                          STATE OF MICHIGAN

                          COURT OF APPEALS



STATE FARM MUTUAL AUTOMOBILE                          FOR PUBLICATION
INSURANCE COMPANY,                                    August 30, 2016

             Plaintiff,

v                                                     No. 319710
                                                      Kalamazoo Circuit Court
MICHIGAN MUNICIPAL RISK                               LC No. 2012-000202-CK
MANAGEMENT AUTHORITY,

             Defendant-Appellee,

and

QBE INSURANCE CORPORATION,

             Defendant/Third-Party-
             Plaintiff/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: RIORDAN, P.J., and MURPHY and BOONSTRA, JJ.




                                          -1-
MURPHY, J. (concurring).

        Because this Court in Bazzi v Sentinel Ins Co, __ Mich App __; __ NW2d __ (2016), held
that the “innocent third-party rule” was implicitly and effectively abolished in Titan Ins Co v
Hyten, 491 Mich 547; 817 NW2d 562 (2012), for purposes of mandatory personal protection
insurance benefits, commonly referred 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 insurance policy with Whitney Gray.
Therefore, I concur with the majority that the trial court erred in denying QBE’s motion for
summary disposition on the basis of the innocent third-party rule. I write separately to simply
express my view that there is language in our Supreme Court’s opinion in Titan that plainly and
unambiguously reflects that the Supreme Court itself accepted the notion that remedies for
actionable fraud are limited in relation to statutorily-mandated 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 under the insurance
         policy, notwithstanding that the fraud may have been easily ascertainable.
         However, as discussed earlier in this opinion, 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 which it was appended, it
necessarily signified the Supreme Court’s stance that the $20,000/$40,000 residual liability
coverage mandated by MCL 500.3009(1) cannot be diminished or limited 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. Optional insurance coverage above the


1
    MCL 500.3009(1) states:

                 An automobile liability or motor vehicle liability policy insuring against
         loss resulting from liability imposed by law for property damage, bodily injury, or
         death suffered by any person arising out of the ownership, maintenance, or use of
         a motor vehicle shall not be delivered or issued for delivery in 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 interest 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 persons 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.



                                                  -2-
minimum liability limits contained in a policy procured by fraud might not be reached by an
injured third party seeking damages arising out of a motor vehicle accident, but footnote 17 in
Titan makes abundantly clear that the mandatory liability minimums are 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 insurer 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 is statutorily required.2 MCL 500.3009(1) has no such language; rather,
MCL 500.3009(1) merely sets forth minimum policy requirements in 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 for fraud. The only feasible
explanation for any fraud-remedy limitation arising out of or created by MCL 500.3009(1) is that
the statutory provision pertains to mandatory coverage. By observing that MCL 500.3009(1)
limits available remedies for actionable fraud, the Supreme Court effectively telegraphed its
view that an insurer would be liable under a policy with respect to liability coverage required by
MCL 500.3009(1) in connection to an innocent third party injured by a negligent driver who had
fraudulently procured the policy.

        MCL 500.3009(1) is incorporated by reference in the no-fault act with regard to
mandatory residual liability coverage. See MCL 500.3101(1) (“The owner or registrant of a
motor vehicle required to be registered in this state shall maintain security for payment of
benefits under . . . residual liability insurance.”); MCL 500.3131(2) (residual liability insurance
mandate “shall not require coverage in this state other than that required by section 3009[1]”).
PIP coverage is also mandated by statute. MCL 500.3101(1) (“The owner or registrant of a
motor vehicle required to be registered in this state shall maintain security for payment of
benefits under personal protection insurance[.]”). And “[u]nder personal protection insurance an


2
    MCL 257.520 provides, in pertinent part:
                (f) Every motor vehicle liability policy shall be subject to the 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 become absolute whenever injury or damage
         covered by said motor vehicle liability policy occurs; said policy may not be
         cancelled or annulled as to such liability by any agreement between the insurance
         carrier and the insured after the occurrence of the injury or damage; no statement
         made by the insured or on his behalf and no violation of said policy shall defeat or
         void said policy, and except as hereinafter provided, no fraud, misrepresentation,
         assumption of liability or other act of the insured in obtaining or retaining such
         policy, or in adjusting a claim under such policy, and no failure of the insured to
         give any notice, forward any paper or otherwise cooperate with the insurance
         carrier, shall constitute a defense as against such judgment creditor.




                                                 -3-
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 vehicle[.]” MCL 500.3105(1).3
Given the mandatory nature of PIP coverage under the no-fault act, 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 actionable 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-mandated automobile insurance
coverage, as to reach such a conclusion would require a wholesale disregard of Titan’s footnote
17.

       I respectfully concur.



                                                           /s/ William B. Murphy




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


                                               -4-
