When the Court of Appeals issued its decision in Bazzi v Sentinel Ins Co,[1] the majority held that “if an insurer is able to establish that a no-fault policy was obtained through fraud, it is entitled to declare the policy void ab initio and rescind it, including denying the payment of PIP benefits to innocent third parties.”[2]  But the dissenting Court of Appeals Judge in Bazzi took issue with this holding, in part because he believed that it may preclude the recovery of PIP benefits to innocent third parties who had missed the one-year deadline for filing a claim with the Michigan Automobile Insurance Placement Facility, explaining:

[T]he 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, [under MCL 500.3174 and MCL 500.3145(1)] a person claiming benefits through the assigned claims plan “shall notify” the Michigan Automobile Insurance Placement Facility (MAIPF) of his or her claim within one year. . . . I pose the following question: 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 because of fraud in which the innocent third party did not participate, and the innocent third party then misses the one-year deadline for notifying the MAIPF? At least one panel of this Court has held that unless notice is given to the MAIPF within one year of the accident, the claim is barred, even when the injured person first sought benefits from the insurer he or she thought was the correct insurer.[3]

The Michigan Supreme Court seemingly took this point into consideration when it in-part overruled the Court of Appeals, holding that although fraud in the acquisition of a no-fault policy renders the policy void ab initio as between the no-fault insurer and the person that procured the policy,[4] such is not the case with respect to the no-fault insurer and an innocent third-party.[5]  Instead, as between a no-fault insurer and an innocent third-party, the Supreme Court held that rescission is a matter of trial court discretion, to be exercised only after engaging in a “balancing the equities.” This includes consideration of whether an innocent party will be affected, as well as the principle that “rescission should not be granted in cases where the result thus obtained would be unjust or inequitable.”[6] 

Although the Supreme Court’s holding in Bazzi would seem sufficient to ease the concern raised by the Court of Appeals dissent, it seems that other Judges on the Court of Appeals did not believe that the Supreme Court’s holding went far enough. Thus, they attempted to directly address it in their recently published opinion in Mendelson Orthopedics, P.C. v Everest Nat’l Ins Co.[7]

In Mendelson, Everest initially paid PIP benefits to innocent third party, intervening Plaintiff Donald DeVore, but later suspended its payment of PIP benefits to DeVore and sought rescission of its policy due to alleged material misrepresentations by the named insured during the application process. In addition to suing Everest, DeVore also brought an alternative claim for PIP benefits against the Michigan Assigned Claims Plan (“MACP”). The trial court granted summary disposition to the MACP, holding that MCL 500.3174 and MCL 500.3145(1) mandated that DeVore submit an application for benefits to the MACP within one year of the date of the accident. DeVore had not filed his application within one year of the date of the accident because Everest had initially paid him PIP benefits and had not sought rescission until more than a year after the accident.

In reversing the trial court’s decision, the Court of Appeals first noted that MCL 500.3174 states:

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 Court then turned to MCL 500.3145(1), which governs “the time that would have been allowed for filing an action for [PIP] benefits if identifiable coverage applicable to the claim had been in effect.” Doing so, the Court noted that MCL 500.3145(1) does not necessarily require that an action be commenced within one year of the date of the accident, but instead extends that period in certain circumstances. One of those circumstances is where an insurer has previously paid PIP benefits:

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 the insurer has previously made a payment of personal protection insurance benefits for the injury. If . . . 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.

Purportedly relying on the Michigan Supreme Court’s holding in Jesperson v Auto Club Ins Ass’n,[8] the Court of Appeals stated that the payment exception to the requirement that a lawsuit be filed within one year of the date of the accident “‘is satisfied by any prior payment.'”[9]  The Court of Appeals then held that the time period for DeVore to file an application with the MACP had been extended by Everest’s prior payment of PIP benefits.

The Court of Appeals’ statutory analysis, and particularly its reliance on Jesperson, is tenuous. Indeed, MCL 500.3145(1) expressly refers to situations where “the insurer has previously made payment.” And, in Jesperson, the Michigan Supreme Court expressly noted that the word “the” is a “definite article” used “with a specifying or particularized effect.” Thus, by specifying payments previously made by “the insurer,” the exception “must refer to a specific or particular” insurer.[10]  Therefore, by its plain terms, the previous payment exception in MCL 500.3145(1) must refer to previous payments made by the MACP appointed insurer, and not to payments made to another insurer, such as the insurer seeking rescission.

Nevertheless, despite being published and therefore technically binding, it seems that the Court of Appeals’ misinterpretation of MCL 500.3174 and MCL 500.3145(1) in Mendelson was short-lived and will have little practical effect. As most readers know, last week the Michigan Legislature passed a bill containing major reforms to Michigan’s no-fault act. That bill was signed by Governor Whitmer yesterday morning, and many of its provisions took immediate effect. One such provision is an amendment to MCL 500.3174, which no longer provides that an application to the MACP must be made within “the time that would have been allowed for filing an action for [PIP] benefits if identifiable coverage applicable to the claim had been in effect.” Instead, MCL 500.3174 now expressly provides that a person must do so “within 1 year after the date of the accident,” thus returning the law to the way it was prior to the Court of Appeals’ decision in Mendelson.