In Van Dyke Spinal Rehabilitation Center, PLLC v USA Underwriters (5/30/24), the Court of Appeals held that balancing of the equities is required in all cases involving a direct claim by a provider. This applies regardless of the basis on which the insurer sought the remedy of rescission. Furthermore, they upheld the Circuit Court’s balancing of the equities in favor of the Plaintiff provider.
Ms. Pamela Orr completed an application for no-fault insurance with Defendant on February 22, 2021. On the application, there was a question as to whether her license had been suspended within the last three years. Ms. Orr’s license had been suspended twice and was suspended when she applied for insurance. However, she still responded “no” to the question. On August 21, 2021, Defendant insurer renewed the policy and Ms. Orr repeated that her license was not suspended.
Five months later Ms. Orr was involved in a motor vehicle accident. She received medical treatment at Plaintiff Van Dyke Spinal Rehabilitation Center. Ms. Orr then sought no-fault benefits. The Defendant insurer discovered Ms. Orr’s material misrepresentation on her application. On December 17, 2021, the insurer advised Ms. Orr that it was rescinding the policy. They sent her a refund check for the premium, which Ms. Orr cashed. Defendant insurer then denied Plaintiff’s claims for no-fault benefits and Plaintiff filed suit.
Defendant insurer filed a motion for summary disposition arguing the rescission barred Plaintiff’s claims. The Circuit Court found that, based upon Defendant’s delay in rescinding the policy, and a balancing of the equities which favored Plaintiff, Defendant was not entitled to rescission.
When faced with a direct claim by a provider, the circuit court has an obligation to balance the equities of rescission. This is true regardless of whether Plaintiff is an innocent third-party. The Court of Appeals rejected Defendant’s argument that because Ms. Orr cashed the refund check, there was a mutual agreement to rescind the insurance policy. Rather, the Court found, Defendant unilaterally rescinded the policy before Ms. Orr cashed the check. Ms. Orr merely accepted the refund. The Court noted there is no difference between rescission as a legal remedy or an equitable remedy for purposes of balancing the equities. Both require balancing.
The Court of Appeals performed an in-depth analysis of the five factors in Farm Bureau Gen Ins Co v Ace American Ins Co. They affirmed the Circuit Court’s conclusion that Defendant is not entitled to rescission. Specifically, the Court noted that some modification of the five-factor test must be made when dealing with medical providers, such as Plaintiff
The Court upheld the Circuit Court’s finding that that Defendant’s “inexcusable” delay after the fraud was committed before giving notice of rescission
weighed in favor of Plaintiff because during that time it provided thousands of dollars of services to Ms. Orr for which it might not be paid (ie. suffered an “injury”). In doing so, the Court imputed the knowledge of the fraud by a third-party administrator to the Defendant.
The Court noted no evidence that Plaintiff was aware of Ms. Orr’s fraud. There was no evidence that Plaintiff acted negligently or recklessly, weighing the second and third factors in favor of Plaintiff. The Court weighed the fourth factor in favor of Defendant – whether Plaintiff had another means of recovery – but noted that Defendant also had another means of recovery and was in the best position to have avoided a loss in the first place. The Court found the fifth factor weighed in favor of Plaintiff as well. There was no evidence that Ms. Orr was at fault in the accident or would have any tort liability to Plaintiff.
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