COURT MUST CONSIDER AFFECT OF RESCISSION SEPARATELY FOR INSURED AND PROVIDER

Kristi Trigg-Johnson

When an insurance policy has been rescinded due to fraud in the application, the natural inclination would be to believe that provider claims for benefits under that policy would not be payable. The Court of Appeals, however, recently issued a published opinion confirming that rescission as to an insured does not automatically result in rescission as to providers. In Guillermina Mota-Peguero, et al v Falls Lake Nat’l Ins Co, ____ Mich App ____ (2024), the Court of Appeals affirmed the Circuit Court’s determination that rescission of the insured’s policy was supported by the facts, but reversed the Circuit Court’s determination that the provider’s claims were derivative of the insured’s and thus could be automatically dismissed.

Ms. Mota-Peguero applied for a no-fault policy from Falls Lake in February 2020. In her application, she denied that her vehicle would be used for ridesharing. When asked for the names of all individuals sharing a household with her, she indicated that she was the only person in the home. Ms. Mota-Peguero was then involved in an accident and filed suit against Falls Lake. During her deposition, she testified that she drove the insured vehicle for Uber and Lyft and also disclosed that her 16-year-old daughter was living with her when she applied for the policy.

Ms. Mota-Peguero filed suit and a number of medical providers intervened, including Spine Specialists of Michigan. Falls Lake filed a Motion for Summary Disposition seeking rescission of the policy on the basis that Ms. Mota-Peguero made material misrepresentations when she failed to disclose her daughter’s residency and her use of the vehicle for ridesharing programs. The Circuit Court found that Ms. Mota-Peguero’s actions constituted fraud in the procurement of the policy and that Falls Lake was entitled to rescission. The Court further dismissed the provider claims stating that they were derivative of Ms. Mota-Peguero’s claims and therefore unsustainable.

Spine Specialists appealed the dismissal arguing that rescission of the policy should not mean rescission as to its own claims without a separate hearing to determine whether it was warranted. Spine Specialists also argued the claimed misrepresentations were not material. The Court of Appeals first found the misrepresentations were, in fact, material, relying upon the persuasive but unpublished decision in Fatty v Farm Bureau Ins Co of Mich (11/21/23). Thus, rescission of the policy as to Ms. Mota-Peguero was proper and the Circuit Court’s decision on that issue was affirmed.

The Court of Appeals further found the Circuit Court’s determination that provider claims were derivative of an insured’s claims was improper, as the amended No-Fault Act gives medical providers a direct cause of action against an insurer. Further, because a medical provider is no longer required to “stand in the shoes” of the claimant, rescission as to the insured does not automatically result in dismissal of a provider’s claims. Instead, courts must take a page from Bazzi v Sentinel Ins Co, 502 Mich 390; 919 NW2d 20 (2018), and C-Spine Orthopedics, PLLC v Progressive Mich Ins Co, ___ Mich App ___ (2023), which obligate the trial judge to consider the interests of third-parties and analyze which party should bear the brunt of the loss. The Court reversed the Circuit Court’s dismissal of Spine Specialist’s claims, therefore, and remanded the matter for the Circuit Court to discern whether rescission for the providers was proper. The Court directed the Circuit Court to the non-exhaustive list of factors set forth in Pioneer State Mut Ins Co v Wright, 331 Mich App 396, 410-411; 952 NW2d 586 (2020), noting those factors may not translate to a case dealing with an insurer and a medical provider such as this.