the contract had never been made.”).
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Reversed and remanded for the trial court to enter an order granting summary disposition
in favor of Esurance. MCR 2.116(I)(2). We do not retain jurisdiction.
/s/ Michael J. Riordan
/s/ Stephen L. Borrello
/s/ Mark T. Boonstra
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