RESCISSION FOR AN INSURED'S FRAUD DOES NOT AUTOMATICALLY BAR AN ASSIGNEE PROVIDER'S CLAIM

In C-Spine Orthopedics, PLLC v Progressive Michigan Insurance Company, ___ Mich App ___ (4/6/23), the Court of Appeals held that C-Spine’s claim was not barred by res judicata or collateral estoppel, despite the policy issued by Progressive being rescinded due to a material misrepresentation by Progressive’s insured.

C-Spine Orthopedics provided treatment to Benjamin Moore following an April 2019 automobile accident. Benjamin Moore assigned C-Spine his right to pursue PIP benefits in August 2019 and August 2021.

C-Spine Orthopedics filed its suit for PIP benefits against Progressive on September 10, 2019. Moore then filed his own suit for PIP benefits against Progressive on April 2, 2020, while C-Spine’s suit was still pending. In Moore’s suit, the circuit court found Moore committed fraud in the inducement by failing to inform Progressive about his wife, and Progressive was granted summary disposition of Moore’s claims. Moore’s claims were dismissed, and his policy was rescinded.

Progressive then filed a motion for summary disposition in C-Spine’s suit, arguing that because Moore’s policy had been rescinded ab initio, C-Spine’s claims were barred by res judicata and collateral estoppel. Progressive’s motion was granted and C-Spine appealed.

On appeal, C-Spine argued that as an assignee, it was not bound by a judgment obtained by the predecessor in interest after the assignment, while Progressive argued that because the policy was rescinded ab initio, the rescission negated any effect of the assignments. The Court agreed with C-Spine.

The Court affirmed that after an assignment, prior acts of the assignor which have not ripened into rights in others at the time of the assignment do not bind an assignee without notice. The Court relied heavily upon Mecosta Co Med Ctr v Metro Group Prop & Cas Ins Co, 509 Mich 276 (2022), which reasoned that when litigation involving the assignor occurs after the assignment, the assignor’s rights could not yet have been affected by the litigation at the time of they were transferred to the assignee. Progressive’s right to rescission due to Moore’s material misrepresentation, therefore, did not ripen until after Moore assigned his rights to C-Spine. As such, neither res judicata nor collateral estoppel could bar C-Spine’s claim.

Progressive attempted to argue that because the policy was rescinded ab initio, the assignment was negated. The Court noted that rescission is an equitable doctrine, and is not automatic. Prior to rescission being granted, the court is to perform a balancing of the equities to ensure the result obtained would not be unjust or inequitable. Because Moore’s case did not involve C-Spine, however, the balancing of the equities did not take into consideration C-Spine’s interests.

Under C-Spine, insurers will not be able to rely on a rescission to preclude provider suits if the provider obtained an assignment prior to the rescission and if the provider did not have notice and the opportunity to be heard.