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Volume XXVIII, No. 20, June 22, 2016
From the Law Offices of Garan Lucow Miller, P.C.
From the Editor: Sarah Nadeau
A NO FAULT POLICY CAN BE VOIDED TO AN INNOCENT THIRD PARTY
By William J. Brickley
In the published case of Bazzi v Sentinel Insurance Company, decided on June 14, 2016, the Michigan Court of Appeals held that if there has been fraud by an insured such that the carrier could deny the claim, the denial can apply as well to third parties who are innocent in the fraud. This published decision is binding precedent unless it is subsequently overruled by the Michigan Supreme Court. The implications of this decision could be great because up to this point in time there has been confusion related to the issue of the effect of fraud on an innocent third party. At least for now, there is no more confusion.
The case arose from a claim of no fault benefits where the plaintiff was driving a car leased by a family member. He was in an accident and he, along with some health care providers, brought claims for no fault benefits. The policy involved was actually issued to a commercial entity. When the carrier started researching this entity it learned that the business had no assets, no employees, and did nothing. The vehicle was found to be leased to the family member and not to the company that was created and it was also learned that the plaintiff had a prior accident. If this policy had been issued as a personal policy to the plaintiff or his family member, the premiums would have been much higher. This information raised the specter of a fraudulent misrepresentation in the purchase of the policy. The problem for the carrier was there was no evidence that the plaintiff or the healthcare providers who were seeking benefits were involved actively in perpetrating this fraud.
Sentinel asked the trial court to dismiss the case arguing that even if the plaintiff was innocent in this fraud, the policy should be voided and would have never been in existence if the fraud had not occurred. The policy had a clear provision that if there was fraud in purchasing the policy the policy would be void as if it never had been issued. The trial court disagreed. The Judge held that since Mr. Bazzi and the providers were innocent of the fraud the policy would apply to them, and no fault benefits should be paid. Sentinel appealed and initially the Court of Appeals agreed with the trial court. Sentinel appealed to the Supreme Court who asked the Court of Appeals to look at the case one more time. They accepted this invitation.
There was much legal analysis in the lead opinion and persuasive arguments raised by both sides. In fact, the decision was 2-1. The majority looked to many other decisions and eventually concluded:
“. . .Sentinel is not obligated to pay no-fault benefits to plaintiff if it establishes that the policy was procured by fraud.”
There would be no exceptions because the plaintiff was innocent of the fraud.
One of the arguments raised was that no fault is a statutorily mandated coverage, and there is no exclusion in the no fault act itself that allows a carrier to avoid coverage when there is a fraud by someone other than the person making the claim. Therefore if the legislature did not have it in the act it would be improper for the Court to judicially create this type of exclusion. In rejecting this argument the majority stated:
“The Court ultimately holds ‘that an insurer is not precluded from availing itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, even when the fraud was easily ascertainable and the claimant is a third party.’ And it does so without qualification regarding whether those benefits are mandated by statute. Thus, if there is a valid policy in force, the statute controls the mandated coverages. But what coverages are required by law are simply irrelevant where the insurer is entitled to declare the policy void ab initio.”
It should be noted that there was a very well written, and lengthy, dissent and it is anticipated that there will be further appeals. For now though the decision is valid and binding and you are entitled to rely upon it. Please keep in mind that the carrier in this case did have a provision which allowed it to void the policy “ab initio” because of fraud in the procurement of the policy. If the policy did not have such a provision the carrier could never have made this claim. The defense is also contingent on actually showing the fraud by the insured.
Finally, there remain questions as to whether an innocent third party who relied upon the long-standing rule allowing them to collect PIP benefits even if fraud was committed by the insured, who are now unable to collect as a result of the Bazzi decision, will have an equitable estoppel argument against the insurer, particularly if the innocent third-party’s claim would otherwise be time-barred. The Bazzi decision might also affect the number of claims filed with the Michigan Assigned Claims Plan by innocent third parties who are no longer able to recover PIP benefits from the insurer of the insured who committed fraud.
Please do not hesitate to contact any of us if you wish to discuss the ramifications of this decision any further.
COURT OF APPEALS RE-ISSUES UNPUBLISHED “INTENTIONAL TORT” OPINION
AS A PUBLISHED OPINION, MAKING IT BINDING PRECEDENT
In the May 24, 2016 edition of Law Fax (Vol. XXVIII, No. 17), we reported the May 17, 2016, unpublished Court of Appeals opinion in the case of Luce v Kent Foundry Company, 2016 Mich App Lexis 969.
In Luce, a three-judge panel of the Court of Appeals summarized the principles of law applicable to the “intentional tort” exception to the “exclusive remedy” provision in the Michigan Worker’s Disability Compensation Act (WDCA), MCL 418.131(1). The Luce panel then applied those principles of law and held that the plaintiff-employee’s tort claims against his defendant-employer arising from his workplace injuries did not fall within the intentional tort exception. Therefore, his tort claims against the defendant-employer were barred by the WDCA’s exclusive remedy provision, and the defendant-employer was entitled to a dismissal of the entire lawsuit against it.
On June 16, 2016, the Court of Appeals re-issued its unpublished Luce opinion as a fully published opinion. This means that the Luce opinion is now binding precedent in all Michigan trial courts and in the Michigan Court of Appeals.
A copy of the newly re-issued, published opinion in the case of Luce v Kent Foundry Company is available Online for free at the following web link: