August 18, 2016
In the published decision of Bazzi v Sentinel Ins Co, ___ Mich App ___; ___ NW2d ___ (2016), the Michigan Court of Appeals held that a PIP policy can be voided ab initio due to the policyholder’s fraud in obtaining the policy, even though doing so would preclude an innocent third-party from recovering PIP benefits. However, in the recent, also published case of Southeast Michigan Surgical Hospital, LLC v Allstate Ins Co, ___ Mich App ___; ___ Nw2d ___ (8/9/16) (Docket No. 323425), two Judges on a different panel of the Court of Appeals disagreed with Bazzi’s holding, opining that it “continue[s] the trend of eroding injured plaintiff’s recovery options.” Accordingly, though bound by MCR 7.215(J)(1) to follow Bazzi, the two-Judge majority declared a conflict with Bazzi that will now result in the entire Court of Appeals voting on whether to reconsider Bazzi’s holding. One Judge dissented from the opinion opining Bazzi was correctly decided.
In Southeast Michigan Surgical Hospital (“SMSH”),Jamie Letkemann was injured while a passenger in Ford Escape. The Escape was primarily driven by, and garaged at the residence of, Letkemann’s girlfriend and later wife, Danielle Riordan. However, the Escape was owned by Riordan’s brother-in-law, David Kreklau, who had purchased a PIP policy from Allstate. In order to obtain a cheaper rate, Kreklau fraudulently represented to Allstate that he would be the principle driver of the Escape and that it would be garaged at his residence.
The trial court found that Letkemann was not involved in or knowledgeable of Kreklau and Riordan’s fraudulent misrepresentations to Allstate. The trial court thus held that because Letkemann was an innocent third party, Allstate could not rescind the policy as to him. Rather, Allstate remained responsible for paying any PIP benefits to which Letkemann may be entitled.
The SMSH majority grudgingly reversed on the basis of Bazzi and held that Allstate could void the policy despite Letkemman’s innocence, thus precluding Letkemann from recovering PIP benefits. But, the majority voiced its opinion that “Letkemann should be protected by the innocent third party doctrine,” since “[t]he public policy in allowing the third party’s receipt of these benefits is undergirded by the third party’s innocence in the fraudulent procurement of the policy.” Moreover, the SMSH majority noted that the Bazzi panel had relied on Michigan Supreme Court case law dealing with the voiding of optional liability insurance in excess of the statutory minimum, rather than the voiding of policies for statutorily required PIP coverage:
We have not found any authority other than Bazzi that invalidates the innocent third party doctrine in the context of an insurer’s responsibility for statutorily mandated personal protection benefits, and were we not bound by Bazzi, we would find that the innocent third party doctrine is still viable in the context of an innocent third party’s claim for PIP benefits under Michigan’s no-fault insurance act.
Because of its disagreement with Bazzi, the SMSH majority declared a conflict with Bazzi pursuant to MCR 7.215(J)(2). One Judge concurred with the result in SMSH but dissented from the majority’s call for a conflict. However, all 27 Court of Appeals Judges will now vote upon whether to convene a “special panel” to resolve the conflict. If they do not vote to convene a special panel, Bazzi remains the controlling authority on the issue. But if they do vote to convene a special panel, then seven Judges (none of whom sat on the Bazzi or SMSH panels) will be selected by lot to rehear SMSH and decide whether to overrule Bazzi.
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