Bazzi v. Sentinel Ins. Co.

• Citation: 502 Mich. 390,919 N.W.2d 20
• Decision Date: 18 July 2018
• Docket Number: Calendar No. 1,No. 154442,154442
• Parties: 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.
• Court: Supreme Court of Michigan

502 Mich. 390

919 N.W.2d 20

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,andCitizens Insurance Company, Defendant-Appellee,

and

Hala Baydoun Bazzi and Mariam Bazzi, Third-Party Defendants-Appellees.

No. 154442

Calendar No. 1

Supreme Court of Michigan.

Argued January 11, 2018

Decided July 18, 2018

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.

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 N.W.2d 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.

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, 854 N.W.2d 897 (2014).

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 N.W.2d 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, 891 N.W.2d 13.

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, 894 N.W.2d 590 (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 N.W.2d 504 (2012). A motion for summary disposition under MCR 2.116(C)(10) shall be granted if 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 N.W.2d 817 (1999). This Court also reviews de novo questions of statutory interpretation and the proper interpretation of a contract. Titan , 491 Mich. at 553, 817 N.W.2d 562.

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 N.W.2d 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 N.W.2d 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, 817 N.W.2d 562, quoting Rory v. Continental Ins. Co. , 473 Mich. 457, 461, 703 N.W.2d 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 part of the policy, and "the rights and limitations of the coverage are governed by that statute." Titan , 491 Mich. at 554, 817 N.W.2d 562 (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 N.W.2d 750 (2006), citing Marquis v. Hartford Accident & Indemnity (After Remand) , 444 Mich. 638, 652 n. 17, 513 N.W.2d 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, 713 N.W.2d 750. 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, 817 N.W.2d 562.

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 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...