No more ‘innocent third-party’ rule protecting car accident victims’ No Fault rights when a policy is rescinded based on insured’s fraud in Bazzi v. Sentinel; lesson for attorneys: Injury claims must be filed with Michigan Assigned Claims Plan
What would you think if you were denied No Fault auto insurance benefits after being injured in a car accident because the policy on the car was procured by a fraud that you had nothing to do with?
You’d be outraged, right? Justifiably so. That’s always been the law protecting innocent third-parties who are involved in an automobile accident in Michigan. That’s the public policy rationale that protects auto accident victims in the majority of states in the country today.
And that’s why the Michigan Court of Appeals in a 1976 case involving State Farm took action to protect people in that situation:
“[T]he misrepresentation of the insured would not prevent recovery against the insurer by [innocent] third parties who had been injured by the insured.” (State Farm Insurance Mutual Automobile Insurance Company v. Kurylowicz, 67 Mich App 568, 578 (1976))
For 40 years, that ruling has come to be understood as the “innocent third party” rule:
Innocent, third-party car accident victims cannot be denied No Fault auto insurance benefits and legal compensation because the policy under which they would recover was procured by fraud by the insured customer.
However, as is too often the case with Michigan’s auto insurance laws, the pendulum keeps swinging in favor of the auto insurance companies and away from the consumer.
On June 14, 2016, at the urging of Sentinel Insurance Company, the “innocent third party” rule in Michigan met its demise in Bazzi v. Sentinel Insurance Company.
In Bazzi, where a completely innocent car accident victim sought No Fault insurance benefits, also known as PIP or Personal Injury Protection benefits , after under an auto insurance policy that had been rescinded because the insured had procured it by fraud, the Michigan Court of Appeals ruled:
- “[I]f an insurer is entitled to rescind a no-fault insurance policy based upon a claim of fraud, it is not obligated to pay benefits under that policy even for PIP benefits to a third party innocent of the fraud.”
- “[I]f an insurer is able to establish that a no-fault policy was obtained through fraud, it is entitled to declare the policy void ab initio and rescind it, including denying the payment of benefits to innocent third parties.”
Why Bazzi v. Sentinel Insurance Company is a horrible decision
As a Michigan No Fault insurance attorney, I believe Bazzi is a horrible, appalling decision with far-reaching effects that will curtail the medical care and treatment of hundreds of completely innocent people who have the misfortune to be involved in auto accidents.
The court’s decision to overturn good law in this state for 40 years and for disqualifying an innocent, third-party motor vehicle accident victim from recovering No Fault PIP benefits – because of an alleged fraud by the insurance company responsible for paying those No Fault PIP benefits that they had absolutely nothing to do with – will have wide-ranging ramifications.
It will have a huge dampening effect on the willingness of many hospitals, doctors, therapists and rehab facilities to treat auto accident victims, to begin with.
As attorneys and automobile accident victims in pure tort states (i.e., non-No Fault states) know all too well, we will increasingly see that medical providers will be demanding personal guarantees from injured car accidents and from their attorneys, as well as liens on any injury settlement. This completely flies in the face of the very reason why Michigan has a No Fault law and an auto accident injury threshold! The entire premise behind the Michigan No Fault Act is prompt access to necessary medical care and the payment of wage loss and other No Fault insurance benefits after an accident. This ruling changes all of that.
As bad as this ruling is, it’s also disturbing on another level. It’s a poignant display of just how far our (mostly Republican) appellate courts and the Michigan Supreme Court (which is 5-2 Republican) have swung in favor of the auto insurance companies and away from protecting consumers. It has so emboldened Michigan’s auto insurers’ greed that we see them contesting some of the most well-settled principles of our auto law. And with Bazzi, we see that not even an innocent car accident victim is from the insurance companies’ deliberate campaign to avoid paying otherwise valid claims.
Bazzi is not a stand-alone case. Although this is an older blog post I wrote, here are many other judicial travesties that have occurred in Michigan, all in favor of the insurance companies and against the consumer.
A motion to reconsider in Bazzi was denied by the Michigan Court of Appeals on August 5, 2016.
On September 16, 2016, an application for leave to appeal to the Michigan Supreme Court was filed. The Supreme Court has not yet ruled on the application. Plaintiff personal injury attorneys – those like me who represent people who are injured in car accidents – are not hopeful that the Court will overturn this deeply disturbing case.
To be safe, auto attorneys should now file a No Fault claim with the Michigan Automobile Insurance Placement Facility/Michigan Assigned Claims Plan
There’s an important lesson in Bazzi for all Michigan car accident attorneys for lawyers who devote any portion of their legal practice to first-party auto No Fault litigation. This includes all of the attorneys in Michigan who are now doing medical provider work.
In order to make sure that a client who is not an owner of the motor vehicle involved in a crash has the No Fault coverage he or she will need for his or her medical care, recovery or rehabilitation, it’s imperative that your client is filing an application for No Fault benefits to the auto insurer, that they also file an application for No Fault benefits with the Michigan Automobile Insurance Placement Facility (MAIPF) on behalf of the Michigan Assigned Claims Plan (MACP).
Additionally, I would advise lawyers to consider arguing detrimental reliance, estoppel and laches arguments to prevent car insurance companies from balking at providing coverage to innocent, third-party car accident victims.
No liability protection for ‘innocent third-party’ car accident victims
Although the Bazzi case deals with the “innocent third-party” rule in the context of No Fault benefits, its reasoning originates with the Michigan Supreme Court’s 2012 ruling in Titan Insurance Company v. Hyten, where a four-justice majority held that the “innocent third-party” rule didn’t apply in the context of compensation under an auto insurance policy’s liability coverage. Hyten was an equally terrible case, as you can read here.
In Titan Insurance Company v. Hyten, the Michigan Supreme Court had to decide whether innocent, third-party car accident victims injured by a Titan insured could recover under the liability provision of a Titan auto insurance policy that had been rescinded based on fraud committed by Titan’s insured customer.
Sadly, the Republican majority of justices said the auto accident victims were out of luck. Specifically, the Supreme Court majority ruled:
“[A]n insurer may seek to avoid liability under an insurance policy using traditional legal and equitable remedies including … rescission … on the ground of fraud made in an application for insurance, notwithstanding that … the claimant is a third party.”
I may not like it one bit, but the trend on how these types of cases will be decided in this state seems very clear.
