Transportation Law Hub

Great Scott! An insured whose insurance is rescinded after a motor vehicle accident is still considered to have the requisite Michigan No-Fault insurance for purposes of MCL 500.3135(2)(c).

On May 1, the Michigan Supreme Court held that post-motor vehicle accident rescission of an automobile insurance policy does not render the insured as not having the requisite No-Fault insurance at the time of the accident. This ruling effectively allows plaintiffs with rescinded insurance policies to continue to pursue third-party benefits from the alleged tortfeasor, even without a viable first-party claim against the insurer rescinding the policy.

In Wilmore-Moody, et al v Zakir, et al, the trial court granted rescission of plaintiff Adora Wilmore-Moody’s automobile insurance policy that was issued by defendant Everest National Insurance Company based on the material misrepresentations she made when obtaining it. Relying on the trial court’s rescission, the alleged tortfeasor, defendant Mohammed Zakir, also filed a dispositive motion and argued that MCL 500.3135(2)(c) prohibited Wilmore-Moody’s ability to recover third-party benefits due because she did not technically maintain automobile insurance at the time of the accident. The trial court granted Zakir’s dispositive motion, but it was subsequently overturned by the Michigan Court of Appeals. Zakir sought leave to appeal.

To determine if Wilmore-Moody maintained the requisite No-Fault insurance at the time of the motor vehicle accident, so that they can maintain a claim for third-party benefits from the alleged tortfeasor, the Michigan Supreme Court did its best Doc Brown impression and essentially posited: “The appropriate question is, ‘When the hell are they.’”

Statutory Principles

At the time of the subject accident (April 6, 2017), MCL 500.3135(2)(c) provided:

Damages shall not be assessed in favor of a party who was operating his or her own vehicle at the time of the injury occurred and did not have in effect for that motor vehicle the security required by [MCL 500.3101] at the time the injury occurred.

Based on the statutory language, the Supreme Court determined that the legislative intent was clear that “the time the injury occurred” was relevant when considering if a plaintiff is barred from suing for third-party benefits. The Supreme Court concluded that Wilmore-Moody did have the requisite insurance “at the time the injury occurred,” even though it was subsequently rescinded by Everest.

Equitable/Contractual Principles

Next, the Supreme Court concluded that Zakir was not a party to the insurance contract between Wilmore-Moody and Everest. Therefore, he could not avail himself to the same contractual defenses. Specifically, rescission is a legal fiction available as a contractual remedy, but “it does not alter reality or act as a DeLorean time machine.”

“Wait a minute.  Wait a minute Doc, are you telling me
you built a time machine out of a DeLorean?”

Simply, rescission “does not actually create an alternate reality” that allows the alleged tortfeasor to avoid liability for third-party damages. That is, the defrauded insurer who rescinds an insurance contract is the only one to benefit from the alternate reality created by rescission. The Supreme Court reasoned that Zakir was not a party to the insurance contract and was entirely unaffected by Wilmore-Moody’s misrepresentations that led to its rescission.

As a result, the protection afforded by rescission to the defrauded party does not extend to him as the alleged tortfeasor. In other words, the rescission time machine only seats one.