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A Better Partnership
August 31, 2016

COA awards summary disposition to insurer based upon its recent elimination of the innocent-third party doctrine

Recent precedent that invalidated the innocent third-party doctrine enables an insurance corporation to limit its liability, says the Michigan Court of Appeals in State Farm Mutual Auto Insurance Co v. Michigan Municipal Risk Management Authority, No. 319710.  The Court vacated the portion of the trial court’s order denying summary disposition to QBE under the innocent third-party rule and remanded for further proceedings.
 
This case arises out of a motor vehicle accident that involves three insurers: State Farm, QBE Insurance Corporation (QBE), and Michigan Municipal Risk Management Authority.  Whitney Gray, a third-party defendant, procured her insurance policy from QBE by providing false information on her application.  Gray indicated on the application that she was a registered owner of the vehicle, when in fact, the vehicle was registered to her mother.  QBE argued that it would not have issued the policy had Gray been honest on the application, and as a result, was entitled to rescind the insurance policy and be dismissed from the case.
 
Following a hearing, the trial court denied QBE’s motion for summary disposition, in part, because QBE was prohibited from rescinding its coverage after an innocent third-party was injured.  But due to the recent published decision of a Court of Appeals panel in Bazzi v Sentinel Ins Co, which invalidated the innocent third-party doctrine in the context of an insurer’s responsibility for statutorily mandated personal protection benefits, the Court of Appeals concluded that the trial court erred in its denial of summary disposition on the basis of the innocent third-party rule.  Therefore, the Court of Appeals vacated the trial court’s order in that respect.
 
Judge Sawyer concurred with the majority’s conclusion that QBE was not barred from pursuing a fraud defense but wrote separately to express his view that the innocent third-party rule was not abolished in the context of statutorily-mandated automobile insurance coverage.
 
To read our previous post on Bazzi v Sentinel Ins Co, click here.

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