Ali Bazzi v. Sentinel Insurance Company
502 Mich. 390
Mich.2018Background
- Ali Bazzi was injured driving a vehicle leased by his mother; the vehicle was insured by Sentinel under a commercial policy listing Mimo Investment, LLC (a shell company) as the insured.
- Sentinel sued Hala and Mariam Bazzi for fraud, obtained a default judgment rescinding the policy as procured by fraud, and then moved for summary disposition to deny Bazzi’s PIP claim.
- Trial court denied Sentinel’s motion invoking the judicially created innocent-third-party rule (precluding rescission as to an innocent third-party claimant).
- The Court of Appeals reversed, holding Titan abrogated the innocent-third-party rule and permitting rescission.
- The Michigan Supreme Court granted leave; it held Titan implicitly abrogated the innocent-third-party rule but rejected automatic rescission as to third parties and remanded for equitable balancing.
- The Court directed the trial court to exercise discretion and balance equities to decide whether rescission should apply between insurer and innocent third-party claimant.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the innocent-third-party rule bars an insurer from rescinding a fraudulently procured policy as to an innocent third-party PIP claimant | Bazzi: PIP is statutorily mandated; the no-fault act precludes rescission defenses that would defeat statutorily required benefits to innocent third parties | Sentinel: Titan permits insurers to use common-law fraud defenses (including rescission); no statute expressly bars rescission of PIP | Titan implicitly abrogated the innocent-third-party rule; insurer may raise fraud/rescission defenses against third-party PIP claims |
| Whether Titan’s abrogation of the easily-ascertainable-fraud rule leaves the innocent-third-party doctrine intact | Bazzi: Titan addressed only the easily-ascertainable rule; innocent-third-party doctrine is distinct and protects statutorily mandated PIP | Sentinel: The two doctrines overlap; Titan’s reasoning applies to both and undermines the public-policy basis for the innocent-third-party rule | Court: Titan implicitly abrogated the innocent-third-party rule because the doctrines overlap and Titan rejected their underlying rationale |
| Whether rescission operates automatically (void ab initio) as to a third-party claimant when the insurer proves procurement fraud | Bazzi: Automatic rescission would defeat the no-fault statute’s goal of prompt assured benefits; statute provides other remedies (recoupment/MACP) | Sentinel: Fraud renders policy voidable; rescission is a traditional remedy that can render a policy void ab initio | Rescission is an equitable remedy, not automatic; trial court must balance the equities before granting rescission as to a third party |
| Proper remedy and procedural posture after finding policy procured by fraud | Bazzi: Insurer must follow statutory mechanisms (pay then recoup, MACP, reimbursement) rather than equitable rescission that delays benefits | Sentinel: Insurer may seek rescission and damages; equity permits rescission where appropriate | Court: Insurer may assert fraud/rescission but remedy is discretionary; remand for trial court to decide whether rescission is appropriate between insurer and innocent third party |
Key Cases Cited
- Titan Ins Co v Hyten, 491 Mich 547 (Mich. 2012) (held insurer may use traditional legal and equitable remedies for fraud in application unless statute limits those remedies)
- Rohlman v Hawkeye-Security Ins Co, 442 Mich 520 (Mich. 1993) (statutorily mandated PIP coverage is construed with the statute as part of the policy)
- Kurylowicz v State Farm Mut Auto Ins Co, 67 Mich App 568 (Mich. Ct. App. 1976) (earlier case applying the easily-ascertainable-fraud rule; overruled by Titan)
- Lenawee County Bd. of Health v Messerly, 417 Mich 17 (Mich. 1982) (equitable rescission requires courts to balance equities; rescission is discretionary)