                            STATE OF MICHIGAN

                            COURT OF APPEALS



KENYA ALISHA FROST, GENERAL MOTORS                               UNPUBLISHED
ACCEPTANCE CORPORATION (GMAC), and                               July 28, 2016
ALLY FINANCIAL, INC.,

              Plaintiffs,

and

CITIZENS INSURANCE COMPANY OF
AMERICA,

              Intervening Plaintiff-Appellee,

v                                                                No. 316157
                                                                 Wayne Circuit Court
PROGRESSIVE MICHIGAN INSURANCE                                   LC No. 11-002947-NF
COMPANY, a/k/a PROGRESSIVE MARATHON
INSURANCE COMPANY,

              Defendant-Appellant.


                                        ON REMAND

Before: OWENS, P.J., and JANSEN and O’CONNELL, JJ.

PER CURIAM.

        Defendant Progressive Insurance Company appeals by right the circuit court’s order
granting summary disposition in favor of intervening plaintiff Citizens Insurance. We again
vacate the summary disposition order and remand to the circuit court.

        In April 2010, plaintiff Kenya Frost obtained a liability insurance policy from
Progressive to cover her car. The following month, the car was destroyed. The month after that,
Frost’s minor daughter was injured in an accident while an occupant in an uninsured car. The
Assigned Claims Facility assigned Frost’s daughter’s claim to Citizens. In September 2010,
Progressive informed Frost that her policy was rescinded ab initio, alleging that Frost had




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procured the policy through fraud. In 2011, Frost filed suit against Progressive seeking
reimbursement for losses incurred when her car was destroyed.1 Citizens intervened as a party
plaintiff to seek reimbursement from Progressive benefits that Citizens had paid on behalf of
Frost’s daughter.

        Citizens and Progressive filed cross-motions for summary disposition pursuant to MCR
2.116(C)(10) and MCR 2.116(I)(2) respectively. Citizens argued that Progressive could not void
a policy of insurance ab initio where an innocent third party is affected. Defendant argued that
Frost committed actionable fraud, and that, pursuant to the Michigan Supreme Court’s decision
in Titan Ins Co v Hyten, 491 Mich 547; 817 NW2d 562 (2012), the claims of an innocent third
party do not bar rescission of the policy ab initio.

        The circuit court found that the accident had occurred before Progressive had attempted
to rescind the policy, and that once the accident occurred, Progressive lost its ability to rescind as
to Frost’s daughter. The court entered an order granting Citizens’ motion for summary
disposition and denying Progressive motion. This Court vacated and remanded in Frost v
Progressive Mich Ins Co, unpublished opinion per curiam of the Court of Appeals, issued
September 23, 2014 (Docket No. 316157), which the Michigan Supreme Court vacated for
reconsideration in light of Bazzi v Sentinel Ins Co, ___ Mich App ___; ___ NW2d ___ (2016)
(Docket No. 320518). Frost v Progressive Mich Ins Co, 497 Mich 980; 860 NW2d 636 (2015).

        In Bazzi, the action arose out of a motor vehicle accident in which both first-party and
third-party claims ensued.2 The trial court denied Sentinel’s motion for summary disposition on
Bazzi’s claim for PIP benefits premised on the innocent third-party rule. Bazzi, ___ Mich App at
___; slip op at 2. In this Court, the Bazzi majority construed the issue to be addressed as
“whether the so-called ‘innocent third-party’ rule, which this Court established in State Farm
Mut Auto Ins Co v Kurylowicz, [67 Mich App 568; 242 NW2d 530 (1976), overruled in Hyten,
491 Mich at 550,] survived our Supreme Court’s decision in Titan Ins Co v Hyten.” Bazzi, ___
Mich App at ___; slip op at 2 (citation omitted). The Bazzi majority concluded “that it did not.”
Id.

        While Hyten did not involve a claim for PIP benefits, the Bazzi majority found the
decision in Hyten to be determinative and concluded that “there is no innocent third-party rule as
to a claim for [PIP] benefits. That is, if an insurer is entitled to rescind a no-fault insurance
policy based upon a claim of fraud, it is not obligated to pay benefits under that policy even for
PIP benefits to a third party innocent of the fraud.” Bazzi, ___ Mich App at ___; slip op at 3. In
other words, if an insurer is able to establish that the subject insurance policy was “procured by
fraud,” the insurer will not be “obligated to pay no-fault benefits.” Id.



1
  Frost was eventually joined by plaintiffs GMAC and Ally Financial, Inc., who dismissed their
claims against defendant and are not parties in the instant appeal.
2
  “Sentinel successfully pursued a third-party complaint against Hala and Mariam Bazzi seeking
to rescind the policy based on fraud.” Bazzi, ___ Mich App at ___; slip op at 2.


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        In its analysis, the Bazzi majority determined that the “easily ascertainable” rule and the
“innocent third-party rule” are effectively indistinguishable in “that they are one and the same
[rule].” Id. Denying that the decision in Hyten was focused solely “on how ascertainable the
fraud is,” the majority determined that it was “also relevant that we are dealing with a third-party
claimant.” Id. at ___; slip op at 4. Finding the issue in Hyten to comprise “whether an insurer
may avail itself of traditional legal and equitable remedies to avoid liability under an insurance
policy on the ground of fraud in the application for insurance, when the fraud was easily
ascertainable and the claimant is a third party,” the Bazzi majority asserted that Hyten recognized
the necessity “that both conditions must apply before the insurer is prevented from raising a
fraud defense.” Bazzi, ___ Mich App at ___; slip op at 4, citing Hyten, 491 Mich at 560, 564.
Further, the majority observed that Hyten served to overrule Kurylowicz, “its progeny,” and other
decisions, such as Ohio Farmers Ins Co v Mich Mut Ins Co, 179 Mich App 355; 445 NW2d 228
(1989), overruled in Hyten, 491 Mich at 564, “to the extent that it held ‘that an insurer is
estopped from denying coverage on the basis of fraud when it could have easily ascertained the
fraud[.]’ ” Bazzi, ___ Mich App at ___; slip op at 4-5, quoting Hyten, 491 Mich at 551 n 1.

       The Bazzi majority further concluded that the decision in Hyten extended to “mandatory
no-fault benefits.” Bazzi, ___ Mich App at ___; slip op at 5. In reaching this conclusion, the
majority quoted the following language in Hyten:

       [T]hat an insurer is not precluded from availing itself of traditional legal and
       equitable remedies to avoid liability under an insurance policy on the ground of
       fraud in the application for insurance, even when the fraud was easily
       ascertainable and the claimant is a third party. [Bazzi, ___ Mich App at ___; slip
       op at 5, quoting Hyten, 491 Mich at 571.]

Indicating that the above-referenced statement from Hyten lacked any qualification regarding
whether the benefits were statutorily mandated, the Bazzi majority asserted:

       Thus, if there is a valid policy in force, the statute controls the mandated
       coverages. But what coverages are required by law are simply irrelevant where
       the insurer is entitled to declare the policy void ab initio. [Bazzi, ___ Mich App at
       ___; slip op at 5.]

Therefore, according to Bazzi, the question becomes, “not whether PIP benefits are mandated by
statute, but whether that statute prohibits the insurer from availing itself of the defense of fraud.”
Id. Indicating the failure of the litigants to identify a provision within the no-fault act that
statutorily restricts the use of the fraud defense with regard to PIP benefits, the majority
proceeded to address MCL 257.520 and the discussion regarding this statutory provision in
Hyten, stating that the Hyten Court “concluded that [the] limitation on the fraud defense
contained in MCL 257.520(f)(1) does not apply to all automobile insurance policies.” Bazzi, ___
Mich App at ___; slip op at 5-6. Based on the Hyten Court’s determination that MCL
257.520(f)(1) only restricted the fraud defense to coverage under MCL 257.501 through MCL
257.532, the Bazzi majority suggested that the statutory provision “is only relevant [to] whether
the Legislature has restricted the availability of the fraud defense with respect to particular
coverage.” Bazzi, ___ Mich App at ___; slip op at 7. Consequently, the Bazzi majority


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determined that MCL 257.520(f)(1) restricted only coverage to proof of financial responsibility
pursuant to MCL 257.518 and MCL 257.519, and explained:

       [U]nless the insured . . . had an outstanding, unsatisfied judgment . . . then the
       provisions of MCL 257.520 would simply not apply. This is in contrast to MCL
       500.3101, which requires that the owner or registrant of a motor vehicle driven on
       a highway carry certain insurance coverages, including residual liability
       insurance. And under MCL 500.3131 and MCL 500.3009, the minimum limits
       are similar to that required under the financial responsibility act. But, unlike the
       provisions of the financial responsibility act, none of those statutes restrict the
       availability of the fraud defense. [Bazzi, ___ Mich App at ___; slip op at 7
       (footnote omitted).]

The Court further rejected a public policy argument for retaining the “innocent third-party” rule,
noting the Hyten Court’s criticism of a “ ‘public policy’ rationale” for “the adoption of the
‘easily ascertainable’ rule.” Id. at 8, quoting Hyten, 491 Mich at 564-566. Ultimately, the
majority deemed it the role of the Legislature to determine whether public policy arguments
pertaining to this issue had merit. Bazzi, ___ Mich App at ___; slip op at 9.

        In remanding the case to the trial court to address factual determinations regarding the
establishment of fraud to permit rescission of the insurance policy, the Bazzi majority
summarized its holding by concluding:

       (1) there is no distinction between an “easily ascertainable rule” and an “innocent
       third-party rule,” (2) the Supreme Court in [Hyten] clearly held that fraud is an
       available defense to an insurance contract except to the extent that the Legislature
       has restricted that defense by statute, (3) the Legislature has not done so with
       respect to PIP benefits under the no-fault act, and, therefore (4) the judicially
       created innocent third-party rule has not survived the Supreme Court’s decision in
       [Hyten]. Therefore, if an insurer is able to establish that a no-fault policy was
       obtained through fraud, it is entitled to declare the policy void ab initio and
       rescind it, including denying the payment of benefits to innocent third-parties.
       [Id. at 10.]

        The issue on appeal is whether the circuit court erred by ruling that Progressive could not
rescind the policy ab initio as to Frost’s daughter. We previously concluded that the circuit
court’s ruling is inconsistent with our Supreme Court’s holding in Hyten, 491 Mich at 571. In
Hyten, our Supreme Court held that absent statutory provisions to the contrary, “an insurer is not
precluded from availing itself of traditional legal and equitable remedies to avoid liability under
an insurance policy on the ground of fraud in the application for insurance, even when the fraud
was easily ascertainable and the claimant is a third party.” Id. Accordingly, the claim by Frost’s
daughter did not bar Progressive from rescinding the policy in this case.

        We conclude that our previous decision is consistent with and adheres to the majority
decision in Bazzi. To prevail on its rescission claim, Progressive must establish proper grounds
for rescission. Because the circuit court did not expressly rule on the grounds for rescission, the
case must be remanded for further proceedings.

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        The court’s order granting summary disposition to Citizens and denying summary
disposition to Progressive is vacated. The case is remanded for further proceedings. We do not
retain jurisdiction.

                                                         /s/ Donald S. Owens
                                                         /s/ Kathleen Jansen
                                                         /s/ Peter D. O’Connell




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