Van Dyke Spinal Rehab. Ctr. v. U.S. Underwriters

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VAN DYKE SPINAL REHABILITATION CENTER, PLLC, Plaintiff-Appellee, v. USA UNDERWRITERS, Defendant-Appellant.

No. 365848

Court of Appeals of Michigan

May 30, 2024

Macomb Circuit Court LC No. 22-002562-NF

Before: FEENEY, P.J., and M.J. KELLY and RICK, JJ.

FEENEY, P.J.

The essential facts in this appeal are both brief and uncontested. On February 22, 2021, Pamela Orr completed an application for no-fault insurance upon which she made a material misrepresentation. Specifically, she answered "no" to the question whether her driver's license had been suspended within the last 3 years. In actuality, her license had been suspended twice and was, in fact, suspended at the time she made the application. The application was submitted to defendant who issued an automobile no-fault insurance policy.

Approximately five months later, on July 18, 2021, Orr was involved in an automobile accident. She sought treatment from plaintiff, who performed medical services for plaintiff over the course of the next several months. It is undisputed that on August 21 2021, defendant issued a renewal policy apparently after Orr repeated the misrepresentation. Defendant, during the course of investigating the claim, discovered the misrepresentation and, on December 17, 2021, notified Orr that it was declaring the policy void ab initio and sent Orr a refund check for the entire amount of the premium paid, which Orr cashed.

Consistent with rescinding the policy, defendant denied the claims that plaintiff submitted. Plaintiff instituted this action seeking payment of the claims. Defendant filed a motion for summary disposition based upon the rescission of the policy, arguing both a failure to state a claim^[1]and no genuine issue of material fact.^[2] The trial court denied the motion in a detailed opinion and order dated April 4, 2023. The trial court rejected out of hand the motion under (C)(8), noting that the motion relied upon evidence outside the complaint and, therefore, it was inappropriate to consider (C)(8). The trial court explicitly stated that it would only analyze the motion under (C)(10).^[3] The trial court granted summary disposition based upon defendant's delay in rescinding the policy and, after a balancing of the equities, concluded that defendant was not entitled to rescission. Defendant then filed an application for leave to appeal to this Court, which we granted.^[4]

The applicable standard of review was summarized in Univ of Mich. Regents v. Mich. Automobile Ins Placement Facility:^[5]

This Court reviews de novo a trial court's decision on a motion for summary disposition. El-Khalil v. Oakwood Healthcare, Inc, 504 Mich. 152, 159; 934 N.W.2d 665 (2019). A motion under MCR 2.116(C)(10) tests the factual sufficiency of a claim. Id. at 160. When considering a motion under MCR 2.116(C)(10), the trial court must consider all evidence submitted by the parties in the light most favorable to the party opposing the motion. Id. "A motion under MCR 2.116(C)(10) may only be granted when there is no genuine issue of material fact." Id. (citation omitted). "A genuine issue of material fact exists when the record leaves open an issue upon which reasonable minds might differ." Id. (quotation marks and citation omitted).

Defendant presents this case as having three different issues: that the trial court erred in determining that defendant waived rescission due to delay,^[6] that a balancing of the equities was unnecessary because this case involved mutual rescission, and that even when the equities are balanced, rescission should be allowed. But in reality, all three issues are interrelated. And, to a significant extent, they build on defendant's assertion that plaintiff's claims are derivative of Orr's claims under the insurance policy. In support of this assertion, defendant cites the unpublished opinion of this Court in Wolverine Mut Ins co v. Van Dyken^[7] and the published opinion of Chiropractors Rehab Group, PC v. State Farm Mut Auto Ins Co.^[8] This is all in an effort to support its argument that the trial court was not obligated to balance the equities in granting rescission as required by the Supreme Court's decision in Bazzi v. Sentinel Ins Co.^[9]

But Van Kyken is not binding precedent^[10] and the vacated opinion in Chiropractors Rehabilitation Group^[11] did state "that a healthcare provider's ability to recover an injured party's medical expenses under the no-fault act is dependent on the injured party's eligibility for no-fault benefits." But the reason that the opinion was vacated, although technically on other grounds, is not inconsequential.

The Supreme Court^[12] vacated and remanded for reconsideration in light of its decision in Covenant Medical Center, Inc v. State Farm Mutual Auto Ins Co.^[13] Covenant, of course, is the case that held that a provider has no right to bring an action against the no-fault carrier for the payment of benefits,^[14] although those benefits may be assigned by the insurer, allowing for an action by the provider under the assignment.^[15] The Legislature thereafter amended the no-fault act to explicitly allow providers to bring direct actions against the insurer for the payment of nofault benefits to the medical provider for services they rendered to the insured.^[16]

In Spine Specialists of Michigan, PC v. Falls Lake National Ins Co,^[17] this Court analyzed the statutory amendment and its effect on actions by medical providers when the insured's fraud leads to rescission of no-fault insurance policies:^[18]

The more fundamental issue presented in this appeal concerns the effect of rescission upon the claims of health-care providers. The trial court awarded Falls Lake summary disposition under MCR 2.116(C)(10) on all the claims of the healthcare providers because "[t]hey have a derivative claim of the plaintiff" and "[t]he plaintiff's claim failed because of this material misrepresentation, and as a result their claim[s] fail as well." Although Michigan law at one time permitted providers to pursue relief from automobile insurers exclusively through the assignment of claims, Covenant Med Ctr, Inc v. State Farm Mut Auto Ins Co, 500 Mich. 191, 196, 217 n 40; 895 N.W.2d 490 (2018), and thereby rendered providers' claims derivative in the sense contemplated by the trial court, our Legislature subsequently altered that framework by amending the no-fault act, MCL 500.3112, to enable providers to pursue claims in their own right. That statutory amendment renders inoperative the trial court's characterization of Spine Specialists' claim as "derivative" in this case.

In 2019, "the Legislature significantly overhauled the no-fault act." Andary v. USAA Cas Ins Co, 512 Mich. 207, 214; 1 NW3d 186 (2023). As a part of that major revision, the Legislature amended MCL 500.3112 to afford health-care providers a direct cause of action, as opposed to the right to proceed only on the basis of an assignment. Specifically, MCL 500.3112 now dictates that "[a] health care provider . . . may make a claim and assert a direct cause of action against an insurer . . . to recover overdue benefits payable for charges for products, services, or accommodations provided to an injured person." Thus, a health-care provider no longer must stand in the shoes of an injured person to pursue a no-fault claim against an insurer. Consequently, the trial court erred in characterizing Spine Specialists's claim as "derivative," and therefore necessarily foreclosed by rescission of the insurance policy that Falls Lake issued to Mota-Peguero.

This culminated in the Court's conclusion that "faced with a direct claim by a provider . . . the trial court had the obligation to balance the equities of rescission and therefore erred when it automatically dismissed Spine Specialists's claim based on Mota-Peguero's material misrepresentation."^[19]

The Falls Lake holding disposes of defendant's argument that the trial court erred by engaging in a balancing of the equities because plaintiff's claim is based upon Orr's claim and plaintiff is not an innocent third-party. This case involves a direct action by a medical provider (plaintiff) against the insurer (defendant). Plaintiff's complaint in this case makes no reference to proceeding under an assignment by Orr nor is an assignment attached as an exhibit to the complaint. Clearly, this is a direct action and, therefore, the decision in Falls Lake controls.^[20]Accordingly, not only was it permissible for the trial court in this case to engage in a balancing of the equities, it was required.

Defendant takes another approach to avoid a balancing of the equities namely by arguing that this case presents a question of contractual rescission. Defendant asserts that Orr created a mutual agreement to rescind the policy by accepting and cashing the check refunding her premium. This argument is illusory. What defendant overlooks in its argument is that defendant had already rescinded the policy. In a letter dated December 17, 2021, from defendant to Orr, it states that, due to the misrepresentations in the application, defendant was "rescinding and voiding the policy as of the inception date." It then states that a "refund check for all premium you have paid on the policy since the inception date is enclosed." Thus, by the time Orr received and negotiated the check, the policy had already been rescinded. Orr's cashing of the check cannot be seen as an agreement to the rescission. That is, had Orr simply torn up the check instead of cashing it, the policy would still have been rescinded. There is simply no offer and acceptance in this case to establish a contractual agreement to rescind the policy. In other words, contrary to defendant's description, there was no mutual agreement between defendant and Orr to...