Bazzi v. Sentinel Insurance Company

STATE OF MICHIGAN

COURT OF APPEALS

ALI BAZZI, FOR PUBLICATION

June 14, 2016

Plaintiff-Appellee,

and

GENEX PHYSICAL THERAPY, INC., ELITE

CHIROPRACTIC CENTER, P.C., and

TRANSMEDIC, L.L.C.,

Intervening Plaintiffs-Appellees,

v No. 320518

Wayne Circuit Court

SENTINEL INSURANCE COMPANY, LC No. 13-000659-NF

Defendant/Third-Party Plaintiff-

Appellant,

and

HALA BAYDOUN BAZZI and MERIAM

BAZZI,

Third-Party Defendants-Appellees.

Before: SAWYER, P.J., and BECKERING and BOONSTRA, JJ.

BECKERING, J. (dissenting).

At issue in this appeal is whether our Supreme Court’s decision in Titan Ins Co v Hyten,

491 Mich 547; 817 NW2d 562 (2012), which threw out the “easily ascertainable rule,” adversely

impacted and necessarily abrogated the “innocent third-party rule,” which I maintain is a

distinctly different rule and one to which this Court has adhered for decades without complaint

or redirection from either our Supreme Court or our Legislature. With all due respect for my

esteemed colleagues, I would conclude that the easily ascertainable and innocent third-party

rules are not “one and the same,” and case law bears out a clear distinction. Furthermore,

because they are different rules and because the coverage at issue in Titan—contractually-based

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excess liability coverage—is substantially different from the type of coverage at issue in this

case—statutorily-mandated benefits—I would decline to extend Titan and would instead adhere

to 30 years of this Court’s published decisions applying the innocent third-party rule. In this

respect, I would affirm the decision of the circuit court, save for the circuit court’s decision to

limit PIP benefits to the statutory minimums set forth in MCL 257.520, which does not apply to

the coverage at issue.

I. THE INNOCENT THIRD-PARTY RULE IS NOT THE SAME AS THE EASILY

ASCERTAINABLE RULE

Before diving into the impact of Titan, I would be remiss not to address the lead and

concurring opinions’ conclusion that the easily ascertainable rule and the innocent third-party

rule are one and the same. They are not. My colleagues conclude that they are the same in part

because they both necessarily involve an innocent third party. While this observation is accurate,

any attempt to equate them disregards the context in which they have been used and overlooks

pertinent caselaw. The innocent third-party rule has consistently been applied to prevent an

insurer from avoiding liability as to mandatory coverage—namely PIP benefits, while the easily

ascertainable rule had, before it was overruled in Titan, consistently been applied to prevent an

insurer from avoiding optional coverage, i.e., non-statutory coverage, when the insured’s fraud

was easily ascertainable. See, e.g., Farmers Ins Exch v Anderson, 206 Mich App 214; 520

NW2d 686 (1994), overruled by Titan, 491 Mich 547; Kurylowicz, 67 Mich App 568.

The difference between the rules can be put simply: the innocent third-party rule acts as a

prohibition against rescinding a policy that was procured by fraud, but only as to mandatory

coverage—specifically PIP coverage—for innocent third parties, while the now-overruled easily

ascertainable rule prevented a defrauded insurer from avoiding liability with respect to optional

coverage. Stated differently, the innocent third-party rule concerns statutory benefits, and the

easily ascertainable rule pertains to benefits originating in the insurance policy. Thus, the rules

serve distinct purposes and relate to different types of insurance coverage. This Court has

recognized this very principal in the past. See Manier v MIC Gen Ins Co, 281 Mich App 485,

489-492; 760 NW2d 293 (2008), overruled by Titan Ins Co v Hyten, 491 Mich 547; 817 NW2d

562 (2012); Lake States Ins Co v Wilson, 231 Mich App 327, 331-332; 586 NW2d 113 (1998);

Anderson, 206 Mich App at 216-219. For instance, in Anderson, 206 Mich App at 217, a case

that was overruled by Titan for its application of the easily ascertainable rule, the insurer, much

like the insurer in Titan, conceded liability for the statutorily mandated $20,000/$40,000 limits

found in MCL 257.520(f)(1).1 The issue before this Court was whether the insurer, “upon

discovering that the insured has made fraudulent and material misrepresentations in procuring

the policy, may assert rescission as a basis to limit its liability to the statutory minimum, even

when innocent third parties have been injured.” Anderson, 206 Mich App at 217. In resolving

this issue, the panel noted the innocent third-party rule and declared that, in light of the rule, the

1

This was the precise situation in Titan, 491 Mich at 552 n 2, as the insurer expressly

acknowledged its liability for mandatory coverage and only sought to rescind the policy as to

excess or optional liability coverage.

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insurer conceded it could not rescind the policy as to statutorily mandated coverage, i.e., the

$20,000 and $40,000 limits imposed by MCL 257.520(f)(1). Id. at 218. This, of course, was

required, in large part, by MCL 257.520(f)(1).2 Nevertheless, the insurer sought to limit its

liability for optional, non-statutory coverage. Optional liability coverage, which is addressed in

MCL 257.520(g), does not include the same statutory limitation on obtaining rescission in the

case of fraud. Anderson, 206 Mich App at 218. Accordingly, “when fraud is used as a defense

in situations such as these,” the panel explained, “the critical issue necessarily becomes whether

the fraud could have been ascertained easily by the insurer at the time the contract of insurance

was entered into.” Id. at 219. In other words, the easily ascertainable rule was to be applied to

determine whether the insurer could rescind the policy as it pertained only to optional liability

coverage.3 So long as the fraud was not easily ascertainable, the insurer could void the policy as

to this optional liability coverage. Id. If the fraud was easily ascertainable, the burden was

essentially on the insurer for not having discovered and dealt with it. A review of our caselaw

reveals that the easily ascertainable rule has a history of application to optional liability

coverage. See, e.g., Titan, 491 Mich 547; Manier, 281 Mich App 485; Kurylowicz, 67 Mich App

568.

The panel in Wilson, in a slightly different factual scenario involving PIP benefits,

reinforced the idea that the rules are not the same, specifying that the innocent third-party rule

acts as a bar against rescinding a policy as it concerns statutorily mandated benefits, and that the

easily ascertainable rule pertains to an insurer’s attempts to limit its liability as to optional

coverage.4 The panel in Wilson applied the same type of bar against rescission as found in MCL

257.520(f)(1) to PIP benefits based on their mandatory nature. The panel summarized the

innocent third-party rule and the easily ascertainable rule and their respective applications as

follows:

2

MCL 257.520(f)(1) does not require innocence.

3

The panel in Anderson even went so far as to clarify that the easily ascertainable rule applied

only in situations where fraud was asserted as a means for avoiding optional liability coverage.

Anderson, 206 Mich App at 219 (“Despite the holdings in Ohio Farmers [Ins Co v Mich Mut Ins

Co, 179 Mich App 355, 358, 364-365; 445 NW2d 228 (1989)] and Katinsky [v Auto Club Ins

Ass’n, 201 Mich App 167; 505 NW2d 895 (1993)], we do not go so far as to say that a validly

imposed defense of fraud will absolutely void any optional excess insurance coverage in all

cases. To the contrary, when fraud is used as a defense in situations such as these, the critical

issue necessarily becomes whether the fraud could have been ascertained easily by the insurer at

the time the contract of insurance was entered into.”).

4

In Wilson, a case that involved PIP benefits, the insurer, based on fraud, sought to reform the

policy, which was noncoordinated, into a policy that was coordinated with the insured’s health

insurance, thereby relieving the insurer of the obligation to pay duplicative medical benefits to

the insured. Wilson, 231 Mich App at 331. Concluding that noncoordinated coverage was

optional under the no-fault act, the panel found that the innocent third-party rule did not preclude

the reformation sought by the insurer. Id. at 332-333. And, because the fraud at issue in that

case was not easily ascertainable, the panel ruled that the insurer could reform the contract in the

manner it sought. Id. at 333-334.

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Once an innocent third party is injured in an accident in which coverage was in

effect with respect to the relevant vehicle, the insurer is estopped from asserting

fraud to rescind the insurance contract. However, an insurer is not precluded

from rescinding the policy to void any ‘optional’ insurance coverage, unless the

fraud or misrepresentation could have been ‘ascertained easily’ by the insurer.

[Id. at 331-332 (citations omitted; emphasis added).]

Thus, as is apparent from this Court’s opinion in Wilson, the innocent third-party rule and the

easily ascertainable rule are different. The innocent third-party rule concerns mandatory

coverage and arises from the fact that the coverage is mandatory, while the easily ascertainable

rule applies to optional coverage. Essentially, the innocent third-party rule is a rule that applies

to PIP benefits and protects entitlement to those benefits. Consistently with this rationale, this

Court has applied the innocent third-party rule in the context of PIP benefits. See, e.g., Roberts v

Titan Ins Co (On Reconsideration), 282 Mich App 339, 360; 764 NW2d 304 (2009), overruled in

part on other grounds Spectrum Health Hosp v Farm Bureau Mut Ins Co of Mich, 492 Mich 503;

821 NW2d 117 (2012).

This distinction is of critical importance to the instant case, as the concern in this case is

with mandatory PIP benefits, not optional excess liability coverage.5 Moreover, this distinction

explains away with relative ease the result that the lead opinion describes as “bizarre” and the

concurring opinion says “simply make[s] no sense.” That is, in concluding that the easily

ascertainable rule and the innocent third-party rule are essentially the same, both the lead opinion

and the concurring opinion postulate that the rules must be treated as the same, because if an

insurer can avoid liability when fraud is easily ascertainable, it must logically be able to avoid

liability where the fraud was not easily ascertainable. If we were truly dealing with rules that

applied in the same context and to the same type of coverage, this concern would be a valid one.

However, given that caselaw clearly applies the innocent third-party rule to mandatory coverage,

whereas the easily ascertainable rule applies to optional coverage, the rules can be reconciled and

the concerns of the lead and concurring opinions quickly dissipate. With regard to mandatory

coverage, whether the fraud was easily ascertainable matters not; the insurer is not permitted to

rescind once an innocent third party is injured. However, with regard to optional coverage, the

insurer is only prevented from rescinding the policy as it concerns such optional coverage if the

fraud was easily ascertainable. Our Supreme Court in Titan did away with the bar against an

insurer from rescinding optional coverage in the face of easily ascertainable fraud.

I take issue with the lead and concurring opinions’ conclusions that our Supreme Court’s

decision in Titan necessarily recognized that the innocent third-party rule and the easily

ascertainable rule are one and the same. In fact, our Supreme Court in Titan made no mention of

the innocent third-party rule, nor did it weigh in on whether fraud could be asserted as a basis to

avoid liability in the context of statutorily mandated benefits. The subject of statutorily

mandated coverage was simply not before the Court in Titan, as the insurer in that case expressly

conceded its liability for mandatory coverage and only sought a declaration “that it was not

5

This distinction is discussed in more detail below.

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obligated to indemnify [the insured] for any amounts above the minimum liability coverage

limits required by the financial responsibility act . . . .” Titan, 491 Mich at 552 n 2. Hence, the

issue before the Titan Court was the application of the easily ascertainable rule, and Titan did not

implicate the innocent third-party rule.

Along similar lines, I note that the lead and concurring opinions observe that our

Supreme Court in Titan overruled this Court’s decision in Ohio Farmers Ins Co v Mich Mut Ins

Co, 179 Mich App 355, 358, 364-365; 445 NW2d 228 (1989), and conclude that: (1) Ohio

Farmers discussed the innocent third-party rule; and (2) therefore, the Supreme Court in Titan

must have necessarily overruled the innocent third-party rule. Assuming that the decision in

Ohio Farmers implicated the innocent third-party rule, I disagree with my colleagues’

conclusions. First, our Supreme Court in Titan, 491 Mich at 551 n 1, did not make any sweeping

declarations about Ohio Farmers;6 rather, it only overruled the case “[t]o the extent” that it “held

or stated that an insurer is estopped from denying coverage on the basis of fraud when it could

have easily ascertained the fraud . . . .” This language is in line with the easily ascertainable rule,

not the innocent third-party rule. Noticeably absent from this qualified and narrow rejection of

Ohio Farmers is any discussion about whether an insurer can deny mandatory, statutorily

required coverage to an innocent third party on the basis of fraud. Thus, even assuming that

Ohio Farmers only implicated the innocent third-party rule, an assumption that is not entirely

apparent from the text of the Ohio Farmers decision, the Court in Titan made no comment about

the innocent third-party rule. Second, contrary to what the lead and concurring opinions

postulate—and regardless of what Ohio Farmers actually says—our Supreme Court in Titan

seemed to think that Ohio Farmers was an easily-ascertainable-rule case. See Titan, 491 Mich at

563-564 (“[U]nder the Kurylowicz rule, an insurer may not avail itself of traditional legal and

equitable remedies to avoid liability under an insurance policy on the ground of fraud when the

fraud was easily ascertainable and the claimant is a third party. See, e.g., Ohio Farmers Ins Co

v Mich Mut Ins Co, 179 Mich App 355; 445 NW2d 228 (1989).”). (Emphasis added).

Accordingly, any suggestion that Titan was overruling Ohio Farmers for some other reason—for

instance, that it discussed the innocent third-party rule—is not apparent from the Court’s

decision in Titan. Third, and on a somewhat related note, I disagree that Titan’s qualified

overruling of Ohio Farmers can be construed to reject a rule that Titan itself never mentioned.7

Aside from taking issue with the conclusion that the rules are one in the same, I take issue

with the lead opinion’s conclusion that both the easily ascertainable rule and the innocent third-

party rule “have their roots in the Kurylowicz decision.” Examination of the case conclusively

6

Ohio Farmers, a somewhat curious decision that this Court later backed away from in

Anderson, 206 Mich App at 219, cites Kurylowicz, but only for its “policy considerations.” See

Ohio Farmers, 179 Mich App at 363. Thus, as the lead and concurring opinions correctly note,

Ohio Farmers does not appear to implicate the easily ascertainable portion of the Kurylowicz

decision, despite what our Supreme Court believed to be the case in Titan. See Titan, 491 Mich

at 563-564.

7

This is not to say, however, that there are no reasonable arguments as to whether portions of the

Titan decision cast doubt on the innocent third-party rule. Those arguments are discussed below.

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dispels the notion that the innocent third-party rule was sired by Kurylowicz. Indeed, the sole

concern in Kurylowicz was whether an insurer has a duty to investigate representations made by

an insured, and the panel in Kurylowicz expressly rejected the opportunity to weigh in on the

innocent third-party rule. Also, there is no indication that Kurylowicz involved a claim for

mandatory coverage.

In Kurylowicz, 67 Mich App at 569, the plaintiff, State Farm, appealed as of right a

declaratory judgment declaring that it was not allowed to rescind a policy for optional,8 or non-

statutorily mandated liability coverage ab initio when the policy was procured through fraud. In

that case, the insured, Robert John Kurylowicz, made a material misrepresentation in his

application for insurance when answering the question of whether his driver’s license had ever

been revoked or suspended. Id. at 570. State Farm, which relied on our Supreme Court’s

decision in Keys v Pace, 358 Mich 74; 99 NW2d 547 (1959), argued that an insurer was entitled

to rescind a policy based on a material misrepresentation, and that there was no duty imposed on

the insurer to investigate the subject of the alleged fraud.9 Kurylowicz, 67 Mich App at 571.

This Court, in an effort to avoid the application of Keys, noted that our Legislature had

amended various statutes since our Supreme Court issued Keys, including statutes regarding the

cancellation of insurance policies, MCL 500.3220, and the motor vehicle accident claims act,

MCL 257.1101, which the panel described as providing compensation for citizens injured by

uninsured tort-feasors. Kurylowicz, 67 Mich App at 573. Further, this Court noted that, although

the case currently before it was not controlled by the no-fault act, the enactment of the no-fault

act, MCL 500.3101 et seq., reflected a legislative policy of providing compensation in order to

lessen “the tragic social and economic consequences that often accompany automobile mishaps.”

Kurylowicz, 67 Mich App at 573.10 Reading all of the legislative enactments as a whole, this

8

Although not expressly stated in the Kurylowicz opinion, it is apparent that this liability

coverage was optional liability coverage. Indeed, the policy at issue in Kurylowicz was issued

before enactment of the no-fault act, see Kurylowicz, 67 Mich App at 573, and at that time,

“motorists could choose whether or not to carry liability insurance[,]” Coburn v Fox, 425 Mich

300, 308; 389 NW2d 424 (1986).

9

The refusal to impose upon insurers the burden of investigating representations by the insured

was the premise of the holding in Keys:

Moreover, if inquiry is to be demanded, is it enough to stop with the traffic court?

Might not the accident suggest physical or psychiatric defects? Should

investigations not also be made of the past hospitalizations of the insured? Where

will we say this may stop within the existing economic framework? It is doubtful

whether one who deliberately sets out to swindle an insurance company can be

prevented from doing so by any such requirement, and it is even more doubtful

that there is enough of this practice to warrant the placing upon the insurance

business of a requirement so onerous. [Keys, 358 Mich at 84.]

10

In fact, the panel, recognizing that the cause of action in that case accrued before the

enactment of the no-fault act, expressly stated that, because the cause of action did not concern

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Court arrived at the idea that the statutes formulated a “policy” of providing “persons who suffer

loss due to the tragedy of automobile accidents in this state . . . a source and a means of

recovery.” Id. 574. “Given this policy,” said the panel, “it is questionable whether a policy of

automobile insurance can ever be held void ab initio after injury covered by the policy occurs.”

Id.11

With that “policy” as a backdrop, the panel cited a treatise for the proposition that an

insurer’s liability “with respect to insurance required by the act” becomes absolute “whenever

injury or damage covered by such policy occurs . . . .” Id. (citation and quotation marks

omitted). However, the panel was quick to point out that “[t]hat issue is not before us in this

case,”—whether liability with respect to insurance required by law became absolute upon the

happening of an injury—“so we need not decide it.” Id. Hence, the panel expressly declined to

comment on the innocent third-party rule—which is implicated in situations involving the

“liability of the insurer with respect to insurance required by the [no-fault] act.” Instead, stated

the panel, “we need only decide whether, under the facts of the case at bar, State Farm

reasonably relied on the representations of the insured so as to justify a holding that the policy

was procured by fraud, thus warranting a judicial determination that the policy was void ab

initio.” Id. (first emphasis added).

The framing of the issue by the panel in the above paragraph is of particular significance,

and illustrates the fatal flaw in the lead opinion’s conclusion that Kurylowicz spawned the

innocent third-party rule. The focus of the issue in that case was the insurer’s reasonable

reliance, or lack thereof, on the insured’s representations. And, when the panel mentioned the

scenario that implicates the innocent third-party rule—liability mandated by statute and an

injured third party—it expressly declined to consider it in any detail. It cannot reasonably be

argued that Kurylowicz created a rule it took special care to avoid.

Indeed, the only issue in Kurylowicz concerned whether the insurer should have accepted

certain representations at face value, or whether the insurer should have discovered that the

representations were false. The rest of the opinion in Kurylowicz is spent answering this

question, and only this question, as the panel cited caselaw from other jurisdictions that imposed

on an insurer a duty to investigate representations made by insureds in insurance applications.

Id. at 575-577, citing Allstate Ins Co v Sullam, 76 Misc2d 87; 349 NYS2d 550 (1973); State

Farm Mut Ins Co v Wood, 25 Utah 2d 427; 483 P2d 892 (1971); Barrera v State Farm Mut Auto

Ins Co, 71 Cal2d 659; 79 Cal Rptr 106; 456 P2d 674 (1969); State Farm Mut Auto Ins Co v Wall,

92 N J Super 92; 222 A2d 292 (1966). The panel then went on to impose a duty on the insurer in

that case to make a reasonable investigation of an insured’s representations in an application for

insurance. This is precisely contrary to the tenants of Keys.

the no-fault act, “our holding in this case cannot be precedent for actions arising after the

effective date of no-fault . . . .” Kurylowicz, 67 Mich App at 573.

11

Despite the Supreme Court’s criticism in Titan about Kurylowicz’s policy arguments—

discussed in more detail below—I would be remiss not to note that in Coburn v Fox, 425 Mich

300, 310 n 3; 389 NW2d 424 (1986), our Supreme Court cited with approval this very same

policy rationale from Kurylowicz.

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Because the instant case does not involve the imposition of a duty on the insurer to

investigate representations made by a prospective insured, Kurylowicz, and the fact that Titan

overruled Kurylowicz for failing to follow the precedent established in Keys, is not dispositive in

this case. Likewise, any assertion that the innocent third-party rule is the same as Kurylowicz’s

easily ascertainable rule is incorrect and does not resolve the issue in this case. However, that

does not end the inquiry; it merely ferrets out a red herring proffered by the lead and concurring

opinions. Indeed, although the Supreme Court in Titan overruled Kurylowicz for ignoring

precedent established in Keys, the Court’s opinion went beyond merely overruling this Court’s

decision for ignoring Supreme Court precedent. Notably, for purposes of this opinion, the Court

in Titan went on to: (1) clarify the conditions under which a policy for insurance can be

rescinded; and (2) decry what it described as the “reasoning” employed by Kurylowicz. It is in

those aspects of Titan that the parties argue the Court eroded the support on which the innocent

third-party rule rests, and which require extensive discussion in this case. In order to resolve the

more pertinent issue of whether the Court’s analysis in Titan erodes support for the innocent

third-party rule, I find it necessary to examine Titan, as well as the origins and development of

the innocent third-party rule.

II. THE INNOCENT THIRD-PARTY RULE

The innocent third-party rule is a rule that has been firmly entrenched in this Court’s

jurisprudence for the past three decades and never questioned by our Supreme Court, nor has it

ever prompted any revision in the no-fault law by the Legislature. In general, an insurer may

rescind a policy ab initio because of fraud. Roberts, 282 Mich App at 360. However, under the

innocent-third party rule, “an insurer may not void a policy of insurance ab initio where an

innocent third party is affected” and the type of coverage at issue is mandatory coverage. Id.12

As stated in Roberts, “caselaw demonstrates that the innocent third party doctrine ensures

coverage for any person who is innocent of participation in the alleged fraud.” Id. at 361.

For decades, this Court has adhered to the innocent third-party rule and precluded

insurers from denying coverage to injured third parties who were innocent of the insured’s fraud

in cases where the insured sought statutory, i.e., non-optional, benefits. See, e.g., Wilson, 231

Mich App at 331; Hammoud, 222 Mich App at 488; Burton v Wolverine Mut Ins Co, 213 Mich

App 514, 517 n 2; 540 NW2d 480 (1995); Auto-Owners Ins Co v Johnson, 209 Mich App 61, 64;

530 NW2d 485 (1995); Katinsky v Auto Club Ins Ass’n, 201 Mich App 167, 170; 505 NW2d 895

(1993); Darnell v Auto-Owners Ins Co, 142 Mich App 1, 9; 369 NW2d 243 (1985); Cunningham

v Citizens Ins Co of America, 133 Mich App 471, 477; 350 NW2d 283 (1984); United Security

Ins Co v Comm’r of Ins, 133 Mich App 38, 43; 348 NW2d 34 (1984).13 In fact, our Supreme

12

Like other cases applying the innocent third-party rule, Roberts was a case involving an

insured’s application for mandatory PIP benefits, not optional liability coverage. See id. at 346-

347.

13

In addition, we note that Michigan is not alone in applying the innocent third-party rule in the

context of automobile insurance. See 7 Am Jur 2d Automobile Insurance § 61 (summarizing the

law from various jurisdictions).

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Court, too, has protected innocent parties from the fraud of others in the context of insurance

policies, albeit in a case dealing with a “statutory fire insurance policy.” See Morgan v

Cincinnati Ins Co, 411 Mich 267, 277; 307 NW2d 53 (1981). (“[W]henever the statutory clause

limiting the insurer’s liability in case of fraud by the insured is used it will be read to bar only the

claim of an insured who has committed the fraud and will not be read to bar the claim of any

insured under the policy who is innocent of fraud.”). Yet, as the parties point out, although this

Court’s precedent with regard to the innocent third-party rule is well established, the rationale

and reasoning cited for the existence of the rule has varied. For instance, this Court’s

justifications for the innocent third-party rule have ranged from “public policy,” see Katinsky,

201 Mich App at 171, to reliance on our Supreme Court’s decision in Morgan, see Darnell, 142

Mich App at 10, to the language in MCL 257.520(f)14 of the financial responsibility act, see

Wilson, 231 Mich App at 331. Despite the varying rationales employed in arriving at the

innocent third-party rule, its application has, until recently, been fundamental.

The challenges raised against the innocent third-party rule come from claims by Sentinel

and others that our Supreme Court’s decision in Titan, 495 Mich 547, implicitly overruled the

innocent third-party rule. Accordingly, our Supreme Court’s decision in Titan must be

examined.

III. TITAN V HYTEN

While much is being made about what Titan says and implies, it is helpful to focus first

on what Titan does not say. For example, and most notably, the innocent third-party rule was not

at issue in Titan, 491 Mich 547. In addition, Titan did not involve no-fault PIP benefits, nor did

it involve any statutorily-rooted benefits, for that matter. Rather, in Titan, our Supreme Court

examined the so-called “easily ascertainable” rule, and addressed whether, in a case involving

excess liability coverage, an insurer could rescind that coverage based on fraud in the

procurement of the policy when the fraud was easily ascertainable by the insurer. Id. at 550-551.

In Titan, McKinley Hyten, whose mother, Anne Johnson, made fraudulent misrepresentations in

her application for insurance, was involved in a motor vehicle accident with Howard and Martha

Holmes. Id. at 552. In anticipation that the Holmses would file third-party tort claims against

Hyten for their injuries, Titan sought to rescind the excess liability coverage based on Johnson’s

material misrepresentations. Id. In particular, Titan requested declaratory relief stating that,

should the Holmses prevail in an action against Hyten, it was not required to provide liability

coverage under the policy in excess of the statutory minimums for such coverage set forth in

MCL 257.520 of the financial responsibility act.15 The trial court held that the easily

ascertainable rule applied and prevented Titan from avoiding liability in that case, as the court

14

As will be explained in more detail below, MCL 257.520(f)(1) prohibits an insurer from

avoiding liability up to certain statutory minimums for liability coverage, and pursuant to Titan,

it is not applicable to the PIP benefits at issue in this case.

15

Titan expressly acknowledged its responsibility for the minimum liability coverage limits—

$20,000 per person/$40,000 per occurrence—required under the financial responsibility act.

Titan, 491 Mich at 552 n 2. Hence, statutorily-mandated benefits were not at issue in Titan.

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deemed the alleged fraud to be easily ascertainable.16 Id. This Court affirmed, based on a line of

decisions—dating back to Kurylowicz, 67 Mich App 568—which applied the easily ascertainable

rule in cases where an insurer sought to rescind an insured’s policy for optional coverage due to

fraud by the insured in the procurement of that policy, but which fraud that was deemed to have

been easily ascertainable by the insurer. Id., citing Titan Ins Co v Hyten, 291 Mich App 445; 805

NW2d 503 (2011).

In examining the viability of the easily ascertainable rule, the Supreme Court in Titan

began by recognizing that insurance policies are contracts, and that, “when a provision in an

insurance policy is mandated by statute, the rights and limitations of the coverage are governed

by that statute.” Id. at 554. Titan cited Rohlman v Hawkeye-Security Ins Co, 442 Mich 520,

524-525; 502 NW 2d 310 (1993), for the proposition that “because personal injury protection

benefits are mandated by MCL 500.3105, that statute governs issues regarding an award of those

benefits.” Titan noted that conversely, “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.” Id. In addition, “because insurance policies are contracts,

common-law defenses”—such as fraud—“may be invoked to avoid enforcement of an insurance

policy, unless those defenses are prohibited by statute.” Id.

The Court first looked at the various common-law doctrines of fraud that exist in

Michigan and concluded that common-law fraud did not include as an element that the party

asserting the fraud prove that the fraud was not easily ascertainable. Thus, the common-law

doctrines of fraud did not support the existence of the easily ascertainable rule. Id. at 556-557.

Next, the Court looked at the different remedies available in instances where a contract

was procured by fraud. Id. at 557-558. Because contracts must be construed in conjunction with

the applicable law, the Court recognized that common-law remedies “may be limited or

narrowed by statute.” Id. at 558. For instance, MCL 257.520(f)(1) of the financial responsibility

act limited the ability of an insurer to avoid liability upon the happening of an injury “with

respect to the insurance required by” the financial responsibility act—$20,000 for bodily injury

or death to one person, and $40,000 for bodily injury or death to two or more persons—even in

the face of fraud or misrepresentations. Id., citing MCL 257.520(f)(1). However, the Court

concluded that the limitation imposed under MCL 257.520(f)(1) was limited to a liability policy

that was certified under the financial responsibility act. Id. at 559-560.17 Thus, the Court found

no statutory limitations on the right to rescind a policy with regard to excess liability coverage,

i.e., non-statutory coverage. Id.

16

The alleged fraud was in regard to whether Hyten possessed a valid driver’s license at the time

of the application for insurance.

17

Per Titan, MCL 257.520(f)(1)—which is part of the financial responsibility act—does not

apply to PIP benefits under the no-fault act. Id. at 570. Of note, the financial responsibility act

was enacted 24 years before the no-fault act. Hence, our Supreme Court in Titan discerned the

Legislature’s intended scope and applicability of MCL 257.520(f)(1) with respect to an act that

did not yet exist when MCL 257.520(f)(1) was enacted.

-10-

With this backdrop, the Court turned its attention to the easily ascertainable rule and

found that its earlier decision in Keys, 358 Mich 74, was controlling and that Keys had rejected

the easily ascertainable rule over 50 years ago. Titan, 491 Mich at 562 (“Keys answered the

precise question presented in this case . . . holding that an insurer may avail itself of traditional

legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud,

notwithstanding that the fraud may have been easily ascertainable, and notwithstanding that the

claimant is a third party.”).

Our Supreme Court noted that despite the fact that Keys had rejected the easily

ascertainable rule, this Court later reached the opposite conclusion in Kurylowicz; thus Titan

overruled Kurylowicz because it had ignored Supreme Court precedent. Titan, 491 Mich at 572.

In addition, the Court went on to decry the reasoning employed in Kurylowicz.18 First, the Court

noted that Kurylowicz justified the easily ascertainable rule based on what it determined to be the

“public policy” of the no-fault act. Titan, 491 Mich at 564-565. However, the Court rejected the

idea that public policy supported the rule, explaining that the public policy of the no-fault act

should be understood in terms of the provisions of the act itself, and not “a judicial effort to

identify some overarching public policy . . . .” Id. at 565. “In other words, it is the policy of this

state that all the provisions of the no-fault act be respected, and Kurylowicz’s efforts to

elevate some of its provisions and some of its goals above other provisions and other goals was

simply a means of disregarding the stated intentions of the Legislature.” Id.

Second, in rejecting purported justifications for the easily ascertainable rule, the Court

rebuffed the idea that MCL 500.322019—which concerns the cancellation of automobile liability

policies and restricts the ability of the insurer to cancel a policy—did not preclude an insurer

from uncovering fraud and pursuing remedies aside from cancellation, such as rescission. Id. at

566-567. In this regard, the Court noted that rescission was a remedy that is distinct from

cancellation. Id. at 567-568.

18

The Court’s reasoning employed in rejecting the easily ascertainable rule forms the basis for

Sentinel’s arguments on appeal that the innocent third-party rule does not survive Titan.

19

MCL 500.3220 provides:

Subject to the following provisions no insurer licensed to write automobile

liability coverage, after a policy has been in effect 55 days or if the policy is a

renewal, effective immediately, shall cancel a policy of automobile liability

insurance except for any 1 or more of the following reasons:

(a) That during the 55 days following the date of original issue thereof the

risk is unacceptable to the insurer.

(b) That the named insured or any other operator, either resident of the

same household or who customarily operates an automobile insured under the

policy has had his operator’s license suspended during the policy period and the

revocation or suspension has become final.

-11-

Finally, in concluding that there was no support in the law for the easily ascertainable

rule, the Court considered—and rejected—the idea that the rule was “required for the protection

of third parties.” Id. at 568. The Court explained that “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.” Id. The no-fault act protected third parties “in a variety of ways,” reasoned the

Court—including allowing 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.” Id. at 569. In addition, explained the Court, requiring an insurer to indemnify an insured

in spite of fraud “relieves the insured 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.

In other words, an insured is not entitled to benefit from the protection of excess liability

insurance coverage above the statutorily required minimum when he or she purchased that

coverage through fraud.

IV. THE INNOCENT THIRD-PARTY RULE POST-TITAN

Before weighing in on the issue of whether Titan affects the validity of the innocent

third-party rule in the context of statutorily required PIP benefits, I note that this Court has

already had occasion to examine this matter, albeit in unpublished opinions. See Frost v

Progressive Mich Ins Co, unpublished opinion per curiam of the Court of Appeals, issued

September 23, 2014 (Docket No. 316157); State Farm Mut Auto Ins Co v Mich Muni Risk Mgt

Auth, unpublished opinion per curiam of the Court of Appeals, issued February 19, 2015 (Docket

No 319710). Those two cases, however, came to opposite conclusions. Rather than grant leave

to appeal in one or both of those cases and resolve first-hand the breadth of its intentions in Titan

and whether its rationale should be extended to the innocent third-party rule and statutorily

mandated PIP benefits, our Supreme Court came to the somewhat perplexing conclusion that it

should vacate both of those decisions, remand the cases to this Court, order this Court to accept

as on leave granted yet another case regarding this issue—the instant case—and hold in abeyance

any further rulings in Frost and State Farm pending our resolution in this matter.20 Hence, I will

briefly address Frost and State Farm and the reasoning provided by each panel in coming to its

conclusion on the issue at hand.

A. FROST V PROGRESSIVE

The first case to examine the innocent third-party rule in the context of PIP benefits

following Titan was Frost. In Frost, Kenya Frost’s minor daughter was injured in an accident

while a passenger in an uninsured automobile. Citizens Insurance Company was assigned by the

assigned claims plan to Frost’s daughter’s claim. Progressive had issued a policy of insurance to

Frost on her own vehicle, which had been destroyed one month before Frost’s daughter’s

accident. Citizens Insurance Company sought reimbursement from Progressive for benefits it

20

See Frost v Progressive, 497 Mich 980; 860 NW2d 636 (2015); State Farm Mut Auto Ins Co v

Mich Muni Risk Mgt Auth, 498 Mich 870; 868 NW2d 898 (2015).

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had paid on Frost’s daughter’s behalf.21 Frost, slip op at 1-2. Progressive claimed that it had

rescinded Frost’s policy ab initio because Frost had procured the policy through fraud. Citizens

argued that the innocent-third party rule barred Progressive’s attempt to rescind as it pertained to

Frost’s daughter, and in response, Progressive contended that Titan had effectively eliminated

the innocent third-party rule. The circuit court found that Frost’s daughter’s accident occurred

before Progressive attempted to rescind the policy, and that once the accident occurred,

Progressive lost its ability to rescind as to Frost’s daughter. Id. at 2. In short, the circuit court

applied the innocent third-party doctrine.

On appeal to this Court, the panel overturned the trial court and held that its ruling was

“inconsistent with our Supreme Court’s holding” in Titan. Id. The panel explained:

In [Titan], our Supreme Court held that absent statutory provisions to the

contrary, “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.” [Titan, 491 Mich at 571.]

Accordingly, the claim by Frost’s daughter did not bar Progressive from

rescinding the policy in this case.

B. STATE FARM V MICH MUNI RISK MGT AUTH

Five months after Frost was issued, this Court reached the opposite conclusion in State

22

Farm. Pertinent to our purposes in the present matter, one of the insurers in that case sought to

rescind a policy for no-fault PIP benefits ab initio because it alleged that the policy had been

procured by fraud.23 State Farm, slip op at 4. The trial court disagreed, finding that, because

coverage was required under the no-fault act, the policy could not be rescinded after an innocent

third-party sustained injury that would otherwise be covered under the policy. Id. at 5.

On appeal, a panel of this Court examined the innocent third-party rule and recognized

that “[t]his Court has generally denied an insurer’s right to rescind a policy of insurance in order

to avoid payment of no-fault benefits to an innocent third party[.]” Id. at 9, citing Hammoud,

222 Mich App at 488. “Thus,” the panel explained, “ ‘[o]nce an innocent third party is injured in

an accident in which coverage was in effect with respect to the relevant vehicle, the insurer is

estopped from asserting fraud to rescind the insurance contract.’ ” Id., quoting Katinsky, 201

Mich App at 170 (citation omitted; alteration in State Farm).

21

Citizens intervened in Frost’s lawsuit against Progressive arising out of her effort to obtain

reimbursement for losses incurred when her car was destroyed.

22

As he acknowledges in his concurring opinion in this case, Judge Boonstra was on the panel in

State Farm. As my dissenting opinion makes clear, I think he and his panel got it right in State

Farm.

23

QBE Insurance Corporation sought to rescind its policy.

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The relevant insurer in that case argued that the innocent third-party rule was abrogated

by our Supreme Court’s decision in Titan, 491 Mich 547. The panel disagreed, pointing out that

Titan involved a different type of coverage—optional, excess liability coverage—rather than the

mandatory PIP coverage at issue. In addition, the panel noted that Titan did not involve a claim

for benefits by an innocent third party. In this regard, the panel explained:

. . . In Titan, our Supreme Court held that an excess insurance carrier may avail

itself of the equitable remedy of reformation (of contract) to avoid liability under

an insurance policy on the ground of fraud in the application for insurance, even

though the fraud was easily ascertainable and the claimant is a third party, so long

as the remedies are not prohibited by statute.

[The claimed] entitlement to PIP benefits [at issue] is statutory, however,

not contractual. The insurer in Titan did not seek to avoid payment of statutorily

mandated no-fault benefits; in fact, that insurer acknowledged its liability for the

minimum liability coverage limits. Nor did Titan address a claim for PIP benefits

from an innocent third party. Thus, the holding of Titan, that an insurance carrier

may seek reformation to avoid liability for contractual amounts in excess of

statutory minimums, does not compel a finding that Titan overruled the many

binding decisions of this Court applying the “innocent third-party rule” in the

context of PIP benefits and an injured third party who is statutorily entitled to

such benefits. [Id. (citations omitted).]

Because of the key differences between the issue in Titan and the issue involved in State Farm,

the panel held that Titan did not abrogate or overrule the innocent third-party rule. Id. at 9-10.

V. THE INNOCENT THIRD-PARTY RULE SURVIVES TITAN

I would hold that the panel in State Farm reached the correct result by concluding that the

innocent third-party rule survives Titan in the context of statutorily mandated no-fault benefits,

and thus, I would hold that the rule has continued validity and applies in this case. As the panel

did in State Farm, I note that the coverage at issue in this case differs from that which was at

issue in Titan. At issue in Titan was contractual liability coverage, i.e., non-statutory, optional

liability coverage. In fact, statutory coverage was expressly not at issue in Titan, as the insurer

conceded liability for the statutory minimum coverage amounts under the financial responsibility

act, despite alleging that the policy was void ab initio because of the insured’s fraud. Titan, 491

Mich at 552 n 2. In other words, Titan involved a case where the insurer sought to rescind the

policy, but acknowledged it was nevertheless responsible for statutory benefits.

In contrast to Titan, the benefits at issue in this case, PIP benefits, are statutory. See, e.g.,

MCL 500.3101(1) (mandating the owner or registrant of a motor vehicle required to be

registered in this state to “maintain security for payment of benefits under personal protection

insurance,” among other types of insurance); MCL 500.3105 (requiring an insurer to pay PIP

benefits, subject to the provisions of the no-fault act, and providing no other exceptions to or

limitations on that requirement); Johnson v Recca, 492 Mich 169, 173; 821 NW2d 520 (2012);

Rohlman v Hawkeye-Security Ins Co, 442 Mich 520, 524-525; 502 NW2d 310 (1993). See also

See Husted v Dobbs, 459 Mich 500, 513; 591 NW2d 642 (1999) (explaining that the compulsory

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nature of statutory PIP benefits was meant to guarantee PIP coverage to accident victims in

exchange for limitations on the injured person’s ability to file a tort claim); Shavers v Kelley, 402

Mich 554, 578-579; 267 NW2d 72 (1978) (explaining that the no-fault act “was offered as an

innovative social and legal response to the long payment delays” that existed in Michigan and

was meant to assure “adequate, and prompt reparation for certain economic losses” through a

system of compulsory insurance). As Titan itself states, “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. The plain language of the no-fault act provides no exceptions

to, or limitations on, its mandate that an insurance carrier cover certain statutorily identified no-

fault PIP benefits. Cf., id. (“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.”).

Like the panel in State Farm, I find the difference between the benefits at issue in this

case and those contractual benefits that were at issue in Titan to be significant. Simply put, Titan

did not address benefits that were required by statute; the insurer in that case expressly

acknowledged liability for statutory residual liability amounts. To conclude that our Supreme

Court’s ruling as to purely contractual, excess liability benefits should apply and overrule

approximately 30 years of this Court’s precedent with regard to statutory PIP benefits is a leap I

am not prepared to make. That is, I am disinclined to extend Titan and its reasoning to the

innocent third-party rule as that rule applies to statutorily-mandated PIP benefits. I see no

support for doing so in the plain language of the no-fault act. Similarly, I conclude that the

innocent third-party rule is not inconsistent with the Supreme Court’s decision in Titan. Thus, I

would find that we are bound to follow this Court’s precedent applying the innocent third-party

rule to PIP benefits. See MCR 7.215(J)(1); Charles A Murray Trust v Futrell, 303 Mich App 28,

49; 840 NW2d 775 (2013) (this Court is bound to follow a prior published Court of Appeals

decision issued on or after November 1, 1990 that has not been reversed or modified by our

Supreme Court or a special panel of this Court).

Nonetheless, this conclusion warrants the discussion of two matters. First, the

justifications posed for the innocent third-party rule have, over time, been inconsistent, and, in

some cases, those justifications were premised on incorrect legal principles.24 Yet, the innocent

third-party rule has been consistently applied by this Court for over 30 years and there is an

absence of published authority criticizing the rule. Thus, the rule remains good law, and this

Court is bound to follow it. MCR 7.215(J)(1). And, although not serving as a basis for my

decision, I would note that the innocent third-party rule serves the purposes of the no-fault act.

One of the chief purposes of the no-fault act, as has been consistently identified by our courts, is

24

For instance, Wilson, 231 Mich App at 331, justified the innocent third-party rule in a case

involving PIP benefits by citing MCL 257.520(f) of the financial responsibility act. MCL

257.520(f) does not apply to PIP benefits under the no-fault act. See Titan, 491 Mich at 559-

560. However, while MCL 257.520(f) does not apply, when the mandatory nature of PIP

benefits are considered, it is not that far of a stretch to see the rationale in analogizing mandatory

PIP benefits to mandatory minimum levels of liability coverage.

-15-

to ensure prompt and adequate payment for the types of injuries and losses encompassed under

the category of PIP benefits. See, e.g., Shavers, 402 Mich at 578-579. Allowing retroactive

rescission of a policy in a manner that removes coverage from an innocent individual who would

ordinarily be covered under the policy thwarts the mandatory nature of these benefits and the

purposes of the no-fault act.

Second, it could be argued that portions of the Titan opinion appear to undermine the

innocent third-party rule: notably, the portions of the opinion concluding that the remedy of

rescission can only be limited by statute could be said to call the innocent third-party rule into

question. However, as noted above, the instant case involves an entirely different type of

benefits than was at issue in Titan. That is, the instant matter involves mandatory PIP benefits,

while Titan involved voluntary liability coverage above the statutorily required minimum. And,

significantly, Titan expressly did not address mandatory benefits, given that the insurer in that

case acknowledged liability for certain statutory amounts. Further, and contrary to the lead

opinion’s suggestions, Titan contained no discussion about the innocent third-party rule, and

instead addressed a rule arising from this Court’s jurisprudence—Kurylowicz—that was directly

contrary to a published Supreme Court decision regarding the easily ascertainable rule. Given

these significant differences between this case and Titan, I am not so inclined to stretch Titan’s

holding to fit a scenario that was simply not addressed or contemplated by the Court in Titan.

Accordingly, as did the panel in State Farm, unpub op at 9-10, I find Titan to be inapplicable to

the innocent third-party rule in the context of statutorily required no-fault PIP benefits.

In declining to find that Titan affects the validity of the innocent third-party rule in the

context of this case, I note that some of the concerns that were present in Titan are not present in

the instant case. In Titan, 491 Mich at 569, the Court expressed concerns that the easily

ascertainable rule “reduces disincentives for insurance fraud, and transfers legal responsibility

from parties that have acted fraudulently to parties that have not.” The Court reasoned that the

insured, not the insurer, should bear the burden of his or her fraud by being on the hook

financially for his or her third-party tort liability above the statutorily required minimum. See Id.

But, first-party PIP benefits do not “indemnify an insured despite fraud in obtaining the

insurance policy.” See Id. The no-fault system was created so as to eliminate the at-fault

driver’s legal responsibility for medical expenses and certain wage loss and loss of service

expenses, and in doing so, it also took away the injured third party’s right to sue for such

expenses. Instead, the no-fault system baked into all insurance contracts mandatory coverage for

these expenses. Forcing an innocent third party to seek recovery for his or her PIP benefits from

the assigned claims facility does nothing to “transfer responsibility” away from those who have

acted fraudulently. Moreover, as our Supreme Court has recognized, “an insured often has no

control over the conduct of others,” and it would be untenable to require an insured to undertake

to prevent others from engaging in fraud. Morgan, 411 Mich at 276-277. If we were to accept

the invitation to extend the rule from Titan addressing voluntary third-party liability excess

contractual coverage and conclude that the innocent third-party rule has been eliminated with

respect to first-party statutory PIP benefits, we would essentially force passengers (who do not

have a policy of their own), including children, to either investigate whether the car owner’s

insurance policy was obtained by fraud before getting into the car or risk being thrown into a

firestorm investigation upon the happening of an accident in order to obtain that same

information in time to make a claim to the right entity. And how would an innocent third party

even go about investigating whether the policy procurer obtained the policy through fraud? That

-16-

person would already have much on his or her mind following an accident, not the least of which

is attempting to recover from his or her injuries. Put simply, Titan impacts an insured’s right to

receive the protection of voluntary, excess liability coverage with respect to third-party tort

claims. Its ruling and rationale do not translate to first-party PIP benefits; to do so would wreak

havoc on the no-fault system and would surely lead to every injured person filing a claim with

the assigned claims plan, “just in case,” in addition to filing a claim with the insurance company

whose policy was in effect and covered him or her at the time of the accident. I decline to extend

the rationale in Titan to the uniquely different setting of statutorily required benefits and by

doing to turn the no-fault system, as we have known it over the past thirty years, entirely on its

head.

In addition, I note that in Titan, 491 Mich at 557, the Court rejected the easily

ascertainable rule in part because the various doctrines of fraud in Michigan “do not require the

party asserting fraud to have performed an investigation of all assertions and representations

made by its contracting partner as a prerequisite to establishing fraud.” In short, the easily

ascertainable rule had no place in the common law of fraud, and thus, could not bar rescission of

an insurance policy. This type of problem is not present in the instant case, as the innocent third-

party rule does not impute any additional requirements on an insurer who pleads fraud in the

procurement of a policy.

Moreover, turning to the remedy of rescission, it has generally been viewed as an

equitable remedy. See Madugula v Taub, 496 Mich 685, 712; 853 NW2d 75 (2014). It is not

found in the plain language of the no-fault act, yet the Supreme Court deemed it appropriate to

apply in the context of voluntary insurance coverage, which is rooted in contract rights.

Similarly, the innocent third-party rule is an equitable remedy that is not found in the plain

language of the no-fault act; like rescission, it too should be deemed appropriate to apply in the

proper, equitable context. It is well established that the equitable remedy of rescission is not

granted as a matter of right and it will not be granted when it would accomplish an inequitable

result. See, e.g., Schnitz v Grand River Avenue Dev Co, 271 Mich 253, 257; 259 NW 900

(1935); Johnson v QFD, Inc, 292 Mich App 359, 375; 807 NW2d 719 (2011); McMullen v

Joldersma, 174 Mich App 207, 219; 435 NW2d 428 (1988). Thus, the remedy of rescission

carries with it the idea that the result achieved is to be an equitable one. In other words, there is

room within the concept of rescission for balancing the equities, which ostensibly extends to

considering the fact that an innocent third party is involved and mandatory PIP benefits are at

issue. I am not convinced that it is equitable to allow an insurer to avoid paying statutorily

mandated PIP benefits in a case such as this, where an innocent, injured third party, absent

another’s fraud, would be entitled to coverage under the policy. See Morgan, 411 Mich at 277.

This is especially true when the no-fault act itself discusses mandatory benefits with no mention

of limitations on or exceptions to that mandatory coverage.

Furthermore, I am not convinced that it is equitable to require the innocent third-party

otherwise covered by a policy to seek PIP benefits through the assigned claims plan in the event

the insurance carrier claims fraud by the procurer and seeks rescission, as Sentinel contends

should occur in this case. As Sentinel impliedly concedes in its briefing, the payment of benefits

through the assigned claims plan might be unavailable for certain innocent third parties. And I

note that statutory deadlines for giving notice of claimed PIP benefits could prevent an innocent

third party, through no fault of his or her own, from receiving mandatory PIP benefits. Notably,

-17-

a person claiming benefits through the assigned claims plan “shall notify” the assigned claims

plan of his or her claim within one year. See MCL 500.317425; MCL 500.3145(1).26 See also

Bronson Methodist Hosp v Allstate Ins Co, 286 Mich App 219, 225-226; 779 NW2d 304 (2009)

(examining MCL 500.3145(1) and MCL 500.3174). I pose the question of: what happens when

an innocent third party tries to obtain PIP benefits through the insurer listed on the policy, only to

have that insurer subsequently rescind the policy based on fraud in which the innocent third party

did not participate, and the innocent third party then misses the one-year deadline for notifying

the assigned claims plan? At least one panel on this Court has held that, unless notice is given to

the assigned claims plan within one year of the accident, the claim is barred, even when the

injured person first sought benefits from what she thought was the correct insurer. See Visner v

Harris, unpublished opinion per curiam of the Court of Appeals, issued December 6, 2012

25

MCL 500.3174 points to timing deadlines in MCL 500.3145(1) and provides:

A person claiming through the assigned claims plan shall notify the Michigan

automobile insurance placement facility of his or her claim within the time that

would have been allowed for filing an action for personal protection insurance

benefits if identifiable coverage applicable to the claim had been in effect. The

Michigan automobile insurance placement facility shall promptly assign the claim

in accordance with the plan and notify the claimant of the identity and address of

the insurer to which the claim is assigned. An action by the claimant shall not be

commenced more than 30 days after receipt of notice of the assignment or the last

date on which the action could have been commenced against an insurer of

identifiable coverage applicable to the claim, whichever is later.

26

MCL 500.3145(1) sets forth certain deadlines for commencing an action for the recovery of

PIP benefits as follows:

An action for recovery of personal protection insurance benefits payable under

this chapter for accidental bodily injury may not be commenced later than 1 year

after the date of the accident causing the injury unless written notice of injury as

provided herein has been given to the insurer within 1 year after the accident or

unless the insurer has previously made a payment of personal protection insurance

benefits for the injury. If the notice has been given or a payment has been made,

the action may be commenced at any time within 1 year after the most recent

allowable expense, work loss or survivor’s loss has been incurred. However, the

claimant may not recover benefits for any portion of the loss incurred more than 1

year before the date on which the action was commenced. The notice of injury

required by this subsection may be given to the insurer or any of its authorized

agents by a person claiming to be entitled to benefits therefor, or by someone in

his behalf. The notice shall give the name and address of the claimant and

indicate in ordinary language the name of the person injured and the time, place

and nature of his injury.

-18-

(Docket No. 307507).27 This bolsters the position that permitting the remedy of rescission with

regard to PIP benefits payable to innocent third parties has the potential to work an inequitable

result. Moreover, allowing insurance companies to rescind their contracts with respect to PIP

benefits owed to innocent third parties could encourage gamesmanship and delay tactics on the

part of an insurer; insurance companies are the recipients of claims under the assigned claims

plan, and waiting to rescind an insurance policy until after the assigned claims plan claim

deadline passes means fewer claims filed under the assigned claims plan. This also runs afoul of

the no-fault act’s purpose of ensuring prompt and adequate payment for the types of injuries and

losses encompassed under the category of PIP benefits. See, e.g., Shavers, 402 Mich at 578-579.

Put simply, I do not agree that the equitable remedy of rescission trumps the equitable remedy of

the innocent third-party rule such that it is appropriate to apply to first-party statutorily mandated

PIP benefits, and I decline to extent Titan in such a fashion.

The majority opinion indicates that it “decline[s] the invitation to legislate into existence

an innocent third-party rule that, thus far, the Legislature has chosen not to adopt.” I first note

that the equitable remedy of the innocent third party rule has been around to bar a claim for the

equitable remedy of rescission with respect to PIP benefits and innocent third parties for over 30

years, yet the Legislature has felt no need to tweak the no-fault act to set this Court straight. I

also note that the Legislature has never adopted the equitable remedy of rescission when it comes

to the no-fault act and statutorily entitled PIP benefits. Rather, it expressly states that no-fault

PIP benefits are mandatory. That should rule the day when it comes to statutorily rooted PIP

benefits.

VI. CONCLUSION

The differences that exist between this case and Titan are significant. For the reasons

stated above, I would not find that Titan abrogates the innocent third-party rule with respect to

statutory, first-party PIP benefits, and I would not cast aside 30 years of this Court’s precedent

on the matter.

Accordingly, I would affirm the trial court’s ruling to the extent it found that the innocent

third-party rule applied. However, I would hold that the trial court erred by concluding that

plaintiff, as an innocent third-party, could only recover PIP benefits up to the amount mandated

by MCL 257.520. As discussed above, that limitation is not applicable to this case.

/s/ Jane M. Beckering

27

Although unpublished decisions such as Visner are not binding precedent, they may be viewed

as instructive or persuasive authority. Paris Meadows, LLC v City of Kentwood, 287 Mich App

136, 145 n 3; 783 NW2d 133 (2010).

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