Ali Bazzi v. Sentinel Insurance Company

Michigan Supreme Court
Lansing, Michigan
Syllabus
Chief Justice: Justices:
Stephen J. Markman Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
Kurtis T. Wilder
Elizabeth T. Clement
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
BAZZI v SENTINEL INSURANCE COMPANY
Docket No. 154442. Argued January 11, 2018 (Calendar No. 1). Decided July 18, 2018.
Alli Bazzi brought an action in the Wayne Circuit Court against Sentinel Insurance
Company and Citizens Insurance Company, seeking to recover personal protection insurance
(PIP) benefits under the no-fault act, MCL 500.3101 et seq., for injuries he received while
driving a vehicle leased by his mother, Hala Bazzi. Genex Physical Therapy, Inc., Elite
Chiropractic Center, PC, and Transmedic, LLC, intervened in the action to recover payment for
the medical services they individually provided to plaintiff for his injuries. Although Hala leased
the vehicle in her own name, Sentinel Insurance insured the vehicle through a commercial policy
issued to Mimo Investment, LLC, whose resident agent was plaintiff’s sister, Mariam Bazzi.
Sentinel Insurance filed a third-party complaint against Hala and Mariam, seeking to rescind the
policy on the basis that Hala and Mariam had procured the policy through fraud. The court, Lita
M. Popke, J., entered a default judgment against Hala and Mariam rescinding the policy.
Sentinel Insurance then moved for summary disposition of plaintiff’s PIP benefits claim and the
claims of the intervening medical providers, arguing that the policy was void ab initio because it
had been rescinded for fraud, which precluded recovery under the policy. The court denied
Sentinel Insurance’s motion, concluding that plaintiff had a valid claim for PIP benefits under
the innocent-third-party rule, which provides that an insurer may not rescind benefits for
mandatory coverage under an insurance policy as to an innocent third party injured in an
accident, even though the insured procured the policy through material misrepresentations in the
application. Plaintiff appealed by leave granted. In a split decision, the Court of Appeals,
SAWYER, P.J., and BOONSTRA, J. (BECKERING, J., dissenting), reversed the trial court and
remanded for further proceedings. 315 Mich 763 (2016). The majority reasoned that the
innocent-third-party rule did not survive the decision in Titan Ins Co v Hyten, 491 Mich 547(2012)—which abrogated the judicially created easily-ascertainable-fraud rule—because there
was no meaningful distinction between the two rules and because no statute prohibits an insurer
from raising a fraud defense with respect to PIP benefits. The Supreme Court granted plaintiff
and intervening plaintiffs Genex Physical Therapy, Inc., and Elite Chiropractic Center, PC’s
application for leave to appeal. 500 Mich 990 (2017).
In an opinion by Justice WILDER, joined by Chief Justice MARKMAN and Justices ZAHRA,
BERNSTEIN, and CLEMENT, the Supreme Court held:
The Court’s decision in Titan implicitly abrogated the innocent-third-party rule. An
insurer may seek rescission of an automobile insurance policy on the basis of the common-law
defense of fraud—even with regard to a third party seeking to recover statutorily mandated PIP
benefits—because the no-fault act does not limit an insurer’s ability to rescind a policy on that
basis. However, an insurer is not entitled to automatic rescission of a policy with regard to a
third party even though the policy was procured by the insured through fraud. Instead, a trial
court must balance the equities between the insurance company and the third party to determine
whether, in its discretion, the policy could be rescinded as between those parties. In this case,
Sentinel Insurance could raise the defense of fraud to plaintiff’s action for PIP benefits. The
Court of Appeals erred when it concluded that Sentinel Insurance was automatically entitled to
rescission of the contract with regard to plaintiff. The case was remanded to the trial court for it
to balance the equities between the two parties to determine whether, in its discretion, the policy
could be rescinded.
1. Automobile insurance contracts are governed by a combination of statutes and the
common law related to contracts. Under MCL 500.3112, PIP benefits are payable to or for the
benefit of an injured person or, in the case of an individual’s death, to or for the benefit of the
individual’s dependents. Because PIP benefits are mandated by MCL 500.3101(1) of the no-
fault act, issues regarding the award of those benefits are decided by construing the statute and
the policy together as though the statute is part of the policy, and the rights and limitations of the
policy coverage are governed by the statute. Conversely, the rights and limitations of a policy
are entirely contractual and construed without reference to the statute if there is no applicable
statute. Article 3, § 7 of the 1963 Michigan Constitution provides that common-law defenses
remain in effect until they expire by their own limitations or are changed, amended, or repealed.
Consequently, unless doing so is clearly prohibited by a statute, an insurer may continue to avail
itself of any common-law defenses, including fraud in the procurement of the policy. 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 the common-law defense of fraud, including as to a third party.
Accordingly, Sentinel Insurance could raise the defense of fraud and seek rescission of the
insurance policy as to plaintiff.
2. Titan abrogated the easily-ascertainable-fraud rule—which provided that insurance
companies may not rescind a policy on the basis of fraud when the fraud was easily
ascertainable—and overruled prior Court of Appeals decisions, including State Farm Mut Auto
Ins Co v Kurylowicz, 67 Mich App 568 (1976). Titan implicitly abrogated the innocent-third-
party rule as well; the two rules overlap because the easily-ascertainable-fraud rule only applies
when a third-party claimant is involved. In its discussion of the no-fault act, Titan also rejected
the underlying reasons for the innocent-third-party rule, reasoning that there was no basis in the
no-fault act to support the proposition that public policy requires a private business to maintain a
source of funds for the benefit of a third party with whom the business has no contractual
relationship. The Titan Court’s reasoning was not dependent on whether the coverage was
optional or mandatory under the act because each benefit is predicated on a valid contract
between the insured and the insurer. Moreover, public policy does not compel adoption of the
innocent-third-party rule. Although an innocent third party might have a reasonable right to
expect that other drivers have the minimum coverage required by the no-fault act (like PIP
benefits), the innocent party does not have an absolute right by operation of law to hold an
insurer liable for the fraud of the insured. Any implication in Titan that MCL 500.3101(1), like
the example of MCL 500.3009(1) used in Titan, limits the availability of rescission because both
statutes mandate certain coverage—as opposed to the optional coverage at issue in Titan—was
nonbinding dicta.
3. In general, fraud in the inducement to enter a contract renders the contract voidable at
the option of the defrauded party. Accordingly, an insurance policy procured by fraud may be
declared void ab initio at the option of the insurer, with the effect being that the contract is
considered never to have existed. A claim to rescind a contract is equitable in nature, and the
claim is therefore not strictly of right but instead granted as a remedy in the sound discretion of
the trial court. A trial court must balance the equities to determine whether a party is entitled to
the rescission the party seeks, and the remedy should not be granted when the result would be
unjust or inequitable. In other words, the trial court must determine which party should assume
the loss when both parties affected are equally innocent and blameless. In light of the fact that
equity allows complete justice to be done in a case by adapting its judgments to the unique
circumstances of each case, an insured’s fraud in an application of insurance does not
automatically allow the insurer to rescind the policy with respect to third parties. In this case,
although the contract with Mimo Investment was void ab initio because of Mimo Investment’s
fraud in the application, the Court of Appeals erred by concluding that the contract was therefore
automatically void ab initio between Sentinel Insurance and plaintiff. The case was remanded to
the trial court to determine whether, in its discretion, the insurance policy could be rescinded
between those parties.
Affirmed in part, reversed in part, and remanded to the trial court for further proceedings.
Justice MCCORMACK, joined by Justice VIVIANO, dissenting, disagreed with the
majority’s conclusion that Titan abrogated the innocent-third-party rule. Titan held that an
insurer may use traditional legal and equitable remedies to defend against optional residual-
liability insurance unless those remedies are limited by a statute. But unlike the optional
residual-liability insurance at issue in Titan, PIP benefits are required and mandated by the no-
fault act: MCL 500.3101(1) and (5), read together, require the insurer to provide PIP coverage in
every policy unless that coverage may be excluded as provided in MCL 500.3017. And the no-
fault act provides that all eligible claimants injured in an automobile accident are entitled to PIP
benefits from their own insurer, from another insurer in order of priority, or from the Michigan
Assigned Claims Plan. Because mandatory PIP coverage arises by statute, the rights and
limitations on PIP coverage are governed by that statute; rescission is allowed when it is
consonant with the act, and is not allowed when it is not. It is not allowed in this case because
that remedy is not consonant with the statute’s mandate that all eligible claimants are entitled to
receive PIP benefits. The majority’s reasoning—that the Legislature’s failure specifically to
exclude the defense of rescission indicates that it survives as an available defense—conflicts
with the rules of statutory construction. Titan does not provide a doctrinal basis for the
majority’s decision either, because the innocent-third-party doctrine is distinct from the easily-
ascertainable-fraud rule abrogated in Titan. The innocent-third-party doctrine is substantively
sound: it survived Titan, and there is no principled basis to reject it now. The majority’s decision
to permit litigation of equitable defenses that conflict with the statute will interfere with the
Legislature’s expressed priorities: ensuring prompt and assured payment of coverage for eligible
claimants and reducing litigation. Only lawyers stand to gain from the majority’s remedy—
balancing the equities in every case will prove costly and inefficient for insurers and accident
victims alike. Justice MCCORMACK would have held that because the act mandates the payment
of third-party PIP benefits and explicitly provides for cost-shifting and other remedies for
insurers to invoke after payment has been made, the Legislature intended to abrogate those
common-law remedies and equitable remedies that conflict with the act. Accordingly, Justice
MCCORMACK would have allowed Sentinel to avoid or reduce its obligations relative to the
assigned claims insurer, Citizens Insurance Company, by raising defenses permitted by the act,
but would not have allowed Sentinel to avoid its PIP obligations by seeking to rescind the policy
based on fraud.
©2018 State of Michigan
Michigan Supreme Court
Lansing, Michigan
OPINION
Chief Justice: Justices:
Stephen J. Markman Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
Kurtis T. Wilder
Elizabeth T. Clement
FILED July 18, 2018
STATE OF MICHIGAN
SUPREME COURT
ALI BAZZI,
Plaintiff-Appellant,
and
GENEX PHYSICAL THERAPY, INC., and
ELITE CHIROPRACTIC CENTER, PC,
Intervening Plaintiffs-
Appellants,
and
TRANSMEDIC, LLC,
Intervening Plaintiff-Appellee,
v No. 154442
SENTINEL INSURANCE COMPANY,
Defendant/Third-Party
Plaintiff-Appellee,
and
CITIZENS INSURANCE COMPANY,
Defendant-Appellee,
and
HALA BAYDOUN BAZZI and
MARIAM BAZZI,
Third-Party Defendants-
Appellees.
BEFORE THE ENTIRE BENCH
WILDER, J.
Plaintiff, Ali Bazzi, was injured while driving a vehicle owned by his mother,
third-party defendant Hala Baydoun Bazzi, and insured by defendant Sentinel Insurance
Company (Sentinel).1 Plaintiff sued Sentinel for mandatory personal protection
insurance (PIP) benefits under Michigan’s no-fault act,2 and Sentinel sought and obtained
a default judgment rescinding the insurance policy on the basis of fraud. This Court is
now asked to decide whether the judicially created innocent-third-party rule, which
precludes an insurer from rescinding an insurance policy procured through fraud when
there is a claim involving an innocent third party, survived this Court’s decision in Titan
Ins Co v Hyten, 491 Mich 547; 817 NW2d 562 (2012), which abrogated the judicially
created easily-ascertainable-fraud rule. In answer, we hold that Titan abrogated the
innocent-third-party rule but that the Court of Appeals erred when it concluded that
Sentinel was automatically entitled to rescission in this instance. Accordingly, we affirm
in part, reverse in part, and remand to the trial court to consider whether, in its discretion,
rescission is an available remedy.
1
Defendant Citizens Insurance Company is not involved in this appeal.
2
MCL 500.3101 et seq.
2
I. FACTS AND PROCEEDINGS
Plaintiff sued for PIP benefits after he was injured while driving a vehicle owned
by his mother, Hala Bazzi. The vehicle had been leased by LaFontaine Honda to Hala
Bazzi for personal and family use. Although Hala Bazzi leased the vehicle in her name,
personally, she sought and procured from Sentinel a commercial automobile policy for
no-fault coverage, which listed Mimo Investment, LLC, as the insured. Plaintiff’s sister,
third-party defendant Mariam Bazzi, is the resident agent of Mimo Investment.3
Sentinel claimed that the insurance policy was procured through fraud by Hala and
Mariam Bazzi because Mimo Investment was a shell company, the vehicle was not being
commercially used by Mimo Investment, and no one had disclosed to Sentinel that
plaintiff would be a regular driver of the vehicle. Sentinel filed a third-party complaint
against Hala and Mariam Bazzi and obtained a default judgment rescinding the policy.4
Sentinel then moved for summary disposition of plaintiff’s claim, arguing that
rescission of the policy made it void ab initio and precluded recovery under the policy.
The trial court denied the motion on the basis of the innocent-third-party rule, which
prevents an insurer from rescinding an insurance policy on the basis of material
misrepresentations in the application for insurance as to a claim made by a third party
who is innocent of the fraud. After the Court of Appeals denied Sentinel’s interlocutory
application for leave to appeal, this Court remanded the case to the Court of Appeals for
consideration as on leave granted. Bazzi v Sentinel Ins Co, 497 Mich 886 (2014).
3
Hala and Mariam Bazzi are not involved in this appeal.
4
Sentinel also sought monetary damages resulting from the misrepresentation and fraud.
3
On remand, the Court of Appeals issued a split, published decision reversing the
trial court and remanding for further proceedings. Bazzi v Sentinel Ins Co, 315 Mich App
763, 780-782; 891 NW2d 13 (2016). The majority held that the innocent-third-party rule
did not survive this Court’s decision in Titan because there was no meaningful distinction
between the easily-ascertainable-fraud rule and the innocent-third-party rule and because
no statute prohibits an insurer from raising a fraud defense with respect to PIP benefits.
Id. at 772-773, 778-782.
Plaintiff and intervening plaintiffs Genex Physical Therapy, Inc., and Elite
Chiropractic Center, PC,5 filed an application for leave to appeal in this Court, which was
granted. Bazzi v Sentinel Ins Co, 500 Mich 990 (2017). For the reasons discussed in this
opinion, we affirm the Court of Appeals’ holding that Titan abrogated the innocent-third-
party rule and reverse the portion of the Court of Appeals’ opinion holding that Sentinel
is automatically entitled to rescission. We remand to the trial court to determine whether
rescission is available as an equitable remedy as between Sentinel and plaintiff.
II. STANDARD OF REVIEW
This Court reviews de novo a trial court’s decision on a motion for summary
disposition. DeFrain v State Farm Mut Auto Ins Co, 491 Mich 359, 366; 817 NW2d 504
(2012). A motion for summary disposition under MCR 2.116(C)(10) shall be granted if
5
Intervening plaintiffs Genex Physical Therapy, Elite Chiropractic Center, and
Transmedic, LLC, intervened in the action to recover payment for the medical services
they individually provided to plaintiff for his injuries. Transmedic is not involved in this
appeal, and references in this opinion to “intervening plaintiffs” are to Genex Physical
Therapy and Elite Chiropractic Center.
4
there is no genuine issue regarding any material fact and the movant is entitled to
judgment as a matter of law. Maiden v Rozwood, 461 Mich 109, 120; 597 NW2d 817
(1999). This Court also reviews de novo questions of statutory interpretation and the
proper interpretation of a contract. Titan, 491 Mich at 553.
III. ANALYSIS
A. THE INNOCENT-THIRD-PARTY RULE DOES NOT SURVIVE TITAN
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.” Belcher v Aetna Cas & Surety
Co, 409 Mich 231, 240; 293 NW2d 594 (1980). 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.” MCL
500.3112. Because “PIP benefits are mandated by statute under the no-fault act, . . . the
statute is the ‘rule book’ for deciding the issues involved in questions regarding awarding
those benefits.” Rohlman v Hawkeye-Security Ins Co, 442 Mich 520, 524-25; 502 NW2d
310 (1993).
Consequently, automobile insurance contracts are governed by a combination of
statutory provisions and the common law of contracts. Insurance policies are contracts
“ ‘subject to the same contract construction principles that apply to any other species of
contract.’ ” Titan, 491 Mich at 554, quoting Rory v Continental Ins Co, 473 Mich 457,
461; 703 NW2d 23 (2005). When a provision in an insurance policy is mandated by a
statute, the policy and the statute must be construed together as though the statute were
5
part of the policy, and “the rights and limitations of the coverage are governed by that
statute.” Titan, 491 Mich at 554 (quotation marks and citation omitted). In the absence
of any applicable statute, however, “the rights and limitations of the coverage are entirely
contractual and construed without reference to the statute.” Id. (emphasis added).
It is well established that common-law defenses “shall remain in force and effect
until they expire by their own limitations, or are changed, amended or repealed.” Const
1963, art 3, § 7. Legislative amendment of the common law has not been lightly
presumed by Michigan appellate courts. Wold Architects & Engineers v Strat, 474 Mich
223, 233; 713 NW2d 750 (2006), citing Marquis v Hartford Accident & Indemnity (After
Remand), 444 Mich 638, 652 n 17; 513 NW2d 799 (1994). The issue of whether a statute
preempts, changes, or amends the common law is one of legislative intent. Wold
Architects & Engineers, 474 Mich at 233. In ascertaining legislative intent, our first step
is to look at the words of the statute. Id. Accordingly, unless clearly prohibited by
statute, an insurer may continue to avail itself of any common-law defenses, such as fraud
in the procurement of the policy. Titan, 491 Mich at 554-555.
MCL 500.3112 states, in pertinent part, that “[PIP] benefits 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.” There is no question that PIP benefits are mandated by the statute and that
the insurance policy must therefore be read together with the no-fault act; instead, the
question is whether the statute prohibits an insurer from availing itself of the defense of
fraud.
When the Legislature intends to limit the common-law remedies available to an
insurer for misrepresentation or fraud, that intent is clearly reflected in the language
6
employed in the statute. For example, MCL 500.3220—part of the no-fault act—“limits
the ability of a licensed insurer to ‘cancel’ automobile coverage after a policy has been in
effect for at least 55 days.” Titan, 491 Mich at 557-558, citing MCL 500.3220.
Additionally, MCL 257.520(f)(1) of the financial responsibility act, MCL 257.501 et
seq., explicitly precludes rescission based on fraud or misrepresentations. See MCL
257.520(f)(1) (“The liability of the insurance carrier with respect to the insurance
required by this chapter shall become absolute whenever injury or damage covered by
said motor vehicle liability policy occurs . . . [and] no fraud, misrepresentation,
assumption of liability or other act of the insured in obtaining or retaining such
policy . . . shall constitute a defense as against such judgment creditor.”). In this case,
however, 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.6 Therefore, Sentinel may raise
that defense and seek rescission of the no-fault insurance policy.
In the past, Michigan courts have held that the “right to rescind ceases to exist
once there is a claim involving an innocent third party” because “[p]ublic policy requires
that an insurer be estopped from asserting rescission when a third party has been injured.”
Katinsky v Auto Club Ins Ass’n, 201 Mich App 167, 170-171; 505 NW2d 895 (1993),
citing Darnell v Auto-Owners Ins Co, 142 Mich App 1, 9; 369 NW2d 243 (1985), and
Ohio Farmers Ins Co v Mich Mut Ins Co, 179 Mich App 355, 364-365; 445 NW2d 228
(1989); see also Morgan v Cincinnati Ins Co, 411 Mich 267, 273, 277; 307 NW2d 53
6
See MCL 500.3101 et seq.; MCL 500.3105 (insurer liability); MCL 500.3107
(allowable expenses); Titan, 491 Mich at 566-568.
7
(1981) (holding that the intentional burning of a home by one spouse would not bar the
innocent spouse’s recovery under a statutory fire insurance policy because the policy
named both spouses as “the insured”).
A “ ‘public policy’ rationale does not compel the adoption” of such a rule,
however, and this Court implicitly abrogated the so-called “innocent-third-party” rule in
Titan, 491 Mich at 565, 570, 573. In that case, the defendant had her driver’s license
suspended in January 2007 but expected that it would be restored at a hearing held on
August 24, 2007. Id. at 551. In the meantime, the defendant sought car insurance from
the plaintiff, Titan Insurance Company. Id. at 551-552. On the defendant’s application,
which she signed on August 22, 2007, and postdated August 24, 2007, she stated that her
license was not suspended; the defendant’s license, however, was not restored until
September 20, 2007. Id. In February 2008, she crashed the insured vehicle into a vehicle
driven by Howard and Martha Holmes. Id. at 552.
While investigating the accident, Titan discovered the defendant’s
misrepresentation. Id. Titan sought a declaration that if the Holmes family brought an
action against the defendant and prevailed, Titan was not obligated to indemnify the
defendant above the minimum liability coverage limits required by the financial
responsibility act. Id.
The trial court granted summary disposition in favor of the defendant, reasoning
that Titan could have easily ascertained whether the defendant’s license was valid. Id. at
553. The Court of Appeals affirmed,7 relying on State Farm Mut Auto Ins Co v
7
Titan Ins Co v Hyten, 291 Mich App 445, 463-464; 805 NW2d 503 (2011).
8
Kurylowicz, 67 Mich App 568; 242 NW2d 530 (1976). The rule established in
Kurylowicz prohibited insurers from asserting the defense of fraud once an insurable
event occurred and there was an innocent, injured third party if the fraud perpetrated by
the insured was easily ascertainable by investigation. Titan, 491 Mich at 563-564.
This Court held that “an insurer is not precluded from availing itself of traditional
legal and equitable remedies to avoid liability under an insurance policy on the ground of
fraud in the application for insurance, even when the fraud was easily ascertainable and
the claimant is a third party.” Id. at 571. Thus, Titan abrogated the judicially created
easily-ascertainable-fraud and innocent-third-party rules, and it overruled Kurylowicz and
its progeny.
We are not persuaded by the argument of plaintiff, intervening plaintiffs, and the
Court of Appeals dissent that Titan only addressed the easily-ascertainable-fraud rule,
and left undisturbed the innocent-third-party rule. See Bazzi, 315 Mich App at 790
(BECKERING, J., dissenting). Titan recognized that these rules overlap because “the
‘easily ascertainable’ rule . . . only applies when a third-party claimant is involved.”
Titan, 491 Mich at 563. The Titan Court explained that an insurance carrier could resort
to traditional legal and equitable remedies, including rescission, even when the fraud was
“easily ascertainable and the claimant is a third party.” Id. at 572, 573 (emphasis added).
Because these two factors are insufficient to preclude rescission even when combined,
each factor on its own is insufficient to preclude rescission.
Moreover, in Titan, this Court rejected the underlying reasons for the innocent-
third-party rule in contemplation of the no-fault act:
9
[I]t is contended that the “easily ascertainable” rule is required for the
protection of third parties. However, there is simply no basis in the law to
support the proposition that public policy requires a private business in
these circumstances to maintain a source of funds for the benefit of a third
party with whom it has no contractual relationship. While perhaps
authority exists in the Legislature to enact such a law, see, e.g., MCL
500.3172 (pertaining to the Michigan Assigned Claims Facility), this
authority has not been exercised by the Legislature in this instance. The
no-fault act seeks to protect third parties in a variety of ways, including
through tort actions, but it states nothing about altering the common law
that enables insurers to obtain traditional forms of relief when they have
been the victims of fraud. . . . Absent insurance, the operator of the motor
vehicle is personally liable for tort liability. By requiring an insurer to
indemnify an insured despite fraud in obtaining an insurance policy, . . . the
insured [is relieved] of what would otherwise be the insured’s personal
obligation in the face of his or her own misconduct. As between the
fraudulent insured and the insurer, there can be no question that the former
should bear the burden of his or her fraud. [Id. at 568-569.]
This rationale applies in full force to the innocent-third-party rule, which, like the
easily-ascertainable-fraud rule, also precludes an insurer from raising a fraud defense to
deny coverage under an insurance policy procured by fraud. Imposition of the rule would
require Sentinel to indemnify Mimo Investment for the benefit of plaintiff despite the
fraud that was committed when obtaining the insurance policy, relieving Mimo
Investment of what would otherwise be its obligation in the face of its own agent’s
misconduct.
Plaintiff, intervening plaintiffs, and the Court of Appeals dissent, further contend
that mandatory liability minimums—including PIP coverage, which is mandatory under
MCL 500.3101(1)—must be paid by an insurer under a policy despite any fraud in the
10
acquisition of that policy. In support of this position, they cite MCL 500.3009(1),8 which
provides the policy coverage minimums for all motor vehicle liability insurance policies,
and Titan, 491 Mich at 572, in which this Court stated:
Should Titan prevail on its assertion of actionable fraud, it may avail
itself of a traditional legal or equitable remedy to avoid liability under the
insurance policy, notwithstanding that the fraud may have been easily
ascertainable. However, as discussed earlier in this opinion, the remedies
available to Titan may be limited by statute. . . .17
17
For example, MCL 500.3009(1) provides the policy coverage minimums
for all motor vehicle liability insurance policies.
[Emphasis added.]
8
MCL 500.3009(1) states:
An automobile liability or motor vehicle liability policy insuring
against loss resulting from liability imposed by law for property damage,
bodily injury, or death suffered by any person arising out of the ownership,
maintenance, or use of a motor vehicle shall not be delivered or issued for
delivery in this state with respect to any motor vehicle registered or
principally garaged in this state unless the liability coverage is subject to all
of the following limits:
(a) A limit, exclusive of interest and costs, of not less than
$20,000.00 because of bodily injury to or death of 1 person in any 1
accident.
(b) Subject to the limit for 1 person in subdivision (a), a limit of not
less than $40,000.00 because of bodily injury to or death of 2 or more
persons in any 1 accident.
(c) A limit of not less than $10,000.00 because of injury to or
destruction of property of others in any accident.
11
The same argument was made in State Farm Mut Auto Ins Co v Mich Muni Risk
Mgt Auth (On Remand), 317 Mich App 97, 105; 892 NW2d 451 (2016) (MURPHY, J.,
concurring) (reasoning that “[b]y observing that MCL 500.3009(1) limits available
remedies for actionable fraud, the Supreme Court effectively telegraphed its view that an
insurer would be liable under a policy with respect to liability coverage required by MCL
500.3009(1) in connection to an innocent third party injured by a negligent driver who
had fraudulently procured the policy”).
We reject the premise that there is a controlling distinction between mandatory
coverage, i.e., statutorily mandated PIP benefits, and optional coverage. Whether
statutory benefits or optional benefits are at issue, each is predicated on the existence of a
valid contract between the insured and insurer. Moreover, our reasoning in Titan was not
dependent on whether the coverage at issue was mandatory or optional. Rather, we
recognized that common-law defenses are available when there are contractual insurance
policies but limited when a statute prohibits the defense. Titan, 491 Mich at 558, 572.
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. Additionally, because Titan considered only optional benefits, there was no
reason for this Court to opine on any purported statutory limitations on common-law
defenses for mandatory coverage. As such, any implication derived from Titan’s
footnote 17 and accompanying text that MCL 500.3101(1) somehow limited the
availability of rescission—see Titan, 491 Mich at 572 & n 17—was nonbinding dicta.
Haksluoto v Mt Clemens Regional Med Ctr, 500 Mich 304, 313 n 3; 901 NW2d 577
(2017) (“ ‘Obiter dicta are not binding precedent.’ ”) (citation omitted). We acknowledge
12
that several lower court opinions have questioned whether permitting rescission of a
policy would be incompatible with the compulsory nature of the no-fault act, particularly
after a third party has sustained injury. See, e.g., Cunningham v Citizens Ins Co of
America, 133 Mich App 471, 481, 484-489; 350 NW2d 283 (1984) (BRENNAN, J.,
dissenting) (concluding that rescission ab initio was not an available remedy to insurers
under this state’s compulsory insurance scheme); Kurylowicz, 67 Mich App 579 (holding
that a policy of no-fault insurance becomes absolute once an injury arises), overruled by
Titan, 491 Mich at 551. However, although an innocent third party might have a
reasonable right to expect that other drivers carry the minimum insurance required under
the no-fault act, that expectation does not, by operation of law, grant an innocent third
party an absolute right to hold an insurer liable for the fraud of the insured. In other
words, an insurer has a reasonable right to expect honesty in the application for
insurance,9 and there is nothing in the no-fault act that indicates that the reasonable
expectations of an innocent third party surmount the reasonable expectations of the
insurer.
9
Jacobs v Queen Ins Co, 183 Mich 512, 520; 150 NW 147 (1914) (noting that “a
contract of insurance is one in which the utmost good faith is required of the insured”)
(quotation marks and citation omitted). See also Barry Zalma, LexisNexis Legal
Newsroom, The Equitable Remedy of Rescission: A Tool to Defeat Fraud,
(posted April 21,
2015) (accessed June 11, 2018) (stating that “[i]nsurance contracts, unlike common run-
of-the-mill commercial contracts, are considered to be contracts of utmost good faith”
and that “[e]ach party to the contract of insurance is expected to treat the other fairly in
the acquisition and performance of the contract”).
13
Accordingly, we hold that Titan abrogated the innocent-third-party rule and that
Sentinel is therefore not precluded from raising a defense of fraud.
B. RESCISSION IS AN EQUITABLE REMEDY, NOT AN ABSOLUTE RIGHT
While we agree with the Court of Appeals majority that Titan abrogated the
innocent-third-party rule, we do not agree that Sentinel was categorically entitled to
rescission.
Generally, “[f]raud in the inducement to enter a contract renders the contract
voidable at the option of the defrauded party . . . .” 5A Michigan Civil Jurisprudence,
Contracts, § 44, p 215 (emphasis added), citing Tocco v Tocco, 409 F Supp 2d 816 (ED
Mich, 2005), Star Ins Co v United Commercial Ins Agency, Inc, 392 F Supp 2d 927 (ED
Mich, 2005) (applying Michigan law), Rooyakker & Sitz, PLLC v Plante & Moran,
PLLC, 276 Mich App 146; 742 NW2d 409 (2007), Custom Data Solutions, Inc v
Preferred Capital, Inc, 274 Mich App 239; 733 NW2d 102 (2006), Samuel D Begola
Servs, Inc v Wild Bros, 210 Mich App 636; 534 NW2d 217 (1995), and Whitcraft v
Wolfe, 148 Mich App 40; 384 NW2d 400 (1985). For that reason, an insurance policy
procured by fraud may be declared void ab initio at the option of the insurer. Darnell,
142 Mich App at 9 (stating that “[w]here a policy of insurance is procured through the
insured’s intentional misrepresentation of a material fact in the application for insurance,
and the person seeking to collect the no-fault benefits is the same person who procured
the policy of insurance through fraud, an insurer may rescind an insurance policy and
declare it void ab initio”), citing Cunningham, 133 Mich App 471, and United Security
Ins Co v Comm’r of Ins, 133 Mich App 38; 348 NW2d 34 (1984). In effect, the
14
insurance policy is considered never to have existed. United Security Ins Co, 133 Mich
App at 42 (“ ‘When a policy is cancelled, it is terminated as of the cancellation date and
is effective up to such date; however, when a policy is rescinded, it is considered void ab
initio and is considered never to have existed.’ ”), quoting 8B Appleman, Insurance Law
and Practice, § 5011, p 403. Additionally, “[u]nless rescinded, a voidable contract
imposes on the parties the same obligations as if it were not voidable.” 1 Williston,
Contracts (4th ed), § 1:20, p 76.
Rescission abrogates a contract and restores the parties to the relative positions
that they would have occupied if the contract had never been made. Wall v Zynda, 283
Mich 260, 264-265; 278 NW 66 (1938).10 Because a claim to rescind a transaction is
equitable in nature, it “is not strictly a matter of right” but is granted only in “the sound
discretion of the court.” Amster v Stratton, 259 Mich 683, 686; 244 NW 201 (1932). See
id. (stating that “[e]quitable relief . . . is not strictly a matter of right, but rather a remedy,
the granting of which rests in the sound discretion of the court”); Windisch v Mortgage
Security Corp of America, 254 Mich 492, 495; 236 NW 880 (1931) (stating that one who
10
Additionally,
[r]escission abrogates a contract completely. All former contract rights are
annulled, and it is as if no contract had been made. Thus, to rescind a
contract is not merely to terminate it, but to undo it from the beginning, and
the effect of rescission is not merely to release the parties from further
obligation to each other in respect to the subject of the contract, but to
annul the contract and restore the parties to the relative positions which
they would have occupied if no such contract had ever been made.
Rescission involves a restoration of the status quo. [5A Michigan Civil
Jurisprudence, Contracts, § 215, pp 439-440 (citations omitted).]
15
seeks equity must “do equity”) (quotation marks and citation omitted); Lenawee Co Bd of
Health v Messerly, 417 Mich 17, 31; 331 NW2d 203 (1982) (stating that rescission is “an
equitable remedy which is granted only in the sound discretion of the court”), citing
Harris v Axline, 323 Mich 585; 36 NW2d 154 (1949), and Hathaway v Hudson, 256
Mich 694; 239 NW 859 (1932). See also Browne v Briggs Commercial & Dev Co, 271
Mich 191, 194; 259 NW 886 (1935) (stating that “[t]he equitable remedy of rescission is
one of grace”); 12A CJS, Cancellation of Instruments, § 11, p 507 (stating that “[t]he fact
that the rescission of a contract is an available remedy does not lead to the conclusion that
it is required”).11
When 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.” Johnson v QFD,
Inc, 292 Mich App 359, 370 n 3; 807 NW2d 719 (2011). Accordingly, courts are not
required to grant rescission in all cases. For example, “rescission should not be granted
in cases where the result thus obtained would be unjust or inequitable,” Amster, 259 Mich
at 686, or “where the circumstances of the challenged transaction make rescission
11
Unlike an action for rescission, a suit for damages is an action at law, see King v Gen
Motors Corp, 136 Mich App 301, 308; 356 NW2d 626 (1984), and actions at law are
founded on a party’s absolute right, rather than on an appeal left to the discretion of the
court, see Hathaway, 256 Mich at 702. A plaintiff, however, is not required to elect
between the remedies of rescission and damages. Jefferson Park Land Co v Wayne
Circuit Judge, 234 Mich 341, 345-346; 207 NW 903 (1926). Furthermore, when a
contract is not rescinded, the defrauded insurer may still recover damages on the basis of
fraud. See Hedler v Manning, 252 Mich 195, 197; 233 NW 223 (1930) (“A bill for
rescission with alternative prayer for damages for fraud if rescission be impracticable is
well laid.”); Glover v Radford, 120 Mich 542, 544; 79 NW 803 (1899) (“If there was
fraud, and he did not succeed in rescinding the contract, he certainly ought to have the
right to recover damages for the injury he had suffered, if any.”).
16
infeasible,” CJS, § 11, p 507. 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 . . . .” Lenawee, 417 Mich at 31. “[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.” Zucker v Karpeles, 88 Mich 413, 430; 50 NW 373 (1891). “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.In this instance, rescission does not function by automatic operation of the law.
Just as the intervening interest of an innocent third party does not altogether bar
rescission as an equitable remedy, neither does fraud in the application for insurance
imbue an insurer with an absolute right to rescission of the policy with respect to third
parties. Equitable remedies are adaptive to the circumstances of each case, and an
absolute approach would unduly hamper and constrain the proper functioning of such
remedies. This Court has recognized that “[e]quity jurisprudence molds its decrees to do
justice amid all the vicissitudes and intricacies of life” and that “[e]quity allows complete
justice to be done in a case by adapting its judgments to the special circumstances of the
case.” Tkachik v Mandeville, 487 Mich 38, 45-46; 790 NW2d 260 (2010) (quotation
marks omitted), citing Spoon-Shacket Co, Inc v Oakland Co, 356 Mich 151, 163; 97
NW2d 25, and 27A Am Jur 2d, Equity, § 2, pp 520-521; see also Lenawee, 417 Mich at
29 (adopting a case-by-case approach to rescission when a “mistaken belief relates to a
basic assumption of the parties upon which the contract is made, and which materially
affects the agreed performances of the parties”), and Am Jur 2d, § 2, pp 548-549.
17
Accordingly, although the policy between Sentinel and the insured, Mimo
Investment is void ab inito due to the fraudulent manner in which it was acquired, the
trial court must now determine whether, in its discretion, rescission of the insurance
policy is available as between Sentinel and plaintiff.12 Therefore, we remand this matter
to the trial court to exercise its discretion. Lenawee, 417 Mich at 31.
IV. CONCLUSION
We affirm the Court of Appeals’ holding that Titan abrogated the innocent-third-
party rule and reverse the portion of the Court of Appeals’ opinion that held Sentinel was
automatically entitled to rescission by operation of law. We remand to the trial court to
determine whether rescission is available as an equitable remedy as between Sentinel and
plaintiff.
Kurtis T. Wilder
Stephen J. Markman
Brian K. Zahra
Richard H. Bernstein
Elizabeth T. Clement
12
If the insurer could not rescind as to the third parties, but could rescind as to any claims
by the fraudulent insured, then the policy would not be fully rescinded; rather it would be
considered reformed. 1 Dobbs, Law of Remedies (2d ed), § 4.3(7), pp 617-618.
18
STATE OF MICHIGAN
SUPREME COURT
ALI BAZZI,
Plaintiff-Appellant,
and
GENEX PHYSICAL THERAPY, INC., and
ELITE CHIROPRACTIC CENTER, PC,
Intervening Plaintiffs-
Appellants,
and
TRANSMEDIC, LLC,
Intervening Plaintiff-Appellee,
v No. 154442
SENTINEL INSURANCE COMPANY,
Defendant/Third-Party
Plaintiff-Appellee,
and
CITIZENS INSURANCE COMPANY,
Defendant-Appellee,
and
HALA BAYDOUN BAZZI and
MARIAM BAZZI,
Third-Party Defendants-
Appellees.
MCCORMACK, J. (dissenting).
In Titan Ins Co v Hyten, 491 Mich 547, 550-551; 817 NW2d 562 (2012), we held
that an insurer may avail itself of traditional legal and equitable remedies to defend
against optional residual-liability insurance unless those remedies are limited by statute.
We cited MCL 500.3009(1)—the statutory provision mandating minimum residual-
liability coverage—as an example of such a statutory limit. Id. at 572 n 17. Because
mandatory coverage was not at issue in Titan, we construed the policy as an ordinary
contract. And provisions in ordinary contracts are enforceable unless contrary to law or
public policy. Therefore, we looked for any law or public policy that expressly forbade
rescission of an optional insurance contract and found none. This case is almost a perfect
mirror-image of Titan—involving statutorily mandated personal protection insurance
(PIP) benefits, in contrast to Titan’s optional contractual residual-liability insurance—yet
the majority applies Titan’s optional-coverage standard.
I respectfully dissent. PIP benefits arise out of the no-fault act (alternatively, the
Act), MCL 500.3101 et seq., and we must construe a no-fault policy and the Act together
as though the statutes were a part of the contract. Rohlman v Hawkeye-Security Ins Co,
442 Mich 520, 524-525; 502 NW2d 310 (1993). I would hold that MCL 500.3101 limits
rescission of PIP benefits, just as MCL 500.3009(1) limits rescission of residual-liability
coverage. Rescission is available when consistent with the Act and not available when
inconsistent with the Act.
The Legislature has created a comprehensive statutory scheme that guarantees PIP
benefits will be paid to all eligible claimants—it’s just a question of who must pay them.
Innocent third parties are always eligible claimants. See MCL 500.3113 (listing those
persons who are not entitled to PIP benefits). And because the insurer bears the cost of
PIP coverage for innocent third parties whether they rescind the policy or not, the
majority’s decision—requiring equitable balancing in each case—has built a bridge to
nowhere. When benefits are mandated, an insurer has only two options: pay now, or
2
reimburse later. Requiring costly litigation to determine in every case who will be the
payor and who will be the reimbursor is an exercise in futility and is contrary to the Act’s
purpose—to ensure prompt coverage and to reduce litigation. Instead, today’s decision
will delay coverage and increase litigation—a coup for lawyers at their clients’ expense.
I would hold that Sentinel may not independently seek to rescind the PIP coverage
mandated by the no-fault act but that Sentinel may seek to avoid or reduce its obligations
relative to the assigned claims insurer, Citizens Insurance Company, by raising defenses
permitted by the Act.1
I. CONTRACTUAL VERSUS STATUTORY COVERAGE
A. TITAN WAS NOT A NO-FAULT CASE
Titan does not answer the question asked here because it analyzed coverage that
arose solely by contract. Contrary to the majority’s assertion, Titan’s holding rested
entirely on the premise that there is a controlling difference between benefits required by
statute and optional benefits in excess of any statutory requirement. We stated:
[W]hen a provision in an insurance policy is mandated by statute, the rights
and limitations of the coverage are governed by that statute. On the other
hand, when a provision in an insurance policy is not mandated by statute,
the rights and limitations of the coverage are entirely contractual and
construed without reference to the statute. [Titan, 491 Mich at 554 (citation
omitted).]
1
See, e.g., MCL 500.3172(3)(f) (“After hearing the action, the circuit court shall
determine the insurer or insurers, if any, obligated to provide the applicable personal
protection insurance benefits and the equitable distribution, if any, among the insurers
obligated, and shall order reimbursement to the Michigan automobile insurance
placement facility from the insurer or insurers to the extent of the responsibility as
determined by the court.”).
3
This wasn’t a new idea: in Rohlman, 442 Mich at 524-525, we stated that “the insurance
policy itself, which is the contract between the insurer and the insured, controls the
interpretation of its own provisions providing benefits not required by statute.” The
dispute in Titan concerned only the latter category—benefits not required by statute.
Titan was simply not a no-fault case. It was a private contract dispute, so contract
remedies applied as long as they were not statutorily prohibited. We therefore searched
(in vain) for any express statutory restriction on the insurer’s fraud defense, because the
disputed benefits arose purely by contract and a contract must be enforced as written
unless contrary to law or public policy. See Rory v Continental Ins Co, 473 Mich 457,
469; 703 NW2d 23 (2005). Finding no such restriction, we concluded in Titan that the
insurer could avail itself of equitable remedies to avoid the purely contractual coverage.
This was not a novel approach to interpreting statutes or contracts. It was not
statutory interpretation at all, because there was no statutory coverage in dispute. And it
was not a novel approach to interpreting a contract: we apply contracts as written as long
as the contract’s terms are legal. “[U]nambiguous contracts, including insurance policies,
are to be enforced as written unless a contractual provision violates law or public policy.”
Rory, 473 Mich at 491. Contract remedies like rescission play by those same rules: they
cannot be exercised in a manner contrary to law or public policy. “It is a principle of
general application that courts, and especially courts of equity, may appropriately
withhold their aid where the plaintiff is using the right asserted contrary to the public
interest.” Morton Salt Co v G S Suppiger Co, 314 US 488, 492; 62 S Ct 402; 86 L Ed
363 (1942), abrogated on other grounds by Illinois Tool Works Inc v Indep Ink, Inc, 547
US 28; 126 S Ct 1281; 164 L Ed 2d 26 (2006).
4
B. THE STATUTE GOVERNS MANDATORY COVERAGE
When benefits are required by statute, however, we must look to the statute for the
available remedies. Also not new. For just one example, see what we said in Titan:
“when a provision in an insurance policy is mandated by statute, the rights and
limitations of the coverage are governed by that statute.” Titan, 491 Mich at 554. Titan
simply adhered to our traditional approach. “It is a familiar and fundamental rule of
construction of a private automobile insurance policy that the court’s first duty is to
determine, from the language used, the apparent intention of the contracting parties . . . .
The language of a statute, on the other hand, is required to be construed by assigning to
the words used their primary and generally understood meaning consistent with the
apparent intention of the Legislature in enacting the law.” Royal Globe Ins Cos v
Frankenmuth Mut Ins Co, 419 Mich 565, 573; 357 NW2d 652 (1984) (citations omitted).
PIP benefits are required by statute. “PIP benefits are mandated by statute under
the no-fault act, and, therefore, the statute is the ‘rule book’ for deciding the issues
involved in questions regarding awarding those benefits.” Rohlman, 442 Mich at 524-
525 (citations omitted). And unlike the residual-liability coverage at issue in Titan—that
is, optional coverage in excess of the mandatory minimum coverage that is required by
the Act—there is no such thing as optional PIP coverage. There is no
mandatory/optional distinction because PIP coverage is self-limiting—it covers only
medical expenses and lost income.2 PIP coverage is mandatory in every insurance policy
2
An insurer’s liability for PIP benefits is limited, however, by membership in the
Michigan Catastrophic Claims Association (MCCA). All insurers who write automobile
insurance policies must be members of the MCCA, which provides “indemnification for
5
issued in Michigan, and the statute sets the floor and the ceiling for the coverage.3
In this way, PIP benefits operate just like the minimum residual-liability coverage
we identified in Titan as a statutory limit against rescission. That section, MCL
500.3009(1), states:
An automobile liability or motor vehicle liability policy insuring
against loss resulting from liability imposed by law for property damage,
bodily injury, or death suffered by any person arising out of the ownership,
maintenance, or use of a motor vehicle shall not be delivered or issued for
delivery in this state with respect to any motor vehicle registered or
principally garaged in this state unless the liability coverage is subject to all
of the following limits:
(a) A limit, exclusive of interest and costs, of not less than
$20,000.00 because of bodily injury to or death of 1 person in any 1
accident.
(b) Subject to the limit for 1 person in subdivision (a), a limit of not
less than $40,000.00 because of bodily injury to or death of 2 or more
persons in any 1 accident.
(c) A limit of not less than $10,000.00 because of injury to or
destruction of property of others in any accident.
100% of the amount of ultimate loss sustained under personal protection insurance
coverages” that exceed a certain dollar amount calculated biennially (at present,
somewhere in the neighborhood of $500,000). MCL 500.3104(2); see also MCL
500.3104(3).
3
The coordination-of-benefits provision, MCL 500.3109a, proves again the point: an
insurer who provides PIP benefits “may offer, at appropriately reduced premium rates,
deductibles and exclusions reasonably related to other health and accident coverage on
the insured.” But any exclusion or deductible cannot change the absolute level of PIP
coverage mandated by statute—coordination permits cost-sharing between insurers, but a
no-fault insurer is released from liability only for medical expenses that “the insured’s
health care insurer is required, under its contract, to pay for or provide.” Tousignant v
Allstate Ins Co, 444 Mich 301, 303; 506 NW2d 844 (1993).
6
The statute requires that every policy provide this 20/40/10 minimum coverage.
PIP coverage is similar. MCL 500.3101(1) requires all owners and operators to
maintain security for some benefits, including “personal protection insurance,” or PIP.
MCL 500.3101(1) (“The owner or registrant of a motor vehicle required to be registered
in this state shall maintain security for payment of benefits under personal protection
insurance, property protection insurance, and residual liability insurance.”). The details
of the mandated PIP coverage are spelled out in the sections that follow. MCL
500.3101(1) et seq. Read alone, this provision seems to differ from MCL 500.3009(1) in
that the owner or operator is obligated to obtain the proper coverage.
But there’s more. The insurer is also obligated to provide this coverage when
Subsection (1) is read together with Subsection (5). MCL 500.3101(5) states, “An
insurer that issues a policy that provides the security required under subsection (1) may
exclude coverage under the policy as provided in section 3017.” By expressly permitting
insurers to exclude coverage only under enumerated circumstances (not relevant here), in
all other circumstances an insurer may not issue a policy without PIP coverage, property
protection insurance, and residual-liability insurance. See Hoerstman Gen Contracting,
Inc v Hahn, 474 Mich 66, 74; 711 NW2d 340 (2006) (stating that enumeration of
exceptions or conditions “eliminates the possibility of [there] being other exceptions
under the legal maxim expressio unius est exclusio alterius”).
I see no way to distinguish the mandate to provide PIP coverage from the mandate
to provide minimum residual-liability coverage we highlighted in Titan. This leads me to
the seemingly uncontroversial conclusion that mandatory PIP coverage arises by statute
and that we must therefore look to the text of the statute to determine an insurer’s
7
remedies to avoid its statutory obligations. Just as we said in Titan. When rescission is
consonant with the statute it is permitted and when it is not, not.
C. THIRD-PARTY CLAIMANTS’ ENTITLEMENT TO PIP BENEFITS
The no-fault act provides ample guidance for an insurer who seeks to avoid its
statutory obligations. The Legislature set up a comprehensive scheme in which insurers
generally are expected to pay first and seek reimbursement later.
The Act makes plain who is eligible, and who pays. Anyone who suffers
“accidental bodily injury arising from a motor vehicle accident” can claim benefits from
their own policy or from another insurer in order of statutory priority. MCL 500.3114(4).
If no insurer can be identified, the Michigan Assigned Claims Plan (MACP) is the insurer
of last resort. MCL 500.3171. All insurers who write no-fault policies in Michigan
receive a portion of MACP cases, allocated by market share. All eligible claimants
injured in a motor vehicle accident are thus entitled to PIP benefits from someone unless
one of the five exceptions in MCL 500.3113 applied at the time of the accident.4 MCL
4
MCL 500.3113 provides:
A person is not entitled to be paid personal protection insurance
benefits for accidental bodily injury if at the time of the accident any of the
following circumstances existed:
(a) The person was willingly operating or willingly using a motor
vehicle or motorcycle that was taken unlawfully, and the person knew or
should have known that the motor vehicle or motorcycle was taken
unlawfully.
(b) The person was the owner or registrant of a motor vehicle or
motorcycle involved in the accident with respect to which the security
required by section 3101 or 3103 was not in effect.
8
500.3113(c) excludes nonresident occupants in vehicles that are not registered in
Michigan or insured under the Act; that exclusion is, of course, irrelevant to our
determination of the rights and limitations on PIP coverage governed by the Act.
Because none of the remaining exceptions in MCL 500.3113 can apply to innocent third
parties, those innocent third parties are entitled to PIP benefits.
The Act makes the timing of payment similarly clear. An insurer must timely pay
PIP benefits to claimants: PIP benefits become payable once loss accrues and “are
overdue if not paid within 30 days after an insurer receives reasonable proof of the fact
and of the amount of loss sustained.” MCL 500.3142(2). The insurer must pay all
benefits to or for the benefit of the injured person or, in death, to his or her dependents.
MCL 500.3112. If the insurer is in any doubt about the party who should receive the
payment, it may ask the circuit court for an order apportioning the benefits equitably
between the proper parties. Id.5 As we have said before, the no-fault act was enacted “to
(c) The person was not a resident of this state, was an occupant of a
motor vehicle or motorcycle not registered in this state, and the motor
vehicle or motorcycle was not insured by an insurer that has filed a
certification in compliance with section 3163.
(d) The person was operating a motor vehicle or motorcycle as to
which he or she was named as an excluded operator as allowed under
section 3009(2).
(e) The person was the owner or operator of a motor vehicle for
which coverage was excluded under a policy exclusion authorized under
section 3017.
5
MCL 500.3112 states, in relevant part:
Personal protection insurance benefits are payable to or for the
benefit of an injured person or, in case of his death, to or for the benefit of
9
provide victims of motor vehicle accidents assured, adequate, and prompt reparation for
certain economic losses.” Shavers v Attorney General, 402 Mich 554, 579; 267 NW2d
72 (1978). Consistently with this goal, the Act requires insurers to make prompt payment
to eligible claimants, with few exceptions.
When the Act’s preference for prompt payments leads to mistakes, it provides
remedies for insurers. If an insurer believes it was not obligated to pay a claimant’s PIP
benefits, the Act provides various avenues for shifting losses to the appropriate insurer
after the fact. If, for example, two or more insurers are in the same order of priority, “an
insurer paying benefits due is entitled to partial recoupment from the other insurers . . . in
order to accomplish equitable distribution of the loss among all of the insurers.” MCL
500.3114(6). Alternatively, a claim may be assigned to the MACP if
no personal protection insurance is applicable to the injury, no personal
protection insurance applicable to the injury can be identified, the personal
protection insurance applicable to the injury cannot be ascertained because
of a dispute between 2 or more automobile insurers concerning their
obligation to provide coverage or the equitable distribution of the loss, or
the only identifiable personal protection insurance applicable to the injury
is, because of financial inability of 1 or more insurers to fulfill their
his dependents. Payment by an insurer in good faith of personal protection
insurance benefits, to or for the benefit of a person who it believes is
entitled to the benefits, discharges the insurer’s liability to the extent of the
payments unless the insurer has been notified in writing of the claim of
some other person. If there is doubt about the proper person to receive the
benefits or the proper apportionment among the persons entitled thereto, the
insurer, the claimant or any other interested person may apply to the circuit
court for an appropriate order. The court may designate the payees and
make an equitable apportionment, taking into account the relationship of
the payees to the injured person and other factors as the court considers
appropriate.
10
obligations, inadequate to provide benefits up to the maximum prescribed.
[MCL 500.3172(1).]
The Act provides detailed procedures for resolving disputes between two or more
insurers over their obligation to provide PIP benefits. MCL 500.3172(3) states:
If the obligation to provide personal protection insurance benefits
cannot be ascertained because of a dispute between 2 or more automobile
insurers concerning their obligation to provide coverage or the equitable
distribution of the loss, and if a method of voluntary payment of benefits
cannot be agreed upon among or between the disputing insurers, all of the
following apply:
(a) The insurers who are parties to the dispute shall, or the claimant
may, immediately notify the Michigan automobile insurance placement
facility of their inability to determine their statutory obligations.
(b) The claim shall be assigned by the Michigan automobile
insurance placement facility to an insurer and the insurer shall immediately
provide personal protection insurance benefits to the claimant or claimants
entitled to benefits.
(c) An action shall be immediately commenced on behalf of the
Michigan automobile insurance placement facility by the insurer to whom
the claim is assigned in circuit court to declare the rights and duties of any
interested party.
(d) The insurer to whom the claim is assigned shall join as parties
defendant to the action commenced under subdivision (c) each insurer
disputing either the obligation to provide personal protection insurance
benefits or the equitable distribution of the loss among the insurers.
(e) The circuit court shall declare the rights and duties of any
interested party whether or not other relief is sought or could be granted.
(f) After hearing the action, the circuit court shall determine the
insurer or insurers, if any, obligated to provide the applicable personal
protection insurance benefits and the equitable distribution, if any, among
the insurers obligated, and shall order reimbursement to the Michigan
automobile insurance placement facility from the insurer or insurers to the
extent of the responsibility as determined by the court. The reimbursement
ordered under this subdivision shall include all benefits and costs paid or
incurred by the Michigan automobile insurance placement facility and all
11
benefits and costs paid or incurred by insurers determined not to be
obligated to provide applicable personal protection insurance benefits,
including reasonable, actually incurred attorney fees and interest at the rate
prescribed in section 3175 as of December 31 of the year preceding the
determination of the circuit court.
The Act’s pay-first-and-haggle-later instructions to insurers further establish a clear intent
to promptly cover PIP benefits for eligible claimants—like innocent third parties—one
way or another.
In short, the no-fault act created a comprehensive statutory scheme that provides
PIP coverage for all eligible claimants. The Act requires that PIP benefits be paid within
30 days of a claim. And because payment obligations may not be clear within 30 days, it
provides mechanisms for a promptly paying insurer to recoup those payments from
another insurer, dispute the obligation to pay benefits in the circuit court (after first
assigning the claim to an MACP insurer for payment), or sue the owner of an uninsured
vehicle for recovery of PIP benefits paid.
Permitting litigation of equitable defenses that conflict with the statute will upend
the Legislature’s clear expression of its priorities. The Act demands prompt, adequate,
and assured payment of PIP benefits to eligible claimants, even though prompt and
assured payments may be—at least temporarily—inequitable for an insurer. The Act’s
menu of remedies further underscores the Legislature’s expressed preferences in favor of
the eligible claimant: temporary inequity is answered by the statutory remedies of
recoupment, reimbursement, and equitable distribution of losses. The judiciary is not at
liberty to impose its preferences in contravention of these legislative choices. Cf.
Trentadue v Buckler Lawn Sprinkler Co, 479 Mich 378, 392; 738 NW2d 664 (2007)
(“Because the statutory scheme here is comprehensive, the Legislature has undertaken the
12
necessary task of balancing plaintiffs’ and defendants’ interests and has allowed for
[equitable] tolling only where it sees fit.”).
D. THE FUTILITY OF EQUITABLE BALANCING WITH
INNOCENT THIRD PARTIES
The Act created a system in which all insurers share the cost of eligible claims
from innocent third parties in proportion to the insurer’s market share. If Sentinel avoids
any obligation to pay PIP benefits here, Citizens Insurance—the MACP insurer—will
pick up the tab. The MACP will reimburse Citizens Insurance for the payments and the
established loss adjustment cost, plus interest. MCL 500.3171. Claims and the losses
from those claims are assigned to all insurers (including Sentinel, of course)
proportionally.
Given this statutory scheme, I don’t see what advantage rescission provides an
insurer in any event. Rescission of third-party PIP benefits makes financial sense only if
the insurer stands to prevent the claimant from receiving PIP benefits entirely, thus
reducing the insurer’s proportion of MACP costs. If the claimant is a third party and
otherwise eligible for PIP benefits, such a result is impermissible under the statute. And
so the innocent-third-party doctrine is consonant with (or a useful shorthand for) that
statutory requirement.6 PIP benefits are mandatory, governed by statute, and are
6
Whether the statute can preclude rescission of the insured’s own policy is a separate
question, but it highlights why the innocent-third-party doctrine comports with the
statutory scheme. The Legislature specifically excluded uninsured owners or operators
from PIP eligibility entirely, going so far as to allow “[a]n insurer obligated to pay
personal protection insurance benefits for accidental bodily injury to a person arising out
of the ownership, maintenance, or use of an uninsured motor vehicle as a motor vehicle
may recover such benefits paid and appropriate loss adjustment costs incurred from the
13
available from one source or another unless one of the five exceptions in MCL 500.3113
applies.
Rescission would benefit an insurer if it would eliminate a claimant’s entitlement
to PIP benefits entirely.7 But under the statute, that should never be the case for an
innocent third party; although a third party might be rendered ineligible for PIP benefits
on the basis of his or her own wrongdoing, see MCL 500.3113(a) and (d) (that is, when
the third party is not innocent), even rescission of an insurance policy for fraud would not
affect an innocent third party’s entitlement to PIP benefits—the no-fault act requires
prompt payment of PIP benefits by the putative insurer (or the MACP if the coverage is
in dispute) for eligible claimants, including all innocent third parties, and then provides
remedies to divide the costs fairly among insurers after the fact. I don’t see how the
majority’s opinion allowing litigation about rescission changes any outcome in an
innocent-third-party claim; the statute already provides remedies for insurers, and
innocent third parties must be covered one way or another.
The majority’s reasoning for permitting this new layer of litigation, despite the
comprehensiveness of the Act’s approach to remedies for insurers like Sentinel, is that it
owner or registrant of the uninsured motor vehicle or from his or her estate.” MCL
500.3177(1).
7
Rescission might be appropriate, for example, if it would serve the statutory imperative
that an uninsured owner or operator cannot get PIP coverage under MCL 500.3113(b).
To illustrate—if Hala Bazzi had been injured and claimed PIP benefits, rescission would
render her ineligible for PIP benefits as the “owner or registrant of [the uninsured] motor
vehicle . . . involved in the accident” because a fraudfeasor can’t benefit from his or her
fraud. Id. But for an innocent third party, rescission merely shifts the costs of benefits
from one insurer to another.
14
believes that the Legislature’s failure specifically to exclude the defense of rescission
means that it must survive as an available defense. But this novel approach cannot be
reconciled with traditional principles of statutory interpretation. “In general, where
comprehensive legislation prescribes in detail a course of conduct to pursue and the
parties and things affected, and designates specific limitations and exceptions, the
Legislature will be found to have intended that the statute supersede and replace the
common law dealing with the subject matter.” Millross v Plum Hollow Golf Club, 429
Mich 178, 183; 413 NW2d 17 (1987), citing 2A Sands, Sutherland Statutory
Construction (4th ed), § 50.05, pp 440-441; see also Hoerstman Gen Contracting, Inc,
474 Mich at 75 (concluding that when “the language of the statute shows that the
Legislature covered the entire area, . . . [i]t clearly intended that the statute would
abrogate the common law on this subject”). There are no rights under the no-fault act
except those expressly conferred. See Covenant Med Ctr, Inc v State Farm Mut Auto Ins
Co, 500 Mich 191, 217; 895 NW2d 490 (2017). Moreover, there is no saving clause in
the no-fault act. Looking to comparable statutory schemes, even saving clauses are
inadequate to preserve preexisting rights that conflict with a comprehensive statute.8 The
8
See, e.g., AT&T Mobility LLC v Concepcion, 563 US 333, 343; 131 S Ct 1740; 179 L
Ed 2d 742 (2011) (Federal Arbitration Act) (a federal statute’s saving clause “cannot in
reason be construed as allowing a common law right, the continued existence of which
would be absolutely inconsistent with the provisions of the act. In other words, the act
cannot be held to destroy itself”) (cleaned up); Pilot Life Ins Co v Dedeaux, 481 US 41,
54; 107 S Ct 1549; 95 L Ed 2d 39 (1987) (ERISA) (“The presumption that a remedy was
deliberately omitted from a statute is strongest when Congress has enacted a
comprehensive legislative scheme including an integrated system of procedures for
enforcement.”), quoting Massachusetts Mut Life Ins Co v Russell, 473 US 134, 147; 105
S Ct 3085; 87 L Ed 2d 96 (1985) (cleaned up); United States v Locke, 529 US 89, 106;
15
Act “prescribes in detail a course of conduct to pursue and the parties and things affected,
and designates specific limitations and exceptions . . . .” Millross, 429 Mich at 183. Its
provisions on PIP coverage show that “[i]t is intended to apply to nearly every situation
involving” PIP benefits. Hoerstman Gen Contracting, Inc, 474 Mich at 74. As we have
warned before, “[s]tatutes lose their meaning if ‘an aggrieved party need only convince a
willing judge to rewrite the statute under the name of equity.’ ” Trentadue, 479 Mich at
407, quoting Devillers v Auto Club Ins Ass’n, 473 Mich 562, 591; 702 NW2d 539 (2005).
I am unconvinced, and therefore I am unwilling to rewrite this comprehensive statutory
scheme by holding that the Legislature’s failure to enumerate a list of all prohibited
defenses means that an insurer can invoke rescission in a way that disrupts the legislative
PIP mandate.
And the majority’s decision to do so yields strange results indeed. If Hala Bazzi
had no insurance policy, Ali Bazzi could have received prompt and assured PIP coverage
through an MACP insurer. The same result would obtain if two insurers tried to rescind
coverage. MCL 500.3172. Yet a single insurer can seek to rescind a policy and the
entire process grinds to a halt. The injured innocent third party, who is unquestionably
entitled to PIP coverage under the statute, is stuck in the middle of protracted litigation
120 S Ct 1135; 146 L Ed 2d 69 (2000) (Oil Pollution Act) (“We decline to give broad
effect to saving clauses where doing so would upset the careful regulatory scheme
established by federal law.”); Northwest Airlines, Inc v Transp Workers Union of
America, AFL-CIO, 451 US 77, 98; 101 S Ct 1571; 67 L Ed 2d 750 (1981) (Title VII)
(“[A] favorable reaction to the equitable considerations supporting petitioner’s
contribution claim is not a sufficient reason for enlarging on the remedial provisions
contained in these carefully considered statutes.”).
16
over which insurer has to foot the bill. And cui bono? It’s unclear what good-faith
motive would drive an insurer to seek rescission of an otherwise eligible claimant’s PIP
coverage. As far as I can tell, the only way an insurer can do better than break even on an
innocent third party’s PIP coverage is if they manage to rescind the policy and prevent
the third party from receiving PIP benefits from an MACP insurer—presumably by
running out the clock on the notice period, a tactic that is plainly impermissible under the
Act. I am not willing to impute that level of bad faith to anyone.9 Yet there is one set of
stakeholders who stand to benefit greatly from the court’s decision today—lawyers. As
attorneys enjoy the influx of billable hours from the extra round of litigation about the
equities, their clients—insurers and accident victims alike—will see only mounting
expenses.
Unlike in Titan, there is no policy justification for this result. In that case,
residual-liability coverage was at issue. The purpose of residual-liability coverage is to
indemnify the insured for a tort judgment. So although residual-liability benefits are
payable to a third party to satisfy a civil judgment, the beneficiary of the indemnity is the
insured fraudfeasor, who is personally liable for the judgment. PIP benefits for an
9
And of course, an insurer who invokes equity as a dilatory tactic runs the risk that the
chancellor catches on and cheerfully does “that which ought to be done.” Kent v Klein,
352 Mich 652, 656; 91 NW2d 11 (1958) (“[C]hancery will not permit one to enrich
himself at the expense of another by closing its eyes to what is clear to the rest of
mankind. Equity, to paraphrase, regards that as seen which ought to be seen, and, having
so seen, as done that which ought to be done.”); see also Windisch v Mtg Security Corp of
America, 254 Mich 492, 493-494; 236 NW 880 (1931) (“[O]ne who seeks equity must do
equity.”).
17
innocent third party, however, are not a windfall for the fraudfeasor because the
beneficiary of the third party’s medical care is, of course, the third party. And third-party
PIP coverage is not only not a windfall, the fraudfeasor may be sued for an insurer’s
losses in covering the claim. MCL 500.3177(1).
II. TITAN DID NOT ABROGATE THE INNOCENT-THIRD-PARTY DOCTRINE
A. THE INNOCENT-THIRD-PARTY DOCTRINE IS DISTINCT FROM THE
EASILY-ASCERTAINABLE-FRAUD RULE
I am not persuaded by the majority’s view that our opinion in Titan abrogated the
innocent-third-party doctrine either.
First, the doctrinal weakness: our opinion in Titan never mentioned the innocent-
third-party doctrine. One explanation for this silence is that Titan did not address the
innocent-third-party doctrine because the doctrine was not before us. The majority
accepts an alternative explanation: perhaps Titan failed to mention the innocent-third-
party doctrine because it is synonymous with the easily-ascertainable-fraud rule. This
follows, the majority says, because the easily-ascertainable-fraud rule also applies to
claims by third parties. The majority reasons that because Titan held that rescission was
available “even when the fraud was easily ascertainable and the claimant is a third party,”
Titan, 491 Mich at 571 (emphasis added), third-party status alone cannot preclude
rescission. But the majority makes a logical misstep—it assumes that third-party status is
the only relevant factor on which to compare the two rules.
Precedent does not support this theory. Courts must specify what they mean when
eliminating a common-law doctrine, generally by defining the contours of that doctrine in
caselaw. Titan did just that. It overruled State Farm Mut Auto Ins Co v Kurylowicz, 67
18
Mich App 568; 242 NW2d 530 (1976), and its progeny and reaffirmed Keys v Pace, 358
Mich 74; 99 NW2d 547 (1959). Kurylowicz did not create an innocent-third-party rule—
it acknowledged the circumstances under which the innocent-third-party doctrine might
apply, but stressed that it need not consider those circumstances.10 It is strange, then, to
say that Kurylowicz and its progeny are stand-ins for a doctrine that Kurylowicz itself
recognized as distinct. Moreover, even if the two doctrines converged over time, Titan
overruled three other cases that did acknowledge the innocent-third-party doctrine—
Kurylowicz’s “progeny”—but took care to overrule the decisions only to the extent that
they “held or stated that an insurer is estopped from denying coverage on the basis of
fraud when it could have easily ascertained the fraud . . . .” Titan, 491 Mich at 551 n 1,
citing Ohio Farmers Ins Co v Mich Mut Ins Co, 179 Mich App 355, 357-358, 362-363;
10
The Kurylowicz panel stated:
It is the policy of this state that persons who suffer loss due to the tragedy
of automobile accidents in this state shall have a source and a means of
recovery. Given this policy, it is questionable whether a policy of
automobile liability insurance can ever be held void ab initio after injury
covered by the policy occurs. Generally, it is held that:
“The liability of the insurer with respect to insurance required
by the act becomes absolute whenever injury or damage
covered by such policy occurs * * * no statement made by the
insured or on his behalf and no violation of the policy
provisions may be used to defeat or avoid the policy.” 1
Long, The Law of Liability Insurance, § 3.25 pp 3-83-84.
See Detroit Automobile Inter-Insurance Exchange v
Ayvazian, 62 Mich App 94; 233 NW2d 200 (1975).
That issue is not before us in this case, so we need not decide it.
[Kurylowicz, 67 Mich App at 574.]
19
445 NW2d 228 (1989), Farmers Ins Exch v Anderson, 206 Mich App 214, 219; 520
NW2d 686 (1994), and Manier v MIC Gen Ins Corp, 281 Mich App 485, 489-490; 760
NW2d 293 (2008).
The majority is correct that both doctrines appear to apply to the same people
(third parties), but similarity on that single dimension is not dispositive. The innocent
third party is a particular subset of third parties, of course. She must be innocent. And
therefore the doctrine is consonant with the statute: a third party who drives a stolen
vehicle (§3113(a)) or drives a vehicle despite being named as an excluded operator
(§3113(d)) is ineligible for PIP benefits. The easily-ascertainable-fraud rule did not
explicitly make that distinction.
Instead, I am persuaded by the distinction Judge BECKERING drew—the two
doctrines announced different thresholds for rescission depending on the origin of the
coverage in question. An insurer’s ability to rescind optional coverage was far more
expansive—rescission of coverage above the statutory floor was only precluded if the
insurer itself was blameworthy. In other words, the right to seek rescission of optional
coverage was the insurer’s right to lose. If the insurer failed to exercise even the
minimum of reasonable care before binding itself to an insurance contract, why should
equity rescue it from its obligation to a third party? As between these two actors, the
insurer was the cheapest cost avoider. But if the insurer acted reasonably yet still fell
victim to fraud, it would be unfair to require it to pay out the benefits that arose from the
parties’ infirm contract. So went the easily-ascertainable-fraud rule.
But what if the parties’ rights and obligations arise and are governed by statute? If
coverage is mandated by statute, then the statute defines the circumstances in which
20
rescission is available. These mandatory policy provisions are in no sense bargained-
for.11 Instead, they are the default starting point of every insurance policy. And the Act
makes plain the Legislature’s intention that innocent third parties’ medical expenses be
covered in the event of an accident, whether by the insurer linked with the vehicle
involved in the accident or through the MACP.
This principle comports with the no-fault act, but it also makes sense from an
equitable standpoint that different rules developed depending on the source of
coverage—the parties bargain for additional coverage, and it is tacked on to a standard
set of state-mandated provisions that cannot be negotiated. Titan recognized this
distinction implicitly. The statutory and contractual provisions of the insurance policy
were effectively treated as severable—rather than speaking in terms of reforming the
contract, we eliminated the easily-ascertainable-fraud rule and held that, because the
disputed coverage was not governed by the Act, the insurer was entitled to avail itself of
all traditional legal and equitable remedies to avoid the optional coverage. But as I
explained, the validity of the innocent-third-party doctrine was not before us in Titan,
because there was simply no dispute over the statutory benefits it protects.
11
The premium the insurer might charge for those provisions may have been bargained
for, but the insurer could likely remedy that defect by seeking money damages at law or
reformation in equity. See Benton Harbor Sch Dist v State Tenure Comm, 372 Mich 270,
273-274; 126 NW2d 102 (1964) (stating that equitable relief is unavailable if there is a
remedy at law that is reasonably speedy and adequate); Amster v Stratton, 259 Mich 683,
688; 244 NW 201 (1932) (concluding that reducing the contract price was more equitable
than permitting rescission).
21
The result of the majority’s opinion only fuels my skepticism: It recognizes that
there are no per se rules in equity and therefore remands for the trial court to balance the
equities. Although Sentinel prevailed here, its right to raise equitable defenses may prove
to be a hollow victory.12 The innocent-third-party doctrine allowed courts to cut short
fruitless litigation. In addition to ensuring the speedy payment of benefits as the statute
requires, the doctrine operated as equitable shorthand. In other words, it described the
equitable balance of certain archetypal relationships, thus saving the parties (and courts)
the time and expense of balancing the equities case-by-case. That certainty, efficiency,
and stability is now lost.
The majority instead remands for equitable balancing, but it is mum on what that
proceeding will entail. Its silence allows it to avoid confronting the burdensome realities
of its remedy. The majority states that “[e]quitable remedies are adaptive to the
circumstances of each case, and an absolute approach would unduly hamper and
constrain the proper functioning of such remedies.” Ante at 17. It further points out that
“ ‘[e]quity jurisprudence molds its decrees to do justice amid all the vicissitudes and
intricacies of life’ and that ‘[e]quity allows complete justice to be done in a case by
adapting its judgments to the special circumstances of the case.’ ” Ante at 17, quoting
12
Beyond ballooning legal expenses, the possibility of rescission also injects uncertainty
that will warp an insurer’s risk calculus. As we have recognized before, “[T]he
uncertainty associated with subjecting insurers and insureds to the whims of individual
judges and their various conceptions of ‘equity’ would increase overall insurance costs
because insurers would no longer be able to estimate accurately actuarial risk.” Devillers
v Auto Club Ins Ass’n, 473 Mich 562, 589 n 62; 702 NW2d 539 (2005).
22
Tkachik v Mandeville, 487 Mich 38, 45-46; 790 NW2d 260 (2010) (alterations in
original). “Complete justice” sounds good to me. But the remand order with instructions
that the trial court please ensure that complete justice is done, thank you, doesn’t paper
over the problems with the remedy.
A remedy that is adaptive to the circumstances of each case requires that a court
consider each case’s unique circumstances. All of them. Parties will be required to
litigate a new set of factual and legal disputes. Since no one factor is dispositive and any
factor may be relevant, each party is incentivized to pursue every argument of
conceivable merit, to fight each battle to its end, to concede nothing. And summary
disposition is not a tool in a court’s toolkit in disputes over equity, where any fact can be
material and no rule is absolute. Thus, parties will litigate trials within a trial to
demonstrate to the court that their opponent is the more blameworthy party. They will
dispute whether the insurer exercised reasonable diligence to discover the insured’s
misrepresentations in her application before issuing a policy, whether the third party
knew that the policy was obtained by the insured’s fraud, and even whether the third
party was driving negligently at the time of the accident; they will also litigate all
possible legal avenues of relief, all possible alternative sources of recovery, and the third
party’s likelihood of success on the merits in each. And I don’t expect smart lawyers to
stop there in pursuing their clients’ goals.
It’s hard to call this a win for insurers or accident victims.
23
B. THE INNOCENT-THIRD-PARTY DOCTRINE IS SUBSTANTIVELY SOUND
We rejected the easily-ascertainable-fraud rule in Titan because it was
unsupported by law. The rule was unsupported by the no-fault act because the Act does
not govern optional contractual coverage. And it was unsupported by substantive
common-law doctrines against fraud or misrepresentation because the rule created an
affirmative duty that conflicted with the legal elements of fraud. “[A]lthough the
doctrines of actionable fraud, innocent misrepresentation, and silent fraud each contain
separate elements, none of these doctrines requires that the party asserting fraud prove
that the fraud could not have been discovered through the exercise of reasonable
diligence.” Titan, 491 Mich at 557. Although the rationale of the easily-ascertainable-
fraud rule—the “clean hands” doctrine—may remain a valid consideration as a matter of
equity, the insurer’s lack of reasonable diligence does not affect a fraud claim as a matter
of law.
The innocent-third-party doctrine, in contrast, comports with both equitable
principles and the Act. It simply does not suffer from the same doctrinal weaknesses as
the easily-ascertainable-fraud rule. And in the new equitable-balancing world in which a
third party’s innocence certainly will be weighed, and innocent third parties will be
covered by one insurer or another, the shorthand serves the purposes of the Act and saves
insurers from costly litigation. I see no principled basis to reject it.
III. CONCLUSION
The no-fault act is a comprehensive statutory scheme in which the Legislature
established a clear intent to mandate PIP coverage for all eligible claimants. I would hold
that because the Act mandates payment of PIP benefits and explicitly provides cost-
24
shifting and recovery remedies for insurers to invoke after the fact, the Legislature
intended to abrogate common-law and equitable remedies when those remedies are in
conflict with the Act. Rescission of an insurance policy to avoid the obligation to provide
PIP benefits for an innocent third party contravenes the Legislature’s enacted policy.
Sentinel may seek to avoid its PIP obligations by invoking the remedies permitted by
statute, but it may not invoke equity as an independent basis to avoid the payment of
mandatory PIP benefits to an eligible claimant.
The majority’s decision to permit rescission litigation when that remedy is
inconsistent with the Act is a victory only for lawyers. Innocent third parties must be
covered one way or another because the statute requires it and the equitable balancing
cannot impose a remedy contrary to law. Although innocent third parties surely will have
to endure new delays with the new litigation (and new uncertainty over the availability of
MACP coverage at all if litigation commences after the one-year notice period for the
MACP).
Insurers lose too. Sentinel’s “win” in today’s innocent-third-party rescission
litigation will be another insurer’s loss when the MACP assigns it to pick up the tab.
Lawyers, on the other hand, have lots of new litigation to pursue.
Bridget M. McCormack
David F. Viviano
25