STATE OF MICHIGAN I N T H E SUPREME COURT

APPEAL FROM T H E COURT OF APPEALS (Sawyer, PJ.; Beckering and Boonstra, JJ.)

A L I B A Z Z I ,

and

Plaintiff-Appellant, Supreme Court Docket N o . 15442

Court o f Appeals N o . 320518

G E N E X P H Y S I C A L T H E R A P Y , I N C . , and Wayne Cir Ct L C N o . 13-000659-NF E L I T E C H I R O P R A C T I C C E N N T E R , PC.

Intervening Plaintiffs-Appellants, and

T R A N S M E D I C , L L C , Intervening Plaintiff-Appellee,

S E N T I N E L I N S U R A N C E C O M P A N Y ,

Defendant /Thi rd Party Plaintiff-Appellee,

and

C I T I Z E N S I N S U R A N C E C O M P A N Y . De fendant-Appellee,

and

H A L A B A Y D O U N B A Z Z I and M A R I A M B A Z Z I .

Third-Party Defendants-Appellees.

B R I E F OF AMICUS CURIAE JOHN A. BRADEN

John A . Braden (P29645) Amicus Curiae 5519 Taylor Dr ive Fremont, M I 49412 Phone (231) 924-6544 John-braden@sbcglobal.net

STATE OF MICHIGAN IN T H E SUPREME COURT

APPEAL FROM T H E COURT OF APPEALS (Sawyer, P.J.; Beckering and Boonstra, JJ.)

A L I B A Z Z I , Plain tiff-Appellant, Supreme Court Docket No. 15442

and Court o f Appeals No. 320518

G E N E X PHYSICAL THERAPY, INC. , and Wayne Cir Ct LC No. 13-000659-NF E L I T E CHIROPRACTIC C E N N T E R , PC.

Inter\'"ening Plain tiffs-Appellants, and

T R / \ N S M E D I C , L L C , Intervening Plain tiff-Appellee,

S E N T I N E L I N S U R A N C E CONfPANY, Defendant/Third Party Plaintiff-Appellee,

and

CITIZENS I N S U R A N C E C O M P A N Y , Defendant-Appellee,

and

H A L A B A Y D O U N B A Z Z I and M A R I A M B A Z Z I .

Third-Party Defendants-Appellees. /

B R I E F OF AMICUS CURIAE JOHN A. BRADEN

John A. Braden (P29645) Amicus Curiae 5519 Taylor Drive Fremont, M I 49412 Phone (231) 924-6544 John-braden@sbcglobal.net

M I K E MORSE L A W F I R M By: Stacey L. Heinonen (P55635) Attorneys for Plaintiff A i i Bazzi and Intervening Plaintiffs Genex and Elite Chiropractic 24901 Northwestern Highway, Suite 700 Southfield, M I 48075

Kenneth A. Tardie (P25044) Attorney for Intervening Plaintiff Transmedic 18 First Street Mount Clemens, M I 48043

P L U N K E T T C O O N E Y by: Mary Massaron (P43885) Attorneys for Defendant Sentinel 38505 Woodward Avenue, Suite 100 Bloomfield Hills, M I 48304

A N S E L M I MIERZEJEWSKI R U T H & SOWLE PC By: John D . Ruth (P48540) Attorneys for Defendant Citizens 1750 Soudi Telegraph Road, Suite 306 Bloomfield Hills, M I 48302

FOSTER SWIFT C O L L I N S & S M I T H PC By: Stefania Gismondi (P74277) Attorneys for Third-Party Defendants Hala & Mariam Bazzi 28411 Northwestern Highway, Suite 500 Southfield, M I 48034

TABLE OF CONTENTS

I N D E X O F A U T H O R I T I E S 4

S T A T E M E N T O F J U R I S D I C T I O N 8

C O U N T E R S T A T E M E N T O F QUESTIONS PRESENTED 8

C O U N T E R S T A T E M E N T O F FACTS 9

DISCUSSION 11

I . U N A U T H O R I Z E D DEFENSES ARE U N A U T H O R I Z E D 11

I I . G R O U N D S FOR E Q U I T A B L E RELIEF R E M A I N T O BE SEEN 15

A. S T A N D A R D O F R E V I E W 15

B. C O N S I D E R A T I O N S R E L E V A N T T O RESCISSION 16

C. C O N C L U S I O N 23

INDEX OF AUTHORITIES

CASES

AmstervStratton, 259 Mich 683 (1932) 15, 21

^aughan v Mortgage <& Contract Co, 263 Mich 249 (1933) 15, 23

BlakesleevFarm Bunau Mutual Ins Co, 388 Mich 464 (1972) 11, 18-19

Bonninghausen v Hall, 267 Mich 347 (1934) 15, 23

Breckonv Franklin Fuel Co, 383 Mich 251 (1970) 12-13

Cahvecchi V MSP, 461 Mich 616 (2000) 14

Camewn vACIA, 470 Mich 55 (2006) 13

Chitwoodv Vertex Pharmaceuticals, 476 Mass 667; 71 N E 2d 492 (2017) 18

ChmielewskivNau, 324 Mich 375 (1949) 15

Citii^ens Ins Co v Federated Mutual Ins Co, 448 Mich 225 (1995) 11

Cobum V Fox, 425 Mich 300 (1986) 12

Coi>enantMedCtri;SFMAIC,_mch_{20\7) 13

Dehmig v Northern Michigan Exploration Co, 194 Mich App 399 (1981) 15

DeMarco v Palav^lo, 47 Mich App 444 (1973) 16

Fox V Jacobs, 289 Mich 619 (1939) 25

Hilt V Metropolitan Ufe Ins Co, UO Mich 517 (1896) 19

HinchmanvMatheson Motor Car Co, 151 Mich 214 (1908) 19

Bisaw V Hayes, 133 Mich App 639 (1984) 22

Hot^lander V Brvwnell, 182 Mich App 716 (1990) 22

In^lese v Beal, 403 SC 290; 742 SE2d 687 (App 2013) 18

]ewiu V Petit, 5 Mich 508 (1857) 21

Johnson v Pastori^a, 491 Mich 417 (2012) 14

Kaftan v Kaftan, 300 Mich App 661 (2013) 16

K^y^/zPat-^, 358 Mich 74 (1959) 18

KntgervAgnor, 321 Mich 131 (1948) 15

Lenawee County v Messerly, 417 Mich 17 (1982) 15

UsnervUquid Disposal, 466 Mich 95 (2002) 14

Uacey CovUacey, 143 Mich 138 (1906) 16

Mactamh v Kent Or judge, 122 Mich 242 (1899) 25

Marshall V Marshall, 135 Mich App 702 (1984) 15

May V Penn TV & Furniture Co, 686 A 2d 95 (RI 1996) 18

MeliavMESC, 346 Mich 544 (1956) 14

Miller V Scottish Union Nat'lIns Co, 101 Mich 49 (1894) 19-20

Mulvihill V Am Annuity Ufe Ins Co, 121 Mich App 192 (1982), Iv den 418 Mich 953 (1984). . 17

New England Mutual Ufi Ins Co vLeVej, 264 Mich 282 (1933) 19

North Detroit Land Co P V^miniecki, 257 Mich 239 (1932) 20

O'ConnervBamm, 335 Mich 438 (1953) 22

Olson V Olson, 256 Mich App 619 (2003) 15

Pappas V CentralNatHIns Group, 400 Mich 475 (1977) 12

Peake v Thomas, 39 Mich 584 (1878) 19

People V Mclntin, 461 Mich 147 (1999) 14

People V Zajacxkomki, 493 Mich 6 (2012) 13

Roberison v BW^>r, 229 Mich 619 (1925) 20

Roher/soN v DaimlerChryskr Corp, 465 Mich 732 (2002) 14

Rosenthal V Triangle Demi Co, 261 Mich 462 (1933) 22

Rf/eslng V Aetna Casualty <& Surety Co, 409 Mich 1 (1980) 12

Samuels v Detroit Trust Co, 223 Mich 661 (1923) 20

SchnepfvUcNamara, Inc, 354 Mich 393 (1958) 17

Schnit!^v Grand River Avenue DevelCo, 271 Mich 253 (1935) 15-17

Service Employees Int*l Union v Bromi, 197 Cal App 4di 252 (2011) 18

SFMAIC V Kurylomc:^ 67 Mich App 568 (1976) 20

SFMAIC V Sivey, 404 Mich 51 (1978) 12,14

Shinholster Estate v Annapolis Hosp, All Mich 540 (2004) 13

Shubert v Woodivard, 167 F 47 (CA 8,1909) 21, 24

Sparks V Sparks, 440 Mich 141 (1992) 15, 16

SpeathvMerchants'Ufe Ins Co, 245 Mich 100 (1928) 19

Stefanac v Cranbrook Educational Community, 435 Mich 155 (1990) 19

Stomrs V Wolod^ko, 386 Mich 119 (1971) 14

Sun Valley Foods Co v Ward, 460 Mich 230 (1999) 13

Thill vDanna, 240 Mich 595 (1927) 16, 17

Titan Ins Co v Hyten, 491 Mich 547 (2012) 12,17,18, 23

Vemon vAntona, 222 Mich 83 (1923) 21

\}/alker Co V Harrison, 347 Mich 630 (1957) 16

STATUTES AND COURT RULES

I C 2103(1) 22, 23

IC2118 22

IC 3105(4) 13

IC 3113(a) 13

IC3113(b) 13

IC 3121(4) 13

IC 3145(1) 13

IC3153 14

IC 2833(1) 13

MCR 7.301(A)(2) 8

OTHER SOURCES

Braden, "Statutory Validity o f Exclusions f rom and Limitations on Automobile Liability Coverage." 16 MBJ 554ff Quly, 1982) 11

Ronald Reagan, "Remarks on Signing the Intermediate Range Nuclear Forces Treaty," I I Pub Papers 1455 p e c . 18, 1987) 18

'The Signing: 'Universal Significance for Mankind"' in the Dec. 9,1987 New York Times. . 18

I

IC = Insurance Code, M C L SOO.xxxx

STATEMENT OF JURISDICTION

The Supreme Court has jurisdiction by virme of MCR 7.301 (A)(2) (review after decision

by the Court o f Appeals).

COUNTERSTATEMENT OF QUESTIONS PRESENTED

I . M A Y A N O - F A U L T CARRIER ASSERT DEFENSES N O T A U T H O R I Z E D BY T H E N O - F A U L T ACT?

Amicus Curiae John A. Braden says "no."

I I . A R E I N T E R V E N I N G T H I R D - P A R T Y INTERESTS A R E L E V A N T C O N S I D E R A T I O N W H E N T H E E Q U I T A B L E R E M E D Y O F RESCISSION IS REQUESTED?

Amicus Curiae John A. Braden says "yes."

COUNTERSTATEMENT OF FACTS

According to the Court o f Appeals decisions, Defendant Sentinel Insurance Company

(Sentinel) issued a commercial motor vehicle insurance policy to Mimo Investments, L L C

(Mimo) for vehicles used in the business. Third-Party Defendant Mariam Bazzi (Mariam) was

resident agent for Mimo. A vehicle owned by Third-Party Defendant Hala Bazzi (Hala) and

purportedly covered under Sentinel's policy was leased to Plaintiff AH Bazzi (Plaintiff). '

While driving the vehicle. Plaintiff was injured in an automobile accident. He received

medical and other services f rom Inter\'ening Plaintiffs Genex Physical Therapy, Inc.; Elite

Chiropractic Center, PC; and Transmedic, LLC.

Plaintiff made a claim for no-fault insurance benefits against Sentinel, which Sentinel

refused to pay. When that happened, the Assigned Claims Facility assigned the claim to Citizens

Insurance Company. I n the suit against the insurers, Sentinel impleaded Mariam and Hala (but

e\adendy not Mimo) and asserted a fraud defense. Specifically, Sentinel asserted a) use o f the

vehicle for Plaintiff's personal purposes, not for Mimo's business and b) nondisclosure that

Plaintiff (who had had a previous accident) would be a regular driver.

Sentinel's morion for summary disposition was denied, the trial court holding that the

policy would not be rescinded because the interests o f innocent third parties had intervened.

A n interlocutory appeal was initially denied,^ but the Supreme Court remanded for consideration

It is not apparent why a policy covering an L L C would cover vehicles not owned by the LLC.

3

Ct App N o 320518 (May 21, 2014).

as on leave granted."*

On remand, the Court o f Appeals held 2-1 that " i f an insurer is able to establish that a

no-fault policy was obtained through fraud, it is entided to declare the policy void ab initio and

rescind it, including denying the payment o f PIP benefits to innocent-third-parties" (sic). 315

Mich App 763 (2016). The court remanded for further proceedings.^

497 Mich 886 (2014).

5

The scope o f the remand is unclear. 1. Since the Court o f Appeal assumed no fraud for purposes o f the appeal, i t may be

inferred that the trial court must address on remand whether fraud occurred. 2. The Court o f Appeals' reference to the need to establish that the policy was obtained

through fraud also implies that, on remand, the trial court must determine whether the fraud (if proven) led to issuance o f the polic)', i.e. was material.

3. Finally, the Court o f Appeals assumed that the trial court denied rescission solely because third-party interests inter\'^ened (majority op fn 31), and held that that was error. However, that is not the same as saying that inter\'ention o f third-party interests is immaterial As further discussed injra, under equitable principles, this is a relevant consideration which, in combination with all other relevant considerations, may render rescission inequitable. Consequendy, the Court o f Appeals decision does not rule out consideration o f intervention o f third-party interests on remand, as one o f several considerations that goes into determining whether rescission is appropriate.

4. Lif ted out o f context, the Court o f Appeals holding could be cited for the proposition that rescission is automatic, whenever material fraud is shown. However, holdings have reference to the facts and arguments in the case before them. Since the Court o f Appeals was not faced with the possible effect o f equitable considerations such as laches, estoppel, unclean hands, and failure to tender back, the decision is not properly considered as ruling that those considerations are irrelevant to rescission. I t follows that, on remand, the trial court is free to deny rescission based on such considerations.

10

DISCUSSION

I. UNAUTHORIZED DEFENSES ARE UNAUTHORIZED

STANDARD OF REVIEW: What defenses are cognizable by the No-Fault Act is a legal

question, reviewable de novo.

Though administered through private insurers. Automobile No-Fault Insurance involves

coverage that is mandatory in two senses: 1. the nature o f the coverage required in every no-fault

policy is specified by the statute and 2. motor vehicle owners are required to catry the mandator)'

coverage.

The notion o f mandator)' insurance coverage is not new with the No-Fault Act. Until

repealed relatively recently, terms o f fire insurance policies were specified by law. In addition,

motorists have long been required to carry automobile liability coverage. Finally, for a number

of years, statutes required motorists to carry uninsured motorist coverage.

Where the Legislature had decreed that there wil l be coverage, insurers are not free to

insert clauses that detract f rom that coverage. Braden, "Statutory Validity o f Exclusions From

and Limitations O n Automobile Liabilit)' Coverage." 16 MBJ 554ff (July, 1982). In particular,

where a policy is statutory, defenses not authorized by the statute are void. Blakeslee v Farm

Bureau Mutual Ins Co, 388 Mich 464, 473-474 (1972) (coordination with other insurance clause

in U M policy; noting unfairness o f collecting premium for statutory coverage, then not

providing it); Citii^ens Ins Co v Federated Mutual Ins Co, 448 Mich 225, 231-232 (1995) (clause

denying residual liability coverage i f the vehicle's driver has liability coverage; rejecting argument

that a clause authorized by Financial Responsibility Act may be inserted in a no-fault policy);

11

Pappas V Central Nat'l Ins Group, 400 Mich 475, 481 (1977) (named driver exclusion f rom U M

coverage); Ruesing v Aetna Casualty & Surety Co, 409 Mich 1,45 (1980) (anti-stacking clause in U M

policy); SFMAIC v Sivey, 404 Mich 51, 57 (1978) (iiijured person exclusion f rom auto liability

coverage); Cobum vFox, 425 Mich 300, 312 (1986) (noncooperation defense in residual liability

policy).'^

The case at bar involves an auto no-fault policy, which is statutorily mandated coverage.

The defense asserted (fraud in the inducement) is nowhere authori2ed by the No-Fault Act.

Because no fraud defense is contained in the NFA, that act by its terms requires payment o f

benefits in this situation. Excusing payment o f benefits based on an unauthorized defense is

therefore not merely unauthorized by the NFA: i t contradicts the plain language o f the Act.

I t is argued that the Legislature intended common-law defenses apply to no-fault claims.^

There are also over a hundred Court o f Appeals cases so holding.

7

The case cited for this proposition does not so hold. In Titan Ins Co v Hyten, 491 Mich 547 (2012), the auto liability carrier banished statutorily required insurance f rom the case by paying the coverages required by statute, and instead disputing its liability for coverage in excess of the statutory minima. Hyten was thus a common-law insurance case, and not surprisingly held that common-law defenses apply. The question of whether common-law defenses apply to statutorily mandated insurance coverage was not before the Hyten court, making whatever i t might have said on the latter topic dictum.

I t is a maxim not to be disregarding, that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used. I f they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit where the very point is presented for decision. The reason o f this maxim is obvious. The question actually before the court is investigated with care, and considered in its ful l extent. Other principles which may sen^e to illustrate i t are considered in their relation to the case decided, but their possible bearing on all

12

However, the best indication o f the Legislamre's intent is the language used.^ I f the Legislamre

intended there to be a fraud defense to no-fault claims, i t would have said so, as i t has

elsewhere.'' I t is sheer speculation to say that the Legislature intended to say something it didn't

say. As the Court recendy affirmed, there are no rights under the No-Fault Act except as are

expressly conferred. Covenant Med CtrvSFMAIC, Mich (2017) (pro\'ider has no standing

to sue under N F A ) . Since the Act confers no right to rescind for fraud in the inducement, there

is no such right.

Moreover, any inference that there are unstated defenses is negated by the defenses the

Legislature did put into the No-Fault Act:

• Benefits may be denied i f injury is caused intentionally. IC 3105(4) (PIP), 3121(4) (PPI).

• Benefits may be denied i f a vehicle is used without permission. IC 3113(a).

• Benefits may be denied i f the motorist fails to insure other vehicles he owns. IC 3113(b).

• Benefits may be denied i f they are incurred over a year before suit is filed. IC 3145(1).

• Benefits may be denied i f claim is not made within a year o f the accident. IC 3145(1).

other cases is seldom completely investigated, breckon v Franklin Fuel Co, 383 Mich 251, 267 (1970).

8

Johnson v Pastori^, 491 Mich 417, 436 (2012); S bin holster Estate v Annapolis Hosp, 471 A-Iich 540, 549 (2004); People v Zajaixkowski, 493 Mich 6, 13 (2012); Sun ValleyFoods Co v Ward, 460 Mich 230,236 (1999); Cameron vAClA, 470 Mich 55, 63 (2006) ("we must assume that die diing die legislature wants is best understood by reading what it said").

"Each fire insurance policy issued or delivered in this state shall contain the following pro\'isions: ... (c) that the policy may be void on the basis o f misrepresentation, fraud or concealment." IC 2833(1).

13

• Benefits may be denied i f the insured person fails to submit to a medical examination.

IC3153.

Expressio unius est exclusio alterius. Stowers v U^olod^ko, 386 Mich 119, 133 (1971). By expressly

specif)'ing defenses to no-fault claims, the Legislature impliedly ruled out unexpressed defenses.

SFMAIC V Sivey, supra at 404 Mich 57 (Financial Responsibilit)' Act's recognition o f certain

defenses rules out other defenses). Indeed, where the Legislature has said that A , B and C are

defenses, and a court says "and so is D , " the court has just amended the statute, contrary to the

rule that courts may not legislate. Melia v MESC, 346 Mich 544, 562 (1956) ("it is not the

function o f die court to legislate"); Lesner v Liquid Disposal, 466 Mich 95,101-102 (2002).

Whether a fraud defense is a good idea is a judgment the courts are not authorized to

make. Robertson v DaimlerChrysler Corp, 465 Mich 732, 759 (2002) (may not depart f rom plain

language o f statute to ser\'e a supposed public policy"*); Calovecchi v MSP, 461 Mich 616, 624

(2000) {Id); People V Mdntire, 461 Mich 147,155, n 2 (1999) (must apply statute as written, even

i f some label the results absurd). I f the Legislature thinks a fraud defense is needed, i t wil l amend

the No-Fault Act to insert one. Unti l then, i t is the courts' responsibility to enforce the Act as

written, by refusing to recognize defenses not expressed in the Act. Russell v Whirlpool Financial

Corp, 461 Mich 579 (2000) (may not recognize termination defense not expressed in statute).

10

I f anything, public policy favors coverage in this case. The public policy o f Michigan, as expressed in the N F A , is to assure that \ictims o f automobile accidents are taken care o f by the class o f motorists through their insurance rather than by the public through welfare. That policy calls for everyone to be covered for no-fault benefits (except for discrete exceptions expressed in the Act). That policy would be thwarted i f insurers could insert whatever exclusions they wanted into no-fault policies (or import common-law defenses, which amounts to the same thing).

14

II. GROUNDS FOR EQUITABLE R E L I E F REMAIN TO B E S E E N

A. STANDARD OF REVIEW

The case law is all over the map on the applicable standard o f review:

1. Some cases, citing the general rule that equity cases are heard de novo on appeal, apply

that standard to cases in which rescission has been granted or denied. Kruger v Agnor, 321 Mich

131,136 (1948); ChmielemkivNau, 324 Mich 375,377 (1949); Kaftan v Kaftan, 300 Mich App 661,

665 (2013).

2. Other cases point out that rescission is a matter or grace, not right, which is addressed

to the trial court's sound discretion, henawee County v Messerly, 417 Mich 17, 31 (1982); Baughan

V Mortgage & Contract Co, 263 Mich 249, 251 (1933); Schnit^ v Grand ^ver Avenue Devel Co, 271

Mich 253, 257 {y')lS);AmstervStratton, 259 Mich 683,686, 687 (1932); Bonninghausen v Hall, 267

Mich 347, 350 (1934). Under these cases, a trial court's decision to grant or deny rescission is

re\aewable for an abuse o f discretion. Olson v Olson, 256 Mich App 619, 629 (2003).

3. A third class o f cases states that re\'iew is de novo, but then adds that the trial court's

decision is entided to deference. Dehring v Northern Michigan Exploration Co, 194 Mich App 399,

306 {\my, Marshall V Marshall, 135 Mich App 702 Sparks v Sparks, 440 Mich 141, 152

(1992) (property division in a divorce action affirmed "unless the appellate court is left: with the

firm conviction that the division was inequitable").

Looking at the matter independendy, pure de novo re\'iew inaccurately assumes a) that

appellate courts are set up to try cases and b) that cases can be decided fairly without ever having

viewed the witnesses on the stand. A t the other extreme, an abuse o f discretion standard was

15

criticized (in Sparks v Sparks, supra at 440 Mich 150-151) as offering too litde protection f rom

unfair trial court decisions. By the process o f elimination, the best standard is the intermediate

one: the appellate court has authority to decide the propriety o f rescission, but wil l do so only

i f the trial court's decision is clearly inequitable.

B. CONSIDERATIONS RELEVANT TO RESCISSION

1. Generally

In order to place the "inten^ening interests" consideration in context, it is necessary to

address the nature o f the remedy sought by Sentinel. Rescission is an equitable remedy. Macey

Co V Macey, 143 Mich 138, 151 (1906). Consequentiy, i t wil l not be ordered unless the equities

favor the one seeking rescission. Schnit^ v Grand ^ver Avenue Devel Co, supra at 271 Mich 257.

In assessing the equities, no one consideration is controlling. Rather, "Equity looks at

the whole situation and grants or withholds relief as good conscience dictates." Thill v Danna,

240 Mich 595, 597 (1927). The court must "balance the competing and valid interests o f the

parties." DeMarco v Pala:(jiolo, 47 Mich App 444, 448 (1973). In particular, where rescission o f

a contract is sought, a number o f factors are relevant. Walker Co v Harrison, 347 Mich 630, 635

(1957):

2. How blameworthy is the alleged fraudfeasor's conduct?

I f an uninsurable and dangerous driver were to flat-out lie to obtain coverage, that would

support rescission. The facts o f the case at bar are more ambiguous. For instance, failure to

mention a fact (a pre\aous accident) is cited. Concealment is not fraudulent unless there was a

duty to disclose; and an insurance applicant has no duty to disclose information unless same is

16

explicitly and unambiguously requested. Mulmhill v Am Annuity Life Ins Co, 121 Mich App 192

(1982), Iv den 418 Mich 953 (1984).

Moreover, we are not dealing with an uninsurable driver, but rather one who could have

obtained insurance, but who may have had to pay higher premiums, had all relevant facts been

revealed.

3. Did the one seeking rescission act equitably?

Equity aids only those who come to court with clean hands, and even a fraud victim can

have unclean hands. For example, it is inequitable to try to rescind a policy for fraud when the

insurer was not misled; or the alleged misrepresentation would not in fact have made a

difference in issuance o f the policy; or the insurer delayed in acting on known or suspected fraud

until after the insured or beneficiaries acted to their detriment;" or the insurer failed to take

reasonable steps to learn the truth.

On this last point. Titan Ins Co v Hyten, supra held (at 491 Mich 551, 557, 569, 570) that

the fact that the truth is easily ascertainable by itself does not preclude equitable relief.'^ This is

correct, for no one factor by itself commands or precludes equitable relief.'^ But, by the same

Schnepf VMcNamara, Inc, 354 Mich 393,397 (1958) (must assert rescission as soon as grounds for same are known); Schnit^ v Grand V^ver Avenue Devei Co, supra.

12

The case Titan relied on is still less relevant. Keys v Pace, 358 Mich 74 (1959) was a legal garnishment action, not an equitable action. Nor does the Ke^ opinion reveal the source o f the fraud defense asserted by the insurer: for all we know, the policy was a purely private one containing such a defense. Perforce, Keys does not hold that failure to investigate is an irrelevant consideration when deciding whether to grant equitable relief.

1.1

Rather, all relevant factors must be considered in context. Thill v Danna, supra.

17

token, a court in equity may not turn a blind eye to any equitable consideration. A sophisticated

party to a transaction (as insurance companies are) will "trust but verify.'"*' This has risen to the

level o f an equitable maxim. Inglese v heal, 403 SC 290; 742 SE2d 687, concurring op at 694 (App

2013) (equitable relief denied to attomey who "trusted without verifying" by accepting oral

representations that a lien had been released).'^ I f an insurer trusted without verifying, by failing

to use means at hand to learn the truth, that is an equitable consideration which supports denial

o f equitable relief."^'

Another facet o f the clean hands doctrine is the maxim that it is inequitable to seek to

avoid one's obligations under a contract while simultaneously retaining the benefits thereof. " I t

would be unconscionable to permit an insurance company... to collect premiums... with one

hand and allow it to take the coverage away with the other..." Blakeslee v State Farm, supra at 388

14

Ronald Reagan, "Remarks on Signing the Intermediate Range Nuclear Forces Treaty," I I Pub Papers 1455 (Dec. 18,1987); "The Signing: 'Universal Significance for Mankind"' in the Dec. 9, 1987 New York Times, page A 21. The phrase is reportedly a translation o f a Russian proverb.

15

See also Chitwood v Vertex Pharmaceuticals, 476 Mass 667; 71 N E 2d 492, 500, n 8 (2017); Service Employees ////'/ Union v hrown, 197 Cal App 4th 252, 267 (2011); May v Penn TV & Furniture Co, 686 A 2d 95, 100 (RI 1996) (dismissal o f complaint affirmed where defendant not served. Plaintiff trusted without verifying answer by attorney who falsely represented authority to act for defendant). As these cases suggest, the degree to which verification should be sought depends on the sophistication o f the alleged fraud victim as well as the apparent reliability o f the representation. Since this requires weighing o f evidence, whether verification should be sought is not properly decided summarily, nor automatically ruled in or out.

Note that unclean hands, including uncritical acceptance o f representations, is a consideration whetherornot any third-party interests are involved. I t is therefor obvious (to all except the Court o f Appeals majority in this case) that the "easily ascertainable" rule discussed in Titan is not the same as the "innocent third party" rule involved in the case at bar.

Mich 474. Consequently, rescission is regularly denied where the one seeking rescission failed

to tender back consideration before seeking to rescind. Stefanac v Cranbrook Educational

Commumty, 435 Mich 155,175-176 (1990) (rescission o f setdement precluded by not tendering

back before filing suit); Hinchmati v Matheson Motor Car Co, 151 Mich 214, 219 (1908) (employer

may not rescind employment contract for fraud without buying back stock it gave the

employee); Speath v Merchants'Ufe Ins Co, 245 Mich 100,102 (1928) (tender back required even

where rescinder claims release was void for fraud). In particular, an insurer seeking to rescind

the policy must tender back premiums. Hilt v Metropolitan Life Ins Co, 110 Mich 517, 552 (1896)

(retention o f life insurance premiums after learningof fraud estops insurer to rescind the policy);

New England Mutual Life Ins CovLeVey, 264 Mich 282, 286 (1933) {Id). In the case at bar, there

is no indication that Sentinel refunded any premiums, which would count heavily against

rescission.

4. Are there any intervening third-party interests?

Under the bona fide purchaser for value doctrine, a defrauded seller cannot get his

property back i f a third party who was unaware o f the fraud paid fair value for it. This is a

manifestation o f a broader equitable principle that denies relief to a defrauded party where the

one who would be hurt by rescission is a still more innocent third party, such as a tort victim

who seeks to recover f rom a liability carrier or (in the case at bar) a medical provider who seeks

reimbursement for aid rendered to an injured person. These results are justified by the maxim

that, as between two innocent parties, the equities favor the party who did nothing to facilitate

the loss. Peake v Thomas, 39 Mich 584, 589 (1878) (wife cosigned a mortgage); Miller v Scottish

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Union Nat'llns Co, 101 Mich 49, 52 (1894) (insurer's agent had unauthorized party deliver the

policy); Koberisoti v Budt^er, 229 Mich 619, 622 (1925) (no equitable relief to maker who

negligendy signed a note); North Detroit Land Co v Kominiecki, 257 Mich 239, 244 (1932) (no

equitable relief to defendant who negligendy signed a land contract assignment in blank); Samuels

V Detroit Trust Co, 223 Mich 661, 665 (1923).'^

In Samuels, after a debtor died, a grantor sought to cancel a deed given to the debtor.

Relief was denied because, in the meantime, others had loaned money to the debtor on the

strength o f the deed. Similarly, in the case at bar, by issuing a policy that purported to cover

Plaintiff, Sentinel represented to the world that Plaintiff was covered, thereby facilitating

Plaintiff s getting health care f rom the intervening plaintiffs. Even i f we assume that Sentinel

was defrauded by Plaintiff, its facilitating the loss that the inter\''ening plaintiffs incurred tilts the

equities against Sentinel.

This is not to say that rescission must be denied whenever a third party is affected.

Sometimes the third party is not entirely innocent. Conversely, sometimes the fraud \ i c t im is

guilty o f inequitable conduct (e.g., not rescinding prompdy upon learning o f grounds for

rescission). Consequendy, the Court o f Appeals in the case at bar was correct, insofar as it

rejected any per se rule that would say that rescission is never •^to^tt where interests o f a third

part)' intervene.'" But, by the same token, calling intervention o f third party interests irrelevant

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As these cases demonstrate, this principle was not (as the Court o f Appeals claimed) "established" by SFMAIC v Kurylowic^ 67 Mich App 568 (1976), but rather is as old as equity.

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The Court o f Appeals majority suggested, at fn 31, that the trial court held that the policy could

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to the rescission goes to the opposite extreme, by unjustifiably making a per se rule, even though

equitable remedies are not governed by per se rules. Shubert v Woodward, 167 F 47, 54 (CA 8,

1909) (equitable principles and rules are not hard and fast).

The true doctrine is that intervention o f third-part)' interests is a relevant factor, which

should be taken into account along with other equitable considerations in order to determine

whether the equitable remedy o f rescission is appropriate. Given that someone is going to suffer

f rom the alleged fraud, a court in equity should take into account who is least responsible for

the loss.

5. Can the status quo ante be restored?

Rescission is meant to put the parties in the same position as i f no contract had been

made. ]emtt v Petit, 5 Nfich 508, 513 (1857). That is easily done (and so rescission is readily

granted) where the contract is executory, or where only retum o f property is required. However,

changed circumstances may render restoration impossible, thus making rescission inequitable.

Amster v Stratton, supra at 259 Mich 687 (no rescission, despite fraud); Vernon vAntona, 111 Mich

83 (1923) (no rescission, where buyer let liens attach).

So, where a casualty has inter\'ened, it is not possible to restore the status quo ante,

because the insured cannot go back in time and buy a policy with another insurer that would

cover the casualt)'. I t follows that rescission is rarely appropriate after a casualty has inter\'^ened.

not be rescinded "solely because o f the innocent-third-party rule." I f the trial court so held, it would be clear error, since additional factors must be considered.

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6. How much was performed on the contract?

I f any peccadillo could enable a party to get out o f a contract, contracts would not be

worth the paper they're written on. Consequendy, only breaches substantial enough to destroy

the object o f the contract wil l justify rescission. Bj)senthal v Triangle Devel Co, 261 Mich 462, 463

(1933). So, while minimal performance by the breacher may justify rescission, the result is

otherwise where the breacher has rendered substantial performance, after the one seeking

rescission has received most o f what he bargained for. O'Conner v Bamm, 335 Mich 438, 444

(1953) (no rescission where buyer missed a few payments); Hisaw v Hayes, 133 Mich App 639,

642-643 (1984) (no rescission where almost all that was due was paid); Hot^^landervBromjell, 182

Mich App 716, 721 (1990) (one seeking rescission received the bargained-for benefit).

For example, a misrepresentation by an insurance applicant so egregious that the

applicant would not have been insured can be a serious-enough breach to justify rescission.

Conversely, where, had the truth been known, the policy would still have issued, albeit with a

higher premium, the gap between performance (the premiums actually paid) and missing

performance (the premiums that should have been paid, given the true risk presented by the

insured) may not be substantial enough to justify avoiding the entire contract.

In the case at bar, there is no indication that the policy would not have issued, had the

insurer been fully informed. Indeed, absent a conviction for a specified offense, an insurer is

prohibited f rom refusing to insure a person, merely because he was previously involved in an

accident. IC2118 (autoinsurers must insure "eligible persons"); IC 2103(1) (defining who is not

eligible).

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7. Are there less extreme remedies?

One cannot say that rescission is justified without considering alternate remedies. Thus,

equity will decline to inter\^ene where there is an adequate remedy at law. Here, Sentinel was free

to sue its insured for damages for fraud (which would be measured by whatever it had to pay

out on the claim). To be sure, i f the insured is judgment proof, that could render the legal

remedy inadequate.

Apart f rom that, rescission is not equitable when lesser remedies sufficiendy address the

problem. Bonninghausen v Hall, supra at 267 Mich 350 (allowing credit rather than rescission);

Baughan v Mortgage <& Contract Co, supra at 263 Mich 251 (allowing adjustment rather than

rescission).

In the case at bar, there is an imphcation that the problem was not that Plaintiff was

uninsurable,'^ but that he was a high enough risk that a higher premium would have been

charged. In that case, adjusting the premium upward would make the insurer whole, rendering

the extreme remedy o f rescission inequitable.

C. CONCLUSION

As the foregoing discussion makes clear, the propriety o f rescission,depends on a host

o f considerations, and is not properly based on a single consideration. Consequently, Titan was

quite correct in holding that being able to discover the truth by itself \s not grounds to deny

rescission. Likewise, the Court o f Appeals in the case at bar was correct insofar as i t held that

intervention o f a third part}''s interests by itself is not grounds to deny rescission. But by the same

19

See lC2m{l), supra.

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token these factors are relevant, along with the other factors we've discussed, when fashioning

an equitable remedy for fraud ( i f any is found to have been committed). In other words, i f there

were any "rule" that intervention o f third-party interests always precludes rescission, the courts

would be correct to reject it. But it would be equally erroneous to hold that intervention o f third-

party interests is not a factor to consider when deciding whether rescission is equitable.

Before leaving this issue, we should say a word about equitable "rules." Stricdy speaking,

"rules" in equity refer to the / jrot'^^/z^/^j prevailing in equitable actions. Substantively, equity is not

governed by rules, but rather by flexible principles, maxims and factors which must be

considered and weighed by the chancellor to arrive at a just result. Shubert v Woodward, supra at

167 F 54. Such "fiizzy logic" eludes small minds who need everything spelled out for them.

Judges o f the latter sort try to convert equitable doctrines into rules that can be applied

mechanically, without the necessity for thought or judgment.^" The end result o f that

ossification process is complication,^' the death o f equity and ultimately the death o f justice

itself, since equity exists precisely to mitigate the injustice o f mechanically applied legal rules.

Equity does not deserve this fate. Apart f rom providing a panoply o f remedies (which

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Common-law legal rules have fallen prey to this same process. Although, at base, negligence is what a jury says it is, elitist academics (through the Restatements), bought-off legislators and deluded judges who fancy themselves wiser than the people have invented all sorts o f legal rules designed to reduce negligence to formulae that can be applied without resort to a jury. This substitution o f arbitrary rules for the common sense o f the community makes the mitigating effects o f equity all the more important.

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As witness the three Court o f Appeals opinions in the case at bar, in which the judges tie themselves in knots trying to devise a structure o f rules to address every possible permutation of the facts.

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makes damages a blunt instrument by comparison), time-honored and constitutionally based^

equit}' reminds us o f something diat some so-called justices have forgotten: that the American

legal system is about justice.^^

Looking at the big picture, alleged fraud by an insurance applicant typically involves a

more or less guilty applicant; a more or less innocent insurer; but an often entirely innocent third

party. In that situation, the equities rarely favor the insurer, making rescission rarely justified (as

the bona fide purchaser for value doctrine recognizes). Still, since even minor facts can tip the

balance, the question cannot be decided summarily. Consequendy, even i f the Court rewrites the

No-Fault Act to add a fraud defense, the case should be remanded with instructions to consider

all relevant factors before ruling rescission in or out.

Respectfully submitted.

Dated: June 22, 2017 ^Av^y^ i ^ ^ j d f J K

J^hn A. Braden (P29645) tXmicus Curiae

22

"Equitable rights are as sacred and well guarded by the Constitution as the right o f trial by jury." Mactavish v Kent Cir Judge, 122 Mich 242, 247 (1899).

23

"The function o f courts o f equity is to do justice..." Fox v Jacobs, 289 Mich 619, 623 (1939).

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