Under Michigan’s No-Fault Act, a person injured in a motor vehicle collision can recover first-party PIP benefits from his/her own insurance company, but can also file a claim against the at-fault driver for “third-party benefits” which are essentially noneconomic damages for death, serious impairment of a bodily function, or permanent serious disfigurement. There has long been a rule, however, that such a claim cannot be advanced against the at-fault driver, if the injured person was operating their own motor vehicle at the time of the accident, and did not have a No-Fault insurance policy in effect which covered that vehicle. That rule is found in MCLA §500.3135(2)(c), and is commonly referred to as the “no pay, no play” rule.
In an opinion issued on May 31, 2023, the Michigan Supreme Court addressed the “no pay, no play” rule, and specifically, the issue of whether the person injured in the accident can be found to have carried the required insurance coverage at the time of the accident, when their insurance company rescinded their PIP insurance policy, after the accident. In other words, can a post-MVA rescission of an insurance policy, which rescission eliminated insurance coverage all together, allow the tortfeasor to use the “no pay, no play” defense to their benefit? The Supreme Court says NO.
The facts in the case in Wilmore-Moody v. Mohammed Zakir, et al., 2023 Mich Lexis 888, Sup Ct No. 163116 (2023), were not in dispute. On April 6, 2017, Adora Wilmore-Moody and her minor son were parked outside his school when their vehicle was rear-ended by a vehicle being driven by Mohammed Zakir. Wilmore-Moody alleged injuries to her and her son as a result. Accordingly, she filed a first-party claim with her own No-Fault insurer, Everest National Insurance. However, instead of paying PIP benefits, Everest rescinded Wilmore-Moody’s policy, saying that she had made material misrepresentations in her application. On March 6, 2018, Wilmore-Moody filed a lawsuit on behalf of herself and her son, against both Everest and against the at-fault driver, Mohammed Zakir. Wilmore-Moody advanced a first-party PIP claim against Everest, but also a tort claim against Zakir for his alleged negligence in causing the accident.
Everest filed an MSD in the trial court, arguing that it had a right to rescind Wilmore-Moody’s insurance policy, because of the material misrepresentations made in her insurance application, and the trial court agreed, granting Everest’s MSD and dismissing the PIP claim. Following that ruling, Zakir then also filed an MSD in the trial court, arguing Wilmore-Moody was barred from recovering tort damages because, once her PIP insurance policy was rescinded, she no longer had the required insurance coverage at the time the injury occurred. MCLA §500.3135(2)(c). The trial court agreed and also granted Zakir summary disposition. Wilmore-Moody appealed, arguing that it was error to grant Zakir’s MSD solely on the basis of Everest’s rescission of her insurance policy. The Michigan Court of Appeals reversed the trial court on that issue, and remanded for further proceedings. Zakir then sought leave to appeal to the Michigan Supreme Court.
Relevant to the Supreme Court’s analysis, at the time of the accident in question, (April 6, 2017), MCLA §500.3135(2)(c) provided:
Damages shall not be assessed in favor of a party who was operating his or her own vehicle at the time the injury occurred and did not have in effect for that motor vehicle the security required by [MCL 500.3101] at the time the injury occurred.
(Emphasis added). Based on the above statutory language, the Michigan Supreme Court determined that the key language was: “at the time the injury occurred.” This language was held particularly relevant, when considering if a plaintiff is barred from bringing a claim or lawsuit for third-party benefits. The Supreme Court concluded that Wilmore-Moody did have the requisite insurance “at the time the injury occurred,” even though it was later rescinded by Everest.
In examining that language, the Court noted that because Zakir was not a party to the insurance contract between Wilmore-Moody and Everest, he could not utilize the same contractual defenses that Everest could. The Supreme Court noted that rescission is a legal fiction, available as a contractual remedy, but that: “it does not alter reality or act as a DeLorean time machine.” The Court went on to say that rescission: “does not actually create an alternate reality” that allows the tortfeasor to avoid liability; it is only the PIP insurer who rescinds a policy that can benefit from the new reality created by rescission.
In sum, the Wilmore-Moody Supreme Court held that an insurer’s decision to rescind a policy post-accident, does not trigger the exclusion found in MCLA §500.3135(2)(c), because rescission is an equitable remedy in contract, and it does not alter the reality that, at the time the person’s injury occurred, the injured motorist did have the required security. The Court clarified that rescission of a No-Fault policy after the accident, cannot be used as a defense by the third-party tortfeasor to avoid liability for noneconomic damages, i.e. to use the “no pay, no play” defense.
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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 snadeau@garanlucow.com
