Dispute over rescission of an insurance policy; Unilateral rescission without court involvement; Innocent third party; Proof of loss; Delayed payment; Griffin v Trumbull Ins Co; Fraud; Rescission; Graham v Jackson (Unpub); Bazzi v Sentinel Ins Co; Penalty interest; MCL 500.3142(2); Attorney fees; MCL 500.3148(1); Moore v Secura Ins

The court held that the trial court erred by denying plaintiff-medical provider’s motion for summary disposition as to interest and attorney fees. Plaintiff’s patient, nonparty-C, was injured when his car was struck by a car insured by defendant-insurer (Falls Lake). Defendant denied plaintiff’s claim on the basis it had rescinded the policy at issue based on fraud. The trial court denied plaintiff’s motion for summary disposition concerning plaintiff’s request for interest and attorney fees. On appeal, the court rejected defendant’s argument that “it did not fail to pay within 30 days of receiving proof of loss because it paid within 30 days of the trial court’s ruling on the issue of rescission.” It noted “this argument ignores the principle that rescission is a remedy ordered by a court, not unilaterally chosen by an insurance company. This is particularly true here, where an innocent third party” is the individual affected by defendant’s decision. And because defendant “failed to pay plaintiff’s invoices within 30 days of receipt, plaintiff was entitled to penalty interest under MCL 500.3142(2), and the trial court erred when it denied plaintiff’s motion for summary disposition.” Further, because C was innocent in the purported fraud, defendant “also should have known that it could not simply rescind the policy unilaterally” with its insured and “in effect, pull the rug out from under [C’s] feet, to avoid its obligations under the policy. Allowing gamesmanship like that played by Falls Lake would incentivize insurers to delay or withhold payment on their own belief that they are entitled to avoid the requirements of the no-fault act by entering into collateral agreements with their insureds.” Reversed and remanded.