INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Defining “rescission”
Adora Wilmore-Moody, individually and as next friend of her minor son, brought an action in the Wayne Circuit Court against Mohammed Zakir and Everest National Insurance Company, alleging that Zakir had negligently rear-ended her vehicle and seeking personal protection insurance benefits from Everest for the injuries she and her son incurred as a result of the collision.
Everest did not pay the benefits but instead rescinded Wilmore-Moody’s policy on the ground that she had failed to disclose that she had a teenaged granddaughter living with her when she applied for the policy. Everest then brought a counterclaim seeking declaratory relief and moved for summary disposition of Wilmore-Moody’s claim against it under MCR 2.116(C)(10), a provision of the Michigan no-fault act, arguing that it was entitled to rescind her policy because she had made a material misrepresentation in her application. The trial court granted Everest’s motion for summary disposition.
After this ruling, Zakir also moved for summary disposition under MCR 2.116(C)(10), arguing that Wilmore-Moody was barred from recovering third-party noneconomic damages from him under the no-fault act because once Everett rescinded her policy, she did not have the security required under MCL 500.3135(2)(c) at the time the injury occurred. The trial court granted Zakir summary disposition as well. Wilmore-Moody appealed.
The court of appeals affirmed the grant of summary disposition to Everest, reversed the grant of summary disposition to Zakir, and remanded the case for further proceedings. Zakir sought leave to appeal this decision. The Michigan supreme court, in lieu of granting leave to appeal, ordered oral argument on the application.
The Michigan supreme court held that an insurer’s decision to rescind an automobile policy after a motor vehicle collision does not operate to alter the past by rendering the insured as having been without no-fault insurance at the time they were injured in that collision for purposes of MCL 500.3135(2)(c), which prohibits a person from recovering third-party benefits for injuries resulting from a collision if they were operating their own motor vehicle at the time the injury occurred and did not have a policy in effect for that vehicle. Accordingly, Wilmore-Moody had the required insurance at the time she and her son were injured, despite Everest’s subsequent rescission of the policy; and Zakir, as a nonparty to the contract, was not entitled to use Everest’s rescission as a defense against Wilmore-Moody’s negligence claim.
The trial court erred by granting Zakir summary disposition on the ground that Everest’s rescission of the policy barred Wilmore-Moody’s third-party claim under MCL 500.3135(2)(c).
According to the court, Zakir was not a party to Wilmore-Moody’s contract with Everest, nor did he incur any obligation or receive any benefit from the contract. Given that Zakir was unaffiliated with the contract, he could not rely on Everest’s chosen contractual remedy to defend against Wilmore-Moody’s statutory negligence claim under MCL 500.3135. Further, while rescission is a legal fiction available as a contractual remedy for the defrauded party, it does not alter reality or act as a time machine.
Zakir offered no persuasive argument that the legislature intended to incorporate this legal fiction, traditionally applied to contractual relationships, into the statutory exemption for third-party claims under MCL 500.3135(2)(c).
The judgment of the court of appeals was affirmed, and the case was remanded to the trial court for further proceedings.
Wilmore-Moody v. Zakir—Michigan Supreme Court—May 31, 2023—No. 163116.
