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### STATE OF MICHIGAN

COURT OF APPEALS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,

Plaintiff, FOR PUBLICATION August 30, 2016

v No. 319710
Kalamazoo Circuit Court

MICHIGAN MUNICIPAL RISK MANAGEMENT AUTHORITY, LC No. 2012-000202-CK

Defendant-Appellee,

and

QBE INSURANCE CORPORATION,

Defendant/Third-PartyPlaintiff/Appellant,

v

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,

Third-Party-Defendant,

and

SECRETARY OF STATE, WHITNEY GRAY, MARTIN BONGERS and WILLIAM JOHNSON,

Third-Party-Defendants.

ON REMAND

Before: R IORDAN , P.J., and M URPHY and B OONSTRA , JJ.-2- M URPHY , J. ( concurring ).

Because this Court in Bazzi v Sentinel Ins Co , __ Mich App __; __ NW2 d __ (2016), held that the “innocent third-party rule” was implicitly and effecti vely abolished in Titan Ins Co v Hyten , 491 Mich 547; 817 NW2d 562 (2012), for purposes of mandatory personal protection insurance benefits, commonly refe rred to as PIP benefits, under the no-fault act, MCL 500.3101

et seq ., I am compelled to agree with the majority that QBE Insurance Corporation (QBE) was not barred from pursuing a fraud defense relative to its insura nce policy with Whitney Gray. Therefore, I concur with the majority that the trial court erre d in denying QBE’s motion for summary disposition on the basis of the innocent third-party ru le. I write separately to simply express my view that there is language in our Supreme Court’s o pinion in Titan that plainly and unambiguously reflects that the Supreme Court itself accepted t he notion that remedies for
actionable fraud are limited in rel ation to statuto rily-mandate d insurance coverage and benefits.

In Titan , 491 Mich at 572, our Supreme Court ruled:

Should Titan prevail on its assertion of actionable fraud, it may avail itself of a traditional legal or equitable remedy to avoid liability u nder the insurance policy, notwithstanding that the fraud may have been easily asc ertainable. However, as discussed earlier in this opi nion, the remedies available to Titan may be limited by statute . [Emphasis added; citation and footnote omitted.]

Importantly, attached to the end of the emphasized sentence in the preceding passage was the following footnote: “For example, MCL 500.3009(1) provides the policy coverage minimums for all motor vehicle liability insurance policies.” Titan , 491 Mich at 572 n 17. 1 When footnote 17 is read in conjunction with the sentence to wh ich it was appended, it necessarily signified the Supreme Court’s stance that the $20,0 00/$40,000 residual liability coverage mandated by MCL 500.3009(1) cannot be diminished or li mited by legal or equitable remedies generally available to an insurer for actionable fraud . There can be no other reasonable construction of the sentence and corresponding footnote. Optio nal insurance coverage above the

1 MCL 500.3009(1) states:

An automobile liability or motor vehicle liability policy insu ring against loss resulting from liability imposed by law for property damag e, bodily injury, or death suffered by any person arising out of the ownership, main tenance, or use of a motor vehicle shall not be delivered or issued for delivery i n this state with respect to any motor vehicle registered or principally garaged in this state unless the liability coverage is subject to a limit, exclusive of inte rest and costs, of not less than $20,000.00 because of bodily injury to or death of 1 person in any 1 accident, and subject to that limit for 1 person, to a limit of not less than $40,000.00 because of bodily injury to or death of 2 or more pe rsons in any 1 accident, and to a limit of not less than $10,000.00 because of injury to or destruction of property of others in any accident.-3- minimum liability limits contained in a policy procured by frau d might not be reached by an injured third party seeking dama ges arising out of a motor vehi cle accident, but footnote 17 in

Titan makes abundantly clear that the mandatory liability minimums ar e to be paid by the insurer under the policy despite any fraud.

In Titan , 491 Mich at 559, the Court recognized that MCL 257.520(f)(1) expressly restricts the ability of an ins urer to avoid liability under a policy on the ground of fraud, although the statute has very limited applicability, being relegated to situations in which proof of future financial responsibility i s statutorily required. 2 MCL 500.3009(1) has no such language; rather, MCL 500.3009(1) merely sets forth minimum policy requirements i n regard to residual liability coverage. With footnote 17, however, the Titan Court indicated that MCL 500.3009(1) is an example of a statute that would also limit available remedies f or fraud. The only feasible explanation for any fraud-reme dy limitation arising out of or c reated by MCL 500.3 009(1) is that the statutory provi sion pertains to mandatory coverage. By observing that MCL 500.3009(1) limits available remedies for actionable fraud, the Supreme Cou rt effectively telegraphed its view that an insurer would be liable under a policy with respec t to liability coverage required by MCL 500.3009(1) in connection to an innocent third party injure d by a negligent driver who had fraudulently procured the policy.

MCL 500.3009(1) is incorporated by reference in the no-fault a ct with regard to mandatory residual liability coverage. See MCL 500.3101(1) (“T he owner or registrant of a motor vehicle required to be regi stered in this state shall mai ntain security for payment of
benefits under . . . residual lia bility insurance.”); MCL 500.3 131(2) (residual liability insurance mandate “shall not require covera ge in this state other than th at required by section 3009[1]”). PIP coverage is also mandate d by statute. MCL 500.3101(1) (“Th e owner or registrant of a motor vehicle required to be regi stered in this state shall mai ntain security for payment of benefits under personal protecti on insurance[.]”) . And “[u]nde r personal protection insurance an

2 MCL 257.520 provides, in pertinent part:

(f) Every motor vehicle liability policy shall be subject to t he following provisions which need not be contained therein:

(1) The liability of the insurance carrier with respect to the insurance required by this chapter shall be come absolute whenever injury or damage covered by said motor vehicle liability policy occurs; said pol icy may not be
cancelled or annulled as to such l iability by any agreement bet ween the insurance carrier and the insured after the occurrence of the injury or d amage; no statement made by the insured or on his behalf and no violation of said p olicy shall defeat or void said policy, and except as hereinafter provided, no fraud, misrepresentation, assumption of liability or other act of the insured in obtainin g or retaining such policy, or in adjusting a claim under such policy, and no failu re of the insured to give any notice, forward any pa per or otherwise cooperate with the insurance carrier, shall constitute a defen se as against such judgment cr editor.-4- insurer is liable to pay benefits for accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor vehicle as a motor veh icle[.]” MCL 500.3105(1). 3 Given the mandatory nature of PIP coverage under the no-fault a ct, and considering the logic gleaned from examining footnote 17 of Titan , one can reasonably extrapolate that MCL 500.3101(1) (requiring PIP coverage ) would be another example, along with MCL 500.3009(1), of a statute that limits the availability of remedies for actio nable fraud.

In sum, Bazzi ’s construction of Titan must be honored, and thus I concur in the majority’s holding. It is my belief, however, that the opinion in Titan cannot be interpreted as abolishing the innocent third-party rule in the context of statutorily-man dated automobile insurance coverage, as to reach such a conclusion would require a wholesa le disregard of Titan ’s footnote

17.

I respectfully concur.

/s/ William B. Murphy

3 MCL 500.3107 describes the allowa ble expenses and recoverable losses that constitute PIP
benefits.