919 N.W.2d 20 (Mich. 2018), SC 154442, Bazzi v. Sentinel Insurance Company

Docket Nº:SC 154442, COA 320518
Citation:919 N.W.2d 20, 502 Mich. 390
Opinion Judge:Wilder, J.
Party Name:Ali BAZZI, Plaintiff-Appellant, v. SENTINEL INSURANCE COMPANY, Defendant/Third-Party Plaintiff-Appellee, and Genex Physical Therapy, Inc., and Elite Chiropractic Center, PC, Intervening Plaintiffs-Appellants, and Transmedic, LLC, Intervening Plaintiff-Appellee, and Citizens Insurance Company, Defendant-Appellee, and Hala Baydoun Bazzi and ...
Attorney:Gary R. Blumberg, PC (by Gary R. Blumberg) and Mike Morse Law Firm (by Michael J. Morse and Stacey L. Heinonen) for Ali Bazzi, Genex Physical Therapy, Inc., and Elite Chiropractic Center, PC. Plunkett Cooney (by Mary Massaron and Josephine A. DeLorenzo) for Sentinel Insurance Company. John A. Bra...
Judge Panel:Stephen J. Markman Justices: Brian K. Zahra Bridget M. McCormack David F. Viviano Richard H. Bernstein Kurtis T. Wilder Elizabeth T. Clement
Case Date:July 18, 2018
Court:Supreme Court of Michigan
 
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Page 20

919 N.W.2d 20 (Mich. 2018)

502 Mich. 390

Ali BAZZI, Plaintiff-Appellant,

and

Genex Physical Therapy, Inc., and Elite Chiropractic Center, PC, Intervening Plaintiffs-Appellants,

and

Transmedic, LLC, Intervening Plaintiff-Appellee,

v.

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.

No. SC 154442

COA 320518

Supreme Court of Michigan

July 18, 2018

Argued January 11, 2018

Page 21

[Copyrighted Material Omitted]

Page 22

Gary R. Blumberg, PC (by Gary R. Blumberg) and Mike Morse Law Firm (by Michael J. Morse and Stacey L. Heinonen) for Ali Bazzi, Genex Physical Therapy, Inc., and Elite Chiropractic Center, PC.

Plunkett Cooney (by Mary Massaron and Josephine A. DeLorenzo) for Sentinel Insurance Company.

John A. Braden, amici curiae.

Willingham and Coté, PC (by John A. Yeager and Kimberlee A. Hillock) for the Insurance Alliance of Michigan.

Kallas & Henk PC (by Constantine N. Kallas and Michele L. Riker-Semon) for the QBE Insurance Corporation.

Mellon Pries, PC (by James T. Mellon and David A. Kowalski) for the Michigan Municipal Risk Management Authority.

Speaker Law Firm, PLLC (by Liisa R. Speaker and Jennifer M. Alberts) and Sinas Dramis Brake Boughton & McIntyre PC (by Gearge T. Sinas, Stephen H. Sinas, and Thomas G. Sinas) for the Coalition Protecting Auto No-Fault.

Sondee, Racine & Doren, PLC (by Maurice A. Borden) for the Michigan Defense Trial Counsel.

James G. Gross, PLC (by James G. Gross) for the Auto Club Insurance Association.

Donald M. Fulkerson and Law Offices of Robert June, PC (by Robert B. June) for the Michigan Association for Justice.

Mark Granzotto, PC (by Mark Granzotto) for the Southeast Michigan Surgical Hospital LLC and Jamie Letkemann.

Syllabus

Alii 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 plaintiffs 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 plaintiffs 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...

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