Optim Care Center v. USA Underwriters ( 2024 )

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
OPTIM CARE CENTER, UNPUBLISHED
August 22, 2024
Plaintiff-Appellee,
v No. 366058
Wayne Circuit Court
USA UNDERWRITERS, LC No. 21-014071-NF
Defendant-Appellant.
Before: O’BRIEN, P.J., and CAVANAGH and SHAPIRO*, JJ.
PER CURIAM.
Defendant appeals by leave granted1 the trial court’s order granting in part and denying in
part its motion for summary disposition in this no-fault action. We affirm in part, vacate in part,
and remand for further proceedings.
I. BACKGROUND
On March 18, 2021, James Shannon was involved in an automobile accident. On the same
day, Shannon applied for no-fault vehicle insurance through defendant, and defendant issued
Shannon a six-month policy. From March 22, 2021 through August 9, 2021, plaintiff provided
Shannon medical care for injuries he sustained in the March 18 accident. Plaintiff provided
approximately $31,675 in services to Shannon.
As part of his application for insurance, Shannon represented that his driver’s license had
not been suspended during the preceding three years. Defendant later discovered that this was
untrue. Consequently, on July 16, 2021, defendant informed Shannon that it intended to rescind
and void his insurance policy as of its inception date. Along with the letter, defendant attached a
1
See Optim Care Ctr v USA Underwriters, unpublished order of the Court of Appeals, entered
September 1, 2023 (Docket No. 366058).
*Former Court of Appeals judge, sitting on the Court of Appeals by assignment.
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check returning the premium Shannon had paid for the policy. On the last day Shannon received
treatment from plaintiff—August 9, 2021—he cashed the refund check.
Several months later, on October 14, 2021, plaintiff filed this action seeking no-fault
benefits from defendant pursuant to Shannon’s policy. Defendant moved for summary disposition,
arguing that any claim by Shannon was barred by fraud, and because plaintiff’s claim was
derivative of Shannon’s, plaintiff’s claim was also barred. In response, plaintiff argued that its
claim was not derivative of Shannon’s and that it was an innocent third party. This meant,
according to plaintiff, that Shannon’s policy was not automatically rescinded as to plaintiff due to
Shannon’s fraud; rather, a court had to weigh the equities to determine whether rescinding
Shannon’s policy with respect to plaintiff, an innocent third party, was equitable. In reply,
defendant reiterated its argument that plaintiff’s claim was derivative of Shannon’s and that,
because Shannon’s claim was barred due to fraud, plaintiff’s claim was also barred.
At the hearing on defendant’s motion, defendant argued consistent with its briefing that
plaintiff’s recovery was barred because it “stands in the shoes of” Shannon, whose claim was
barred due to fraud. Plaintiff argued consistent with its brief that it was an innocent third party,
and that rescission with respect to an innocent third party was only proper after balancing the
equities. It also argued, for the first time, that the equities “weigh heavily” in its favor, though it
did not provide any analysis to support this assertion.
After listening to the parties’ arguments, the trial court agreed with plaintiff that it was an
innocent third party, so “it’s appropriate to consider a balancing of the equities, with respect to this
third party provider.” The court recognized that both sides “failed to analyze the equity factors,”
but it decided to do so sua sponte. It found that defendant could have discovered Shannon’s fraud,
which weighed against rescission; that plaintiff did not have knowledge of the fraud and that
plaintiff did not contribute “to the injury causing event,” but the court did not say whether or to
what extent these factors weighed against rescission; that plaintiff may be able to recover against
Shannon though “that is likely not a viable option,” but the court again did not clarify whether this
weighed for or against rescission; and that enforcing the policy against defendant would have the
effect of relieving Shannon of personal liability for his fraud, which weighed in favor of rescission.
The court summarized, “Notwithstanding that final factor, it is clear that a balancing of the equities
requires a finding that Plaintiff is an innocent third party, in this matter, such that the recision [sic]
of Mr. Shannon’s policy, as to Mr. Shannon, should not preclude Plaintiff’s entitlement to
recovery.”
Defendant filed a motion for reconsideration in which it reiterated its argument that,
because plaintiff stood in Shannon’s shoes, and because Shannon’s claim was barred due fraud,
plaintiff’s claims should also be barred. The court denied this motion, restating its belief that “it
was appropriate to consider a balancing of the equities with respect to Plaintiff who is a third party
provider in relation to the subject party.” The court then explained why it also believed that,
balancing the equities, defendant’s policy with Shannon should not be rescinded as to plaintiff:
[The equities in] this case clearly weigh[] more in Plaintiff’s favor as an innocent
third party provider because 1) Defendant could have obtained information
indicating that Mr. Shannon had committed fraud in procuring the subject policy
such that equity weighs against rescission as it applies to Plaintiff herein, 2) there
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has been no indication that Plaintiff possessed any knowledge of the fraud based
on some specific relationship between Plaintiff and Mr. Shannon, 3) there is no
evidence that Plaintiff engaged in any conduct that contributed to the injury causing
event, and, 4) while Plaintiff may possess an alternative avenue of recovery by their
ability to pursue Mr. Shannon directly for payment, that is likely not a viable option.
The fifth factor of the analysis, however, likely does weigh in Defendant’s favor as
enforcement of the policy will have the effect of relieving the fraudulent insured,
i.e., Mr. Shannon, of what would otherwise be his personal liability with respect to
Plaintiff[’]s outstanding bills. Notwithstanding that final factor, this Court found
that it was clear that a balancing of the equities required a finding that Plaintiff is
an innocent third party in this matter such that the rescission of Mr. Shannon’s
policy as to Mr. Shannon should not preclude Plaintiffs entitlement to recovery
under that policy.
This appeal followed.
II. STANDARD OF REVIEW
A trial court’s ruling on a motion for summary disposition is reviewed de novo. El-Khalil
v Oakwood Healthcare, Inc, 504 Mich 152, 159; 934 NW2d 665 (2019). Defendant moved for
summary disposition under MCR 2.116(C)(10). When a party moves for summary disposition
under that rule, “a trial court must consider all evidence submitted by the parties in the light most
favorable to the party opposing the motion.” El-Khalil, 504 Mich at 160. Only when there is no
genuine issue of material fact may the motion be granted. See id. A genuine issue of material fact
exists when the record leaves open an issue upon which reasonable minds might differ. Id.
III. ISSUES RAISED BY THE PARTIES AND DECIDED BY THE TRIAL COURT
On appeal, defendant largely repeats the central argument that it made before the trial
court—that medical providers like plaintiff are not innocent third parties within the innocent-third-
party rule.
Defendant contends that this is so because medical providers’ claims are derivative of the
claims of their patients. In Mota-Peguero v Falls Lake Natl Ins Co, ___ Mich App ___, ___; ___
NW3d ___ (2024) (Docket No. 364103); slip op at 4, this Court rejected this argument, in part
because the medical provider in that case—like plaintiff here—brought a direct cause of action
against the insurer by virtue of MCL 500.3112. Mota-Peguero explained that, when a medical
provider brings a direct claim against an insurer who had rescinded its policy with the insured due
to fraud, the trial court could not automatically dismiss the medical provider’s claim due to the
insured’s fraud but “had the obligation to balance the equities of rescission.” Id. at ___; slip op at
6. Mota-Peguero elaborated that this analysis should be guided “by the nonexclusive list of factors
we listed in Pioneer State Mut Ins Co v Wright, 331 Mich App 396, 410-411; 952 NW2d 586(2020),” but warned “that some of those factors are ill-suited to the consideration of rescission in
the context of a dispute between an insurer and a health-care provider.” Mota-Peguero, ___ Mich
App at ___; slip op at 6.
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Defendant insists that medical providers are not innocent third parties because the factors
that courts rely on to balance the equities when determining whether rescission is proper are
inapplicable to medical providers. This Court recently rejected this argument in Van Dyke Spinal
Rehab Ctr, PLLC v USA Underwriters, ___ Mich App ___, ___; ___ NW3d ___ (2024) (Docket
No. 365848); slip op at 7-12. We are bound to follow Van Dyke under the rule of stare decisis.
MCR 7.215(C)(2).
IV. ISSUES NOT RAISED BY THE PARTIES BUT DECIDED BY THE TRIAL COURT
Defendant alternatively argues that “assuming balancing the equites was appropriate,” then
“the equities plainly weigh in [defendant’s] favor.” In support of this argument, defendant
provides a detailed analysis of the five factors identified in Pioneer, 331 Mich App at 410-411,
that courts are to consider when deciding whether to rescind a contract with respect to an innocent
third party. This is the first time that these arguments have been presented to any court because,
as the trial court recognized, neither party analyzed these factors below. Indeed, even on appeal,
plaintiff does not analyze the factors identified in Pioneer—plaintiff simply encourages this Court
to affirm the trial court’s analysis because the court “scrupulously applied [the relevant] factors in
balancing the equities in this case.”
Regardless of how scrupulously the trial court weighed the equities, it violates procedural
due process for a court to sua sponte rule on an issue without giving the parties the opportunity to
brief the issue and present their arguments to the court. See Al-Maliki v LaGrant, 286 Mich App
483, 485-486; 781 NW2d 853 (2009).2 Defendant had no notice that the trial court would consider
balancing the equities for rescission at the hearing on its motion for summary disposition—
defendant’s motion argued that the trial court did not need to balance the equities because
plaintiff’s claim was derivative of Shannon’s, and in response, plaintiff argued that its claim was
not derivative of Shannon’s and that plaintiff was an innocent third party. It was not until the
hearing on defendant’s motion that plaintiff argued that the equities weighed in its favor. But even
then, plaintiff made the assertion without any analysis. On this record, the trial court should not
have taken it upon itself to sua sponte decide this issue without giving the parties an opportunity
to brief the issue and present their arguments. And as an error-correcting court, it would be
improper for this Court to consider defendant’s arguments in the first instance, especially in this
case because rescission is a matter of a trial court’s discretion.3 See Bazzi v Sentinel Ins Co, 502
Mich 390, 412; 919 NW2d 20 (2018).
2
In Boulton v Fenton Twp, 272 Mich App 456, 463-464; 726 NW2d 733 (2006), this Court
recognized that a trial court’s failure to allow a party an opportunity to brief an issue and present
it to the court may be harmless error if the party fully briefs and presents its arguments in a motion
for reconsideration, and the lower court considers the arguments. Here, in its motion for
reconsideration, defendant did not brief the issue of whether the equities weighed in its favor, and
the trial court never had the opportunity to consider the arguments that defendant raises on appeal.
3
Additionally, plaintiff’s counsel conceded at oral argument that it would be appropriate for the
parties to address the equities before the trial court in the first instance because the issue was not
raised in the trial court.
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We accordingly vacate the trial court’s order to the extent that it found that “the equities,
as analyzed and stated on the record, weigh heavily in favor of rescission being ineffective as to
the Plaintiff.” On remand, the parties must be given the opportunity to address the issue before
the trial court issues a ruling on it. In all other respects, the trial court’s order is affirmed.
Affirmed in part, vacated in part, and remanded for further proceedings. We do not retain
jurisdiction. No taxable costs pursuant to MCR 7.219, neither party having prevailed in full.
/s/ Colleen A. O’Brien
/s/ Mark J. Cavanagh
/s/ Douglas B. Shapiro
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