Third-Party Beneficiary? Rescinding an Auto-Insurance Policy Can Be Tricky
This case arises from an April 2021 Michigan auto accident. Claimant was seriously injured and subsequently treated at VHS of Michigan d/b/a Detroit Medical Center. The PIP insurer determined that a vehicle involved in the crash was not garaged at the address listed on the policy and rescinded the policy for fraud. As a result of that fraud, the PIP insurer denied the claim in its entirety. Both claimant and VHS were innocent third-parties.
The medical provider, VHS of Michigan, Inc., sued the PIP insurer. The trial court concluded that the insurer was liable for the medical bills presented by the innocent third-party beneficiary, VHS of Michigan. VHS further sought penalty interest and attorney fees for the unreasonable delay in payment. The request for penalty interest and attorney fees was denied and an appeal followed.
The medical provider’s entitlement to attorney fees depended on whether the insurer’s decision to withhold payment was unreasonable. The Michigan Court of Appeals in a published decision ruled that just because the insurer believed it could rescind the auto policy based on fraud did not absolve the insurer from making payments to the two (2) innocent third-parties – VHS and the claimant.
The Court of Appeals rejected the insurer’s argument that it was justified in not paying within thirty (30) days of receiving proof of loss because it paid within thirty (30) days of the trial court’s ruling on the issue of rescission. The COA stated “that rescission is a remedy ordered by a court, not unilaterally chosen by an insurance company,” particularly where innocent third parties are involved. An insurer is only justified in delaying payment when faced with an issue of statutory construction, constitutional law, or “a bona fide factual uncertainty.” The insurer in this case was not presented with any of these issues.
The Court of Appeals decision confirmed Michigan’s common law that an insurer cannot unilaterally rescind insurance coverage when an innocent third party is involved by simply sending the insured a letter and refund check. Recission is an equitable remedy. Thus, the remedy of recission must be equitable to all involved. Insurers who do not promptly pay no-fault benefits risk paying no-fault interest and attorney fees.
Read entire case at:
VHS of Michigan, Inc. v. Michigan Auto. Ins. Placement Facility
About Alexander & Angelas, P.C.
Attorney Peter A. Angelas represents defendants in civil liability litigation across Michigan and Northern Ohio. His practice areas include insurance defense litigation, premises liability, motor carrier (trucking) defense, corporate and commercial litigation, construction defect litigation, auto negligence, insurance coverage disputes, emergency casualty response services, alternative dispute resolution, subrogation claims, workers’ compensation, employment law, and liquor liability.
Mr. Angelas practices in all state and federal courts in Michigan, including Wayne County (Detroit), Macomb County (Mount Clemens), Oakland County (Pontiac), Washtenaw County (Ann Arbor), and Genesee County (Flint). Legal services are also provided in Northern Ohio.
A 24/7 Emergency Hotline is available (800-219-0007) for trucking and insurance company clients. When an accident requires an immediate response to protect evidence, members of the firm quickly launch an investigation with the assistance of well-qualified accident investigators, crash re-constructionists, mechanical engineers, civil evidence photographers, and independent adjusters positioned throughout Michigan and Northern Ohio.
