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Bazzi v. Sentinel Insurance Company – Court of Appeals Ends The Innocent Third-Party Rule for PIP Cases

Michigan Car Accident Attorneys – Case Updates

This week, the Michigan Court of Appeals made an important ruling, sweeping away decades of precedent. In Bazzi v. Sentinel Insurance Company, the Court held that if a car insurance company can establish that a no-fault policy was obtained through fraud, the carrier can rescind the policy, including denying the payment of benefits to innocent third parties.

In the case, Ali Bazzi was injured in a car accident. He sought no-fault benefits from the defendant, Sentinel Insurance Company. Mr. Bazzi was driving a vehicle owned by his mother and insured by Sentinel under a commercial policy. Sentinel maintained that policy was fraudulently purchased by Mr. Bazzi’s mother and aunt – specifically the vehicle was purchased by the aunt on behalf of Mr. Bazzi to save money because he was recently involved in a car accident. Further, the vehicle was actually for personal use, not commercial use.

Sentinel Insurance asked the trial court to rescind the policy based on the alleged fraud. The trial court declined and the ruling was appealed.

The Bazzi Court utilized the reasoning from a recent Michigan Supreme Court case, Titan Ins. Co. v. Hyten, 491 Mich 547; 817 NW2d 562 (2012), in reaching its decision. In Titan, the Supreme Court held that an insurance carriers may seek to avoid liability on the grounds that a policyholder fraudulently submitted a policy application, even where the claimant is a third-party and the alleged fraud was easily ascertainable by the insurance carrier.

The Supreme Court in Titan, overturned prior case law and the “easily ascertainable” rule, concluding that an insurer has no duty to investigate or verify the representations of a potential insured. Although the Titan case did not involve PIP benefits, because Titan also involved an innocent third-party, the Bazzi court extended Titan’s general rule to the instant case, therefore allowing car insurance carriers to rescind or void policies for claims involving PIP no-fault benefits, even to innocent third parties.

The result of this ruling will be severe and far reaching. Innocent people injured in horrible car accidents will have their claims instantly denied the moment the car insurance company sniffs fraud.

For example, say your friend loans you a car to pick up some groceries at a store. You’ve never used the car before and you’re just doing your friend a favor. While driving to the store, a drunk driver runs a red light and slams the car you are driving. You sustain serious injuries, including a broken leg. Because you don’t have car insurance of your own and don’t live with a resident relative who has car insurance, you turn to your friend’s insurance carrier to cover the hospital bills and pay your lost wages.

You do everything right, including completing an Application for Benefits, signing medical authorizations so the no-fault carrier can access your medical records, and even submit to an interview with the insurance adjuster to substantiate your claim. You wait and wait, but the insurance company never pays. After 9 months, you find out your friend forgot to disclose some points he had on his record when he applied for the auto insurance 2 years earlier. Relying on the Bazzi case, your friend’s insurance carrier can use your friend’s misstatement and deny your claim for no-fault PIP benefits, despite the fact you have absolutely nothing to do with the alleged fraud.

The judges in Bazzi were split. In fact each judge devoted quite a bit of verbiage in writing their own separate opinions.

The ruling is very disturbing. First, the Court of Appeals abandoned decades of case law and precedent. For years, innocent people injured in a Michigan car accident have been able to obtain mandatory no-fault benefits from insurance carriers so long as they were not complicit in the fraud. The Titan case the Bazzi court relied upon involved optional coverage. At no time has any court, in particular the Michigan Supreme Court, held that innocent third-parties were precluded from obtaining mandatory no-fault benefits even if the policy was procured by fraud.

Although innocent third-parties can turn other insurance carriers for the payment of benefits, including the Michigan Assigned Claims Plan, actually getting benefits will be much more difficult and drawn out.

The entire no-fault system was developed to ensure the prompt payment of benefits, such as the payment of medical expenses and lost wages. The Bazzi decision allows car insurance companies to do the opposite, in direct contravention of the underlying purpose of the Michigan no-fault law.

The Bazzi decision is just the latest in a litany of recent cases that has turned the original goal for the Michigan No-Fault Act on its head. The ruling is yet another victory for Michigan car insurance companies and a yet another defeat for Michigan citizens.