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July 06, 2020
In Northland Radiology, Inc., et al v. IDS Property Insurance Company, et al, intervening plaintiff provider, American Anesthesia Associates, LLC (“AAA”) appealed the trial court’s granting of IDS’s summary disposition. The case involved two individuals, Isha Simpson and Aquanetta Terry, who applied for a no-fault policy from IDS together. The application listed both Simplson and Terry as drivers of a vehicle they jointly owned, but only listed Simpson’s Redford, Michigan address, even though Simpson and Terry were not relatives and did not actually live together. Terry lived in Detroit. Terry testified that the purpose for listing only the Redford address was to avoid paying a higher premium.
Simpson was involved in a motor vehicle accident while a passenger in the insured vehicle. She sought to recover PIP benefits from IDS, and provided assignments to several providers who also sought to recover PIP benefits, including AAA. IDS investigated the claim and learned that the insured vehicle was co-titled to Simpson and Terry, that Simpson and Terry were not related, that Terry never lived at the Redford address, and that the vehicle was not garaged at the Redford address. As a result, IDS determined it would not have issued a policy to Simpson and Terry at all and so notified Simpson that it was rescinding the policy. The providers sued IDS and the trial court granted IDS’s Motion for Summary Disposition finding no genuine issue of material fact that Simpson made a material misrepresentation on the application by listing Terry as a driver living in Simpson’s household.
On appeal, the providers argued that there was no material misrepresentation and that they were innocent parties to any misrepresentation that did occur. The Court of Appeals affirmed the trial court’s finding that a material misrepresentation was made such that rescission was justified. The Court also noted that shopping for quotes from different insurers is a valid way to obtain cheaper insurance, while misrepresenting members of separate households as members of a single household is a fraudulent way, and insurers have no duty to investigate fraud in an application for insurance.
The Court also rejected the argument that rescission was not necessary under the ‘balancing the equities’ test. The Court noted that when an insurer is induced by fraud to issue its policy, the insurer holds the option to seek rescission of the policy. The Court confirmed that the trial court must ‘balance the equities’ between the parties before granting the remedy of rescission, however, and noted that AAA was not an innocent party for purposes of the analysis because a provider stands in the shoes of the insured. Although AAA was innocent of the fraud perpetrated by Simpson and Terry, it was the assignee of Simpson and therefore stood in Simpson’s shoes. Because IDS’s rescission of the policy was effective as to Simpson, it was also effective as to AAA. The trial court did not err by not separately considering the equities between AAA and IDS, and the rescission of the policy by IDS was appropriate against the providers based upon the fraud committed by Simpson and Terry.
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Sarah Nadeau, Editor of The Garan Report Publication, is a Shareholder in our Detroit Office. Sarah can be reached at 313.446.1530 or firstname.lastname@example.org