Court Opinion

ID: 4639486
Source: CourtListenerOpinion
Date Created: 2020-12-04 10:07:14.99482+00
Date Added: 2024-06-11T07:58:56.895775
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
             revision until final publication in the Michigan Appeals Reports.

                       STATE OF MICHIGAN

                       COURT OF APPEALS

RONNIE MOUSSA EL-ACHKAR,                                      UNPUBLISHED
                                                              December 3, 2020
          Plaintiff,
and

OAKWOOD HEALTHCARE, INC.,
PHYSIOMATRIX, INC., GENEX PHYSICAL
THERAPY, INC., ELITE CHIROPRACTIC
CENTER, PC, and PRIME CARE
CHIROPRACTIC, PC,

          Intervening-Plaintiffs,

v                                                             No. 348380
                                                              Wayne Circuit Court
SENTINEL INSURANCE COMPANY, LTD.,                             LC No. 13-005965-NI

          Defendant/Third-Party Plaintiff-
          Appellant,
and

HARTFORD INSURANCE COMPANY OF
ILLINOIS,

          Defendant,
and

HALA BAYDOUN BAZZI and MARIAM BAZZI,

          Third-Party Defendants,

and

CITIZENS INSURANCE COMPANY,

          Appellee.

                                          -1-
Before: REDFORD, P.J., and RIORDAN and TUKEL, JJ.

PER CURIAM.

        Defendant-Third-Party Plaintiff-Appellant, Sentinel Insurance Company, Ltd. (Sentinel)
appeals by right the trial court’s final order requiring it to reimburse Defendant-Appellee Citizens
Insurance Company (Citizens) the amount it paid plaintiff Ronnie El-Achkar to settle his claims
for no-fault benefits. We affirm.

                     I. FACTUAL AND PROCEDURAL BACKGROUND

        El-Achkar suffered injuries as a passenger in a motor vehicle accident on August 8, 2012,
that occurred near the Ford Road and Mercury Drive intersection in Dearborn. A white Honda
driven by El-Achkar’s friend, Ali Bazzi, traveled over 100 miles per hour on westbound Ford Road
and collided with a black Dodge pickup that had lawfully completed a left turn onto the roadway.
Ali and El-Achkar were ejected from the Honda. Ali and El-Achkar each suffered injuries and
sought PIP benefits from Sentinel, the insurer of the Honda. In Bazzi v Sentinel Ins Co (Bazzi I),
315 Mich. App. 763, 768-769; 891 NW2d 13 (2016), aff’d in part and rev’d in part Bazzi v Sentinel
Ins Co (Bazzi II), 502 Mich. 390; 919 NW2d 20 (2018) (footnote omitted), this Court summarized
the pertinent facts as follows:

               Plaintiff, Ali Bazzi (plaintiff), is seeking to recover personal protection
       insurance (PIP) benefits for injuries he sustained in an automobile accident while
       driving a vehicle owned by third-party defendant Hala Bazzi (plaintiff’s mother).[]
       Intervening plaintiffs, Genex Physical Therapy, Inc., Elite Chiropractic Center, PC,
       and Transmedic, LLC, are healthcare providers who provided services to plaintiff
       as a result of those injuries and are seeking payment for those services. The vehicle
       driven by Bazzi was insured under a commercial automobile policy issued by
       defendant Sentinel Insurance to Mimo Investments, LLC.4
       4
         Defendant Citizens Insurance Company’s involvement and potential liability in
       this case is as the servicing insurer under the Michigan Assigned Claims Plan. See
       MCL 500.3172(1).

       Sentinel maintains that the policy was fraudulently procured by Hala Bazzi and
       third-party defendant Mariam Bazzi (plaintiff’s sister and the resident agent for
       Mimo Investments) in order to obtain a lower premium because of plaintiff’s
       involvement in a prior accident. Sentinel maintains that the vehicle was actually
       leased to Hala Bazzi for personal and family use, not for commercial use by Mimo,
       and, in fact, that Mimo was essentially a shell company, which had no assets or
       employees or was not otherwise engaged in actual business activity. Sentinel also
       alleges as fraud that the third-party defendants failed to disclose plaintiff would be
       a regular driver of the vehicle. In fact, Sentinel pursued a third-party complaint
       against Hala and Mariam Bazzi, seeking to rescind the policy on the basis of fraud
       in the application.5

                                                -2-
         5
           The trial court entered a default judgment against the third-party defendants in
         favor of Sentinel.

                Sentinel thereafter moved for summary disposition of plaintiff’s claim
         against Sentinel for PIP benefits, as well as the intervening plaintiffs’ claims
         because the policy was rescinded on the basis of fraud. The trial court denied the
         motion, concluding that plaintiff had a claim because of the innocent-third-party
         rule.

        In the Bazzi case, Sentinel sought summary disposition but the trial court denied the motion
which prompted Sentinel to seek leave to appeal that decision to this Court which denied leave. 1
Sentinel then sought leave to appeal to our Supreme Court which, in lieu of granting leave,
remanded the case to this Court for consideration as on leave granted. 2 Because our Supreme
Court directed this Court to hear Sentinel’s appeal, the parties in this case stipulated to the entry
of an order staying further proceedings pending the resolution of Sentinel’s pending appeal in the
Bazzi case.

        On remand of Sentinel’s appeal in the Bazzi case, this Court reversed the trial court’s ruling
and held that Sentinel could rescind the policy covering the vehicle in which Ali and El-Achkar
were injured because of fraud in the policy’s procurement, and therefore, Sentinel had no
obligation to pay PIP benefits for Ali, an innocent third party to the policy fraud. Bazzi I, 315
Mich. App. at 767-769. Ali appealed this Court’s decision to our Supreme Court to consider
“whether the judicially created innocent-third-party rule, which precludes an insurer from
rescinding an insurance policy procured through fraud when there is a claim involving an innocent
third party, survived [our Supreme] Court’s decision in Titan Ins Co v Hyten, 491 Mich. 547; 817
NW2d 562 (2012), which abrogated the judicially created easily-ascertainable-fraud rule.” Bazzi
II, 502 Mich. at 396. Our Supreme Court held “that Titan abrogated the innocent-third-party rule
but that the Court of Appeals erred when it concluded that Sentinel was automatically entitled to
rescission in this instance.” Id. Our Supreme Court affirmed in part, reversed in part, and
remanded to the trial court to consider whether, in its discretion, rescission is an available remedy.
Id.

       Following remand of the Bazzi case, the trial court in this case ordered a Bazzi hearing and
required interested parties to file briefs and appear for the hearing. Sentinel moved to rescind its
insurance policy and Citizens opposed Sentinel’s motion. The trial court held a hearing on
Sentinel’s motion on February 28, 2019.

       In the Bazzi case, after conducting the equitable balancing directed by our Supreme Court
in Bazzi II, the trial court entered a final order that its previous decision rescinding the Sentinel
policy would not change and remained effective resulting in holding Sentinel not responsible for

1
 See Bazzi v Sentinel Ins Co, unpublished order of the Court of Appeals entered May 21, 2014
(Docket No 320518).
2
    See Bazzi v Sentinel Ins Co, 497 Mich. 886; 854 NW2d 897 (2014).

                                                 -3-
any claims made by Ali. The trial court ordered further that Sentinel not reimburse Citizens or
any Michigan Automobile Insurance Placement Facility for any claims related to Ali.

        After the hearing, the trial court ordered the stay lifted in this case, and it entered a final
order ruling that the equities weighed against Sentinel in the balancing of the equities analysis
prescribed by our Supreme Court in Bazzi II, ordered Sentinel responsible for El-Achkar’s no-fault
claims, and ordered Sentinel to reimburse Citizens $125,000, the amount that Citizens paid to settle
El-Achkar’s claims. Sentinel now appeals.

                                   II. STANDARD OF REVIEW

         We review for an abuse of discretion a trial court’s decision to grant or deny a motion for
rescission of an insurance contract. Bazzi II, 502 Mich. at 409. An abuse of discretion occurs when
the decision falls outside the range of reasonable and principled outcomes. Berryman v Mackey,
327 Mich. App. 711, 717; 935 NW2d 94 (2019). An abuse of discretion necessarily occurs when
the trial court makes an error of law. Id. The trial court’s factual findings are reviewed for clear
error, and a finding is clearly erroneous if the reviewing court is left with a definite and firm
conviction that a mistake has been made. Id.

                                           III. ANALYSIS

        Sentinel argues that, because it validly rescinded its no-fault insurance policy because of
Hala’s fraudulent procurement of it, the policy was void ab initio as to all claimants for PIP benefits
under it, requiring no balancing of the equities as between Sentinel and El-Achkar, and if equities
balancing was required, the trial court erred by ruling that the equities favored El-Achkar so that
Sentinel’s rescission did not apply to him. We disagree.

        The burden of establishing a right to rescission lies with the party seeking rescission.
Gardner v Thomas R Sharp & Sons, 279 Mich. 467, 469; 272 N.W. 871 (1937). In Mendelson
Orthopedics PC v Everest Nat’l Ins Co, 328 Mich. App. 450, 458-460; 938 NW2d 739 (2019)
(quotation marks and citations omitted), this Court analyzed Bazzi II and explained that our
Supreme Court reaffirmed the right of insurers to raise common law defenses such as fraud in the
procurement to seek rescission of a no-fault insurance policy to avoid liability, but clarified that
insurers are not categorically entitled to rescission because “a claim to rescind a transaction is
equitable in nature, it is not strictly a matter of right but is granted only in the sound discretion of
the court, and when a party seeks rescission, the trial court must balance the equities to determine
whether the party is entitled to the relief it seeks.” In Mendelson, this Court faced a factual scenario
very similar to this case. A third party sought PIP benefits from a no-fault insurer that discovered
its insured had procured a policy through fraud, and the insured then rescinded the policy. Id. at
461. This Court explained that Bazzi II confirmed that an insurer may rescind and treat a policy
as void ab initio as between the insurer and the insured; however, Bazzi II directed that, “when
two equally innocent parties are affected, the court is required, in the exercise of [its] equitable
powers, to determine which blameless party should assume the loss[.]” Id. at 460 (quoting Bazzi
II, 502 Mich. at 410) (quotation marks and citations omitted). In Mendelson, this Court determined
that the trial court appropriately recognized the insurer’s right to rescind the policy and treat it as
void ab initio respecting the insured, but the trial court failed to hold a hearing and to balance the
equities as between the injured third party and the insurer which required a distinct and separate

                                                  -4-
analysis. Consequently, this Court reversed and remanded to the trial court for further proceedings
to balance the equities as between the injured third party and the insurer. Id. at 462.

         In Pioneer State Mutual Ins Co v Wright, ___ Mich App ___, ___; ___ NW2d ___ (2020),
slip op at 2-3, lv application pending, a case involving an injured third party who sought PIP
benefits under a no-fault insurance policy procured by a family member who made a material
misrepresentation in her application for insurance, this Court again addressed the issue of the
balancing of the equities as between two innocent parties, the insurer and the injured third party.
To facilitate its review and clarify how courts must balance the equities, this Court adopted and
distilled the essence of JUSTICE MARKMAN’S five-factor test stated in his concurrence in Farm
Bureau Gen Ins Co of Mich v ACE American Ins Co, 503 Mich. 903, 906-907; 919 NW2d 394
(2018) (MARKMAN, J., concurring), as follows:

        Reduced to their essence, five factors were identified and they address: (1) the
        extent to which the insurer could have uncovered the subject matter of the fraud
        before the innocent third party was injured; (2) the relationship between the
        fraudulent insured and the innocent third party to determine if the third party had
        some knowledge of the fraud; (3) the nature of the innocent third party’s conduct,
        whether reckless or negligent, in the injury-causing event; (4) the availability of an
        alternate avenue for recovery if the insurance policy is not enforced; and (5) a
        determination of whether policy enforcement only serves to relieve the fraudulent
        insured of what would otherwise be the fraudulent insured’s personal liability to
        the innocent third party. [Id. at ___, slip op at 7.]

        This Court considered and applied the five-factor test. Id. at ___, slip op at 8-9. This Court
explained that “[b]alancing the equities is not concerned with laying blame, but determining which
of the innocent parties should bear a loss.” Id. at ___, slip op at 9, citing Bazzi II, 502 Mich. at 411.
This Court concluded that the “trial court’s analysis was specific to the facts and circumstances of
the case and went no farther than what was equitable. Therefore, we cannot conclude that the trial
court abused its discretion by refusing to grant rescission.” Id.

        In this case, application of the five-factor test to the facts supports the trial court’s decision.
The trial court properly considered the equities as between Sentinel and El-Achkar and correctly
ruled that Sentinel failed to carry its burden of establishing the right to rescind the policy as
between Sentinel and El-Achkar.

        Respecting the first factor, whether Sentinel could have uncovered the fraud before El-
Achkar sustained injury, the record reflects that Sentinel issued the subject policy on April 29,
2012, to Mimo Investments, LLC for commercial coverage for a one-year period based on payment
of a $3,467 premium to cover three vehicles including the Honda involved in the August 8, 2012
accident, without conducting any real investigation regarding the company, the ownership of the
insured vehicles, or who the intended drivers of the vehicles would be. The record does not reflect
that Sentinel engaged in any investigation after issuance of the policy up to the time of the accident.
Whether investigation before the accident would have revealed the fraud is unclear from this record
and the perpetrators of the fraud may have been able to keep the truth concealed from Sentinel.
The record reveals, however, that after the accident Sentinel investigated and discovered the fraud
without much difficulty because Ali drove the Honda involved in the accident. The trial court

                                                   -5-
concluded that Sentinel could have done more to discover the fraud before the accident. We do
not find that the trial court clearly erred in this regard, but because the perpetrators of the fraud
may have concealed their subterfuge from Sentinel we conclude that this factor neither weighs for
nor against rescission.

        Regarding the second factor, whether the injured third party had a relationship with the
fraudulent insured, the record reflects that El-Achkar had no relationship with Hala, Mariam, or
Mimo Investments, LLC, and he had no knowledge of the fraud. El-Achkar lacked a familial
relationship with any of Ali’s family and knew nothing about the procurement of the subject
insurance policy. This factor, therefore, favors El-Achkar and weighs against rescission of the
policy as between him and Sentinel.

        The third factor also weighs against rescission of the policy as between El-Achkar and
Sentinel. The record reflects that Ali drove the vehicle and picked up El-Achkar to go to a bakery
for something to eat around midnight. No evidence in the record indicates that El-Achkar acted
recklessly or negligently in the injury causing event. The record establishes that El-Achkar rode
as a passenger in the Honda and lacked control over the ensuing events including the crash caused
by Ali’s reckless driving.

        Respecting the fourth factor, the record reflects that El-Achkar lacked another insurance
policy under which he could claim no-fault benefits. He had no insurance policy of his own. El-
Achkar sued Hartford, the insurer of his father’s vehicle, after his claim for benefits had been
denied, apparently believing that he could claim benefits from that policy. His father’s vehicle,
however, was covered under a commercial insurance policy that did not cover family members
residing in the family household.3 The fourth factor, therefore, weighs against rescission.

       Sentinel argues that El-Achkar is entitled to recover through the Michigan Assigned Claims
Plan (MACP)/Michigan Automobile Insurance Placement Facility under MCL 500.3171 et seq.,
and this fact should be considered in the equities balancing if its proposed two-factor test is not
adopted by this Court. Under Belcher v Aetna Cas & Surety Co, 409 Mich. 231, 251; 293 NW2d
594 (1980), however, our Supreme Court explained that “before recovery of benefits may be
obtained through an assigned claims plan, it must be determined that no personal protection
insurance is ‘applicable to the injury’.” Further, as explained by this Court in Spectrum Health
Hosp v Michigan Assigned Claims Plan, 330 Mich. App. 21, 31-32; 944 NW2d 412 (2019):

       the “owner or registrant of a motor vehicle required to be registered in this state” to
       purchase PIP insurance to cover injuries to persons caused by motor vehicles. MCL
       500.3101(1). The Legislature provided that the policies required under MCL
       500.3101(1) must cover more than just the named insured; policies must also cover
       injuries incurred in motor vehicle accidents by the named individual's spouse and
       any relative of either domiciled in the same household. MCL 500.3114(1). When
       an injured person is not covered by his or her own insurance policy or a policy
       owned by a relative, the Legislature provided that the insurers of the various

3
 The record indicates that, similar to the subject policy in this case, the commercial policy covering
El-Achkar’s father’s vehicle may have been procured by fraud and subject to rescission.

                                                 -6-
       vehicles involved or occupied during the accident, or the insurers of persons
       operating such vehicles, must cover the loss. See MCL 500.3114(2) through (5);
       MCL 500.3115. Even when there does not appear to be any applicable PIP
       coverage, the Legislature provided that an injured person could obtain PIP benefits
       through the MACP. See MCL 500.3172(1). All self-insurers or insurers writing
       insurance as provided by the no-fault insurance act are required to participate in the
       MACP, with the associated costs being “allocated fairly among insurers and self-
       insurers.” MCL 500.3171(2). In this way, the Legislature ensured that every
       person injured in a motor vehicle accident would have access to PIP benefits unless
       one of the limited exclusions in the no-fault act applies, and the losses suffered by
       uninsured persons injured in motor vehicle accidents could be indirectly passed on
       to the owners and registrants of motor vehicles through insurance premiums.

        Belcher and Spectrum Health make clear that the MACP provides coverage as a last resort.
Therefore, only if El-Achkar was not otherwise covered by a no-fault policy against which he
could make a claim would he be eligible to seek coverage through the MACP. The equities
balancing test as between an insurer and injured third party determines whether an injured third
party may claim coverage under a no-fault policy. That determination, therefore, must be made
first before the injured third party may seek coverage provided by the MACP. Accordingly, the
fact that an injured third person can seek PIP benefits from the MACP as a last resort should not
and cannot be factored into the equities balancing test’s fourth-factor inquiry because that factor
would be rendered nugatory since the availability of coverage under the MACP if considered
would always require concluding that the factor favors rescission. Accordingly, the availability of
coverage through the MACP should not be considered as part of the five-factor test adopted by
this Court in Pioneer. Sentinel’s argument, therefore, lacks merit.

       The fifth factor requires consideration whether policy enforcement only serves to relieve
the fraudulent insured of personal liability to the innocent third party. JUSTICE MARKMAN
explained in his concurrence in Farm Bureau that courts conducting equities balancing must
determine:

       whether enforcement of the insurance policy would subject the insurer to coverage
       for tort liability for an at-fault insured. In such a case, equity may weigh in favor
       of rescission because enforcement of the policy would transfer liability to the
       innocent third party from the insured who committed the fraud to the insurer that
       did not commit wrongdoing. [Farm Bureau, 503 Mich. at 906.]

         In this case, Ali constituted the party at fault for the accident’s occurrence because of his
reckless driving. Ali was not insured under the commercial policy issued to Mimo Investments,
LLC even if that policy had not been procured through fraud by Hala and Mariam. Enforcement
of the policy would not transfer Ali’s tort liability to El-Achkar from the insured, Mimo
Investments, LLC, to the innocent insurer. Further, the record reveals that the insured, Mimo
Investments, LLC, was nothing more than a shell company with no assets or employees and was
formed primarily to perpetrate the fraud. Even if El-Achkar sued the LLC and Ali for tort liability,
it is doubtful that he could obtain any relief. Under the circumstances presented in this case, the
fifth factor weighs against rescission.

                                                 -7-
        Weighing the equities between Sentinel and El-Achkar under the five-factor test adopted
in Pioneer establishes that the equities weigh against rescission. The record reflects that the trial
court considered the five factors and, although it did not fully articulate its reasoning, found that
the factors weighed against rescission. Further, it gave Sentinel an opportunity to persuade it
otherwise but Sentinel failed to do so. The trial court essentially found that Sentinel could have
done a better job of investigating and uncovering the fraud of the LLC, and it found that, although
Ali and El-Achkar were friends, no evidence established that El-Achkar had any knowledge about
the procurement of the subject insurance policy because he had not lived in the Bazzi household
and lacked any relationship with Hala, Mariam, or the LLC. The trial court, did not clearly err in
this regard and it correctly concluded that Sentinel failed to meet its burden to establish a right to
rescind the policy as to El-Achkar.

        Sentinel argues that the trial court erred by not adopting its two-factor test. Sentinel
contends that trial courts may consider two factors alone for equities balancing determinations: (1)
whether fraud or misrepresentation existed at the inception of the insurance contract that was
material to Sentinel’s decision to issue the policy, and (2) whether the facts established that the
insurer failed to rescind and/or continued to collect premiums after it had actual knowledge of the
true facts. We disagree.

         The trial court correctly rejected the two-factor test advocated by Sentinel because it
completely fails to take into consideration any of the equities as related to El-Achkar, the injured
third party. Analysis of Sentinel’s test reveals that, so long as an insurer may rescind a policy for
fraud in the procurement by the insured, no other parties or equities need be considered and
weighed. Sentinel’s two-factor test does not comport with Bazzi II’s directive. Our Supreme Court
held that the equities must be weighed as between an innocent insurer and an innocent injured third
party to determine whether the insurer may rescind its policy in relation to claims made by the
injured third party for coverage, despite the fact that the insurer may validly rescind the policy as
between the insurer and the insured. The trial court correctly rejected Sentinel’s two-factor test
because it focuses solely on the insurer without any regard for the injured third party. Application
of the five-factor test adopted in Pioneer, however, fulfills the Bazzi II directive and permits a just
and equitable outcome. Therefore, we hold that the trial court did not abuse its discretion by
denying Sentinel’s motion to rescind the subject policy because Sentinel failed to establish its
entitlement to rescission of the policy based upon a balancing of the equities as between itself and
El-Achkar.

       Affirmed.

                                                               /s/ James Robert Redford
                                                               /s/ Michael J. Riordan
                                                               /s/ Jonathan Tukel

                                                 -8-