University of Michigan Regents v. Michigan Auto Ins Placement Fac ( 2022 )

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
UNIVERSITY OF MICHIGAN REGENTS, FOR PUBLICATION
January 20, 2022
Plaintiff-Appellee, 9:05 a.m.
v No. 354808
Washtenaw Circuit Court
MICHIGAN AUTOMOBILE INSURANCE LC No. 19-001118-NF
PLACEMENT FACILITY,
Defendant-Appellant,
and
UNNAMED ASSIGNEE OF THE MAIPF,
Defendant,
and
FALLS LAKE NATIONAL INSURANCE
COMPANY,
Defendant-Appellee.
Before: SAWYER, P.J., and SERVITTO and RICK, JJ.
PER CURIAM.
Michigan Automobile Insurance Placement Facility (MAIPF) appeals by leave granted,
University of Michigan Regents v Michigan Auto Ins. Placement Fac., unpublished order of the
Court of Appeals, issued January 27, 2021 (Docket No. 354808), the trial court orders denying its
motion for summary disposition and granting defendant, Falls Lake National Insurance
Company’s (Falls Lake), motion for summary disposition. We vacate the orders and remand this
matter in order for the circuit court to balance the equities between Falls Lake, as a defrauded
insurer, and Trevino, as an innocent third party.
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On November 1, 2018, Sterling Pierson applied for a policy of automobile insurance from
Falls Lake to cover his 2003 Chevy Malibu. The application required Pierson to identify, among
other things, all household members who were 14 years of age or older and other vehicles he
owned. Falls Lake completed the application review and issued a policy of insurance to Pierson
effective November 1, 2018.
On November 10, 2018, Pierson and his live-in girlfriend, Alisha LaPorte, drove Valentino
Trevino to a Saginaw area bar in Pierson’s Malibu. According to both Pierson and LaPorte, after
Trevino got out of the vehicle, he opened the driver’s side door and attacked Pierson. Pierson
reported fearing for his life. As a consequence of this fear, Pierson drove away with Trevino
clinging to the driver’s side door and being dragged down the street. Pierson repeatedly swerved
his vehicle in an attempt to break Trevino’s grip on the door. As he did so, the Malibu crossed the
center line and struck a parked vehicle. Trevino sustained serious bodily injuries during these
events and was treated for those injuries at a medical facility owned and operated by plaintiff.
Subsequently, Trevino filed a claim for no-fault benefits with Falls Lake. On June 11,
2019, Falls Lake notified Pierson that his no-fault policy was rescinded because Pierson made two
material misrepresentations in his insurance application, namely (1) failing to disclose two
residents of Pierson’s household over the age of 14 and (2) failing to disclose a second vehicle
owned by Pierson. Falls Lake also mailed to Pierson a check in an amount sufficient to refund the
paid premium on the policy. Pierson endorsed and cashed the refund check.
On September 23, 2019, plaintiff, the assignee of Trevino, applied for no-fault benefits
through the assigned claims plan. Plaintiff’s application identified Pierson’s Falls Lake policy as
providing insurance applicable to Trevino’s injuries, and advised that Falls Lake was
contemplating the rescission of that insurance policy. The MAIPF denied Trevino’s claim because
insurance applicable to his injuries through Falls Lake was identified.
On October 16, 2019, plaintiff, as the assignee of Trevino, commenced the underlying
action against Falls Lake and the MAIPF. Plaintiff sought to recover the “reasonable and
customary charges associated with the treatment” provided to Trevino by plaintiff as a result of
his injuries suffered on November 10, 2018. Falls Lake and the MAIPF filed competing motions
for summary disposition, each asserting that the other was responsible for paying the medical
billings generated by plaintiff as a result of its treatment of Trevino’s accidental injuries.
According to Falls Lake, it was entitled to summary disposition under MCR 2.116(C)(10)
because it had rescinded its policy of insurance issued to Pierson as a consequence of his
misrepresentations, and Pierson had ratified that rescission by accepting the refunded premium.
Falls Lake asserted that the rescission rendered the policy void ab initio. Thus, Falls Lake provided
no coverage for Trevino’s injuries. The MAIPF argued that Bazzi v Sentinel Ins Co, 502 Mich
390; 919 NW2d 20 (2018), required that the equities be balanced before the policy between Falls
Lake, as a defrauded insurer, and Trevino, as an innocent third party, could be rescinded with
respect to the innocent third-party’s claims. It further asserted that the equities weighed in favor
of Falls Lake retaining liability under the insurance contract as to Trevino and because the
insurance coverage supplied by Falls Lake applied to Trevino under this balancing, both Trevino
and plaintiff were ineligible for benefits through the assigned claims plan.
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The trial court denied the MAIPF’s motion, but granted Falls Lake’s motion. The trial
court opined that Falls Lake rescinded the policy and Pierson ratified the rescission such that there
was no policy in effect. It opined that it thus did not need to balance the equities with respect to
innocent third parties and that Falls Lake was not obligated to pay Trevino’s medical bills, but that
the MAIPF was so obligated. After the trial court denied the MAIPF’s motion for reconsideration,
this appeal followed.
This Court reviews de novo a trial court’s decision on a motion for summary disposition.
El-Khalil v Oakwood Healthcare, Inc, 504 Mich 152, 159; 934 NW2d 665 (2019). “A motion
under MCR 2.116(C)(10) tests the factual sufficiency of a claim. Id. at 160. When considering a
motion under MCR 2.116(C)(10), the trial court must consider all evidence submitted by the
parties in the light most favorable to the party opposing the motion. Id. “A motion under MCR
2.116(C)(10) may only be granted when there is no genuine issue of material fact.” Id. (citation
omitted). “A genuine issue of material fact exists when the record leaves open an issue upon which
reasonable minds might differ.” Id. (citation and quotation marks omitted).
At issue in the instant matter is whether, pursuant to our Supreme Court’s opinion in Bazzi,
502 Mich at 408-412, trial courts are required to balance the equities between a defrauded insurer
and an innocent third party before extending the mutual rescission of a no-fault insurance policy
to an innocent third party. We find that they are so required.
In Bazzi, our Supreme Court recognized that the judicially created innocent-third-party
rule, which precluded an insurer from rescinding an insurance policy procured through fraud when
such rescission would impact an innocent third party, was abrogated by our Supreme Court’s
decision in Titan Ins Co v Hyten, 491 Mich 547; 817 NW2d 562 (2012). Bazzi, 502 Mich at 396.
“[A]n insurance policy procured by fraud may be declared void ab initio at the option of the
insurer.” Id. at 408 (citations omitted). The Court also recognized that “[r]escission abrogates a
contract and restores the parties to the relative positions that they would have occupied if the
contract had never been made.” Id. at 409 (citation omitted). However, “[b]ecause 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.” Id. (quotation marks and citations omitted). Thus, while the
innocent-third-party rule no longer bars insurers from seeking rescission for fraud, insurers are not
categorically entitled to rescission. Pioneer State Mut Ins Co v Wright, 331 Mich App 396, 407,
409-410; 952 NW2d 586 (2020), citing Bazzi, 502 Mich at 407-408. Accordingly, “[w]hen a
plaintiff is seeking rescission, the trial court must balance the equities to determine whether the
plaintiff is entitled to the relief he or she seeks.” Bazzi, 502 Mich at 410 (quotation marks and
citation omitted). Our Supreme Court explained:
[W]hen two equally innocent parties are affected, the court is required, in
the exercise of its equitable powers, to determine which blameless party should
assume the loss . . . . [W]here one of two innocent parties must suffer by the
wrongful act . . . of another, that one must suffer the loss through whose act or
neglect such third party was enabled to commit the wrong. The doctrine is an
equitable one, and extends no further than is necessary to protect the innocent party
in whose favor it is invoked.
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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. [Id. at 410-411 (quotation marks and citations omitted).]
Our Supreme Court “did not provide trial courts with a clear-cut framework for balancing
the equities[.]” Pioneer State Mut Ins Co, 331 Mich App at 410. As such, this Court adopted the
“nonexclusive list of factors” offered as guidance by Justice MARKMAN in his concurrence in Farm
Bureau Gen Ins Co of Mich v Ace American Ins Co, 503 Mich 903, 906-907; 919 NW2d 394
(2018) (MARKMAN, C.J., concurring). These factors are:
(1) the extent to which the insurer could have uncovered the subject matter of the
fraud before the innocent third party was injured; (2) the relationship between the
fraudulent insured and the innocent third party to determine if the third party had
some knowledge of the fraud; (3) the nature of the innocent third party’s conduct,
whether reckless or negligent, in the injury-causing event; (4) the availability of an
alternate avenue for recovery if the insurance policy is not enforced; and (5) a
determination of whether policy enforcement only serves to relieve the fraudulent
insured of what would otherwise be the fraudulent insured’s personal liability to
the innocent third party. [Pioneer State Mut Ins Co, 331 Mich App at 411 (citation
omitted).]
In the present matter, the parties do not dispute that Pierson made two material
misrepresentations in his application for no-fault insurance. There is also no dispute that Falls
Lake and Trevino are blameless parties to Pierson’s material omissions on the insurance
application, or that Falls Lake rescinded Pierson’s policy of insurance, and Pierson ratified the
rescission. Falls Lake attempts to distinguish the present matter from Bazzi and Pioneer State, by
pointing out that in those cases the insurers sought rescission of no-fault insurance contract by
grant of the trial court. In the present case, in contrast, the rescission was accomplished by
mutuality of action, i.e., by return and acceptance of the premium. Falls Lake characterizes
rescission accomplished in such a manner as a legal remedy distinct from the equitable rescission
done in Bazzi and Pioneer State. According to Falls Lake, these distinctions are dispositive in
nature and remove this matter from the reach of Bazzi and its progeny.
In Meemic Ins Co v Fortson, 506 Mich 287, 310 n 19; 954 NW2d 115 (2020), our Supreme
Court addressed the distinction between the equitable remedy of rescission and the legal remedy
of rescission as follows:
Before they were merged, proceedings in equity and law were distinct, with
different rules and procedures in each. See Mich Const 1963, art 6, § 5. Although
the distinctions have been erased for most purposes, id., the differences sometimes
crop up in discussions of the common law. Such is the case here. Although
equitable rescission was at issue in Bazzi and there was, accordingly, no need to
differentiate common-law practices in equity and law, it is worth noting here that
courts at law have also permitted rescission as a legal remedy. This form of relief
was hedged with formalities, most notably that the plaintiff had to “tender to the
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other party, as a precondition of suit, specific restitution of everything received
under the contract.” 2 Restatement Restitution, 3d, § 54, comment b, p 268; see
also Chaffee v Raymond, 241 Mich 392, 394-395; 217 NW 22 (1928) (“In an action
at law, based on rescission, a tender is a prerequisite . . . . In equity, however, the
rule is not so rigid, for there the bill must make profert of return of what has been
received, and the decree will place the parties in status quo, as far as possible.”);
Witte v Hobolth, 224 Mich 286, 290; 195 NW 82 (1923) (“A bill in equity praying
rescission proceeds on the theory that there has been no rescission, not on the theory
that rescission has already been accomplished. Were plaintiff to sue at law for the
money he paid defendant, he should, before suit, restore, or tender restoration of,
the property he received, that by his own act he thus may have legal right and title
to the money.”). According to the Restatement, the formalities gave courts at law
considerable discretion, almost akin to that wielded by equity courts. Restatement
Restitution & Unjust Enrichment, § 54, comment b, p 268.
Notwithstanding the distinctions between the equitable remedy of rescission and the legal
remedy of rescission, this Court has held on multiple occasions that trial courts are required to
balance the equities between a defrauded insurer and an innocent third party before extending the
mutual rescission of a no-fault insurance policy to an innocent third party. Estate of Audisho v
Everest Nat’l Ins Co, unpublished per curiam opinion of the Court of Appeals, issued June 24,
2021 (Docket No. 352391), p 3; Alshabi v Doe, unpublished per curiam opinion of the Court of
Appeals, issued January 23, 2020 (Docket No. 346700), p 3.1 While in another case, Green v
Meemic Ins Co, unpublished per curiam opinion of the Court of Appeals, issued August 20, 2020
(Docket No. 348651), this Court reached the opposite conclusion, the Green panel makes no
reference to our Supreme Court’s opinion in Bazzi, 502 Mich at 408-412, and does not address the
injured party’s status as an innocent third party. In light of these omissions and this Court’s
opinions in Alshabi and Estate of Audisho, we hold that trial courts are required to balance the
equities between a defrauded insurer and an innocent third party before extending the mutual
rescission of a no-fault insurance policy to an innocent third party. This conclusion is consistent
with our Supreme Court’s recognition that courts of law have “considerable discretion, almost akin
to that wielded by equity courts[,]” when granting rescission. Meemic Ins Co, 506 Mich at 310 n
19. Furthermore, application of the Bazzi rule to matters involving rescission at law is a logical
outgrowth of Bazzi.
Our Supreme Court has recognized both that “[r]escission, whether legal or equitable, is
governed by equitable principles,” Kundel v Portz, 301 Mich 195, 210; 3 NW2d 61 (1942), and
that courts at law have considerable discretion in granting rescission, Fortson, 506 Mich at 310 n
19. Thus, like equitable rescission, rescission as a legal remedy is also not a matter of right, but
rather is granted in the sound exercise of a trial judge’s discretion. Because the legal underpinnings
1
“Although MCR 7.215(C)(1) provides that unpublished opinions are not binding under the rule
of stare decisis, a court may nonetheless consider such opinions for their instructive or persuasive
value.” Cox v Hartman, 322 Mich App 292, 307; 911 NW2d 219 (2017), lv den 503 Mich 911(2018) (citation omitted).
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of equitable rescission and rescission at law are the same, logic dictates that the same rule apply
in matters involving rescission at law.
In sum, trial courts are required to balance the equities between a defrauded insurer and an
innocent third party before extending the mutual rescission of a no-fault insurance policy to an
innocent third party. Thus, the circuit court erred when it held that Falls Lake had rescinded
Pierson’s policy of insurance without balancing the equities between Falls Lake, as a defrauded
insurer, and Trevino, as an innocent third party. As such, remand is necessary in order for the
circuit court to balance the equities between Falls Lake, as a defrauded insurer, and Trevino, as an
innocent third party. See Bazzi, 502 Mich at 412 (holding that remand was required in order for
the trial court to determine whether, in its discretion, rescission of the insurance policy was
available). We therefore vacate the trial court’s summary disposition orders and remand this
matter in order for the circuit court to balance the equities between Falls Lake, as a defrauded
insurer, and Trevino, as an innocent third party.
Vacated and remanded for proceedings not inconsistent with this opinion. We do not retain
jurisdiction.
/s/ David H. Sawyer
/s/ Deborah A. Servitto
/s/ Michelle M. Rick
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