Bazzi v. Sentinel Insurance Company
315 Mich. App. 763
| Mich. Ct. App. | 2016Background
- Ali Bazzi sought no-fault personal protection insurance (PIP) benefits after a car accident in a vehicle owned by his mother; vehicle was insured under a commercial policy issued by Sentinel to Mimo Investments, LLC.
- Sentinel alleged the policy was procured by fraud (misrepresenting the vehicle’s commercial use and regular driver) and filed a third-party complaint seeking rescission; trial court denied insurer’s summary-disposition motion based on the “innocent third‑party” rule.
- Sentinel obtained a default judgment against the third‑party defendants (mother and sister); issues remained whether that judgment conclusively established fraud as to all parties and whether genuine factual disputes existed.
- The Court of Appeals was directed by the Michigan Supreme Court to treat Sentinel’s appeal as on leave granted and to determine whether Titan v. Hyten abrogated the innocent‑third‑party rule.
- The Court of Appeals held Titan overruled Kurylowicz and its progeny, concluded there is no practical distinction between the “easily‑ascertainable‑fraud” rule and the “innocent third‑party” rule, and ruled that an insurer entitled to rescind for fraud may deny PIP benefits, absent a statutory prohibition.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Titan’s rejection of the "easily‑ascertainable‑fraud" rule abrogated the "innocent third‑party" rule | Kurylowicz-based innocent‑third‑party rule still controls; Titan concerned only ascertainability and optional coverage | Titan overruled Kurylowicz and its progeny; the two rules are functionally the same and thus invalidated | Court: No distinction — Titan effectively overruled the innocent‑third‑party rule derived from Kurylowicz |
| Whether Titan applies to statutorily mandated PIP benefits (vs. optional liability coverage) | PIP is mandated by statute; Titan involved optional coverage and therefore is distinguishable | Titan’s reasoning is not limited to optional coverages; common‑law defenses (like fraud) apply unless statute prohibits them | Court: Titan governs; rescission for fraud applies to PIP unless Legislature has statutorily restricted the fraud defense (none found for PIP) |
| Whether MCL 257.520(f)(1) or other statutes prevent rescission of no‑fault benefits | Plaintiffs: statutes or public policy bar rescission as to mandatory benefits | Sentinel: statutory restriction in MCL 257.520(f)(1) applies only to financial responsibility policies, not to no‑fault PIP coverage | Court: MCL 257.520(f)(1) does not apply to PIP; no statutory bar found preventing fraud defense to PIP benefits |
| Remand issues: effect of default judgment and factual dispute on fraud | Plaintiff: default judgment may not bind insurer/other parties; factual disputes remain | Sentinel: default judgment rescinded the policy; alternatively summary disposition warranted if fraud established | Court: Remanded — trial court must decide whether default judgment conclusively establishes fraud as to all parties and whether genuine factual issues exist; if either favors Sentinel, enter summary disposition |
Key Cases Cited
- State Farm Mut. Auto. Ins. Co. v. Kurylowicz, 67 Mich. App. 568 (1976) (earlier Court of Appeals decision articulating the easily‑ascertainable/innocent‑third‑party rule)
- Titan Ins. Co. v. Hyten, 491 Mich. 547 (2012) (Michigan Supreme Court overruling Kurylowicz’s rule and holding insurers may use fraud defenses absent a statutory prohibition)
- Keys v. Pace, 358 Mich. 74 (1959) (Supreme Court precedent cited in Titan as rejecting the easily‑ascertainable limitation on rescission)
- Ohio Farmers Ins. Co. v. Mich. Mut. Ins. Co., 179 Mich. App. 355 (1989) (Court of Appeals decision referenced as Kurylowicz progeny; treated as overruled by Titan)
- Morgan v. Cincinnati Ins. Co., 411 Mich. 267 (1981) (Supreme Court decision addressing statutory insurance clauses and protection of innocent insureds)
- Roberts v. Titan Ins. Co., 282 Mich. App. 339 (2009) (Court of Appeals decision applying the innocent‑third‑party rule to no‑fault PIP contexts)