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Hmeidan, et al v State Farm Mut Auto Ins Co, et al (COA – UNP 11/18/2021; RB #4343)

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Michigan Court of Appeals; Docket #351670; Unpublished
Judges Borrello, Jansen, and Boonstra; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion


STATUTORY INDEXING:
Disqualification for Unlawful Taking and Use of a Vehicle [§3113(a)]

TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Innocent Third Party Doctrine


SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiff Malek Hmeidan’s first-party action against Defendants State Farm Mutual Automobile Insurance Company (“State Farm”) and Progressive Michigan Insurance Company (“Progressive”). The Court of Appeals held, first, that even though Hmeidan's mother's policy was rescinded based on fraudulent misrepresentations she made in procuring the policy, a question of fact existed as to whether the equities weighed in favor of rescission of the policy with respect to Hmeidan's claims thereunder, as he was an innocent third party to his mother's fraud. The Court of Appeals held, second, that the former MCL 500.3113(a)—in effect at the time of the subject motorcycle crash on September 1, 2012—applied to this case, not the version which was amended by 2014 PA 489, because the amended version did not apply retroactively. The Court of Appeals held, third, that a question of fact existed as to whether Hmeidan knew that the motorcycle he was driving at the time of the subject crash had been stolen, and, therefore, that a question of fact also existed as to whether Hmeidan’s use of the motorcycle constituted an “unlawful taking” under MCL 500.3113(a). Lastly, the Court of Appeals held that the fact that Hmeidan did not have the requisite motorcycle endorsement on his driver’s license did not render his taking of the motorcycle an “unlawful” one under MCL 500.3113(a).

Malek Hmeidan was injured in a motorcycle-versus-motor vehicle crash while operating a stolen motorcycle he was considering purchasing from Hussein Deliken. At the time of the crash, Hmeidan did not own or insure any motor vehicles, and testified that he did not know the motorcycle was stolen at the time he was operating it. After the crash, he sought PIP benefits for his injuries from both State Farm—as a resident relative of his mother, Aida Hmeiden—and Progressive, the motorcycle’s true owner’s insurer. State Farm moved for summary disposition, arguing that it was entitled to rescission of Aida’s policy and to deny Hmeiden’s claims for PIP benefits thereunder based on misrepresentations Aida made on her original application for coverage, and based on Hmeidan’s own misrepresentations during the course of the instant proceedings. Progressive also moved for summary disposition, arguing that Hmeidan was precluded from recovering PIP benefits for his injuries because he was injured while operating a stolen motorcycle. The trial court granted summary disposition in State Farm’s and Progressive’s favors.

The Court of Appeals reversed the trial court’s summary disposition order on both accounts. With respect to State Farm’s motion, the Court of Appeals held that, even though rescission was warranted based on Aida’s failure to disclose members of her household on her original application for coverage, the trial court failed to properly balance the equities in determining whether Hmeidan, an innocent third party, should be denied from claiming PIP benefits thereunder. Although the trial court entered its summary disposition order before the balancing factors Justice Markman set forth in his concurrence in Farm Bureau Gen Ins Co of Mich v ACE American Ins Co, 503 Mich 903 (2018) were officially adopted in Pioneer State Mut Ins Co v Wright, 331 Mich App 396 (2020), the Court of Appeals held that the Markman factors “shed light on the types of equities this Court has deemed appropriate in determining whether to permit rescission in the context of an innocent third party’s claim”—none of which the trial court considered in issuing its ruling in this case. The three factors the trial court weighed were: (1) Hmeidan’s poor driving record, (2) the fact that Hmeidan was riding a stolen motorcycle at the time of the crash, and (3) statements Hmeidan made about this employment in this case which were inconsistent with statements made in a separate criminal case. The Court of Appeals held that the first two of these factors should not have been considered by the trial court, and that, since “an insurer cannot completely avoid liability for all statutorily mandated PIP benefits on the basis of postprocurement fraud” pursuant to Meemic Ins Co v Forston, 506 Mich 287 (2020), the third factor, alone, could not be the sole basis for a trial court's determination that rescission was appropriate with respect to Hmeidan.

“The trial court’s consideration of plaintiff’s poor driving record in balancing the equities is at odds with the general focus of the factors this Court has adopted as guidance for trial courts. The question before the court was which of the two blameless parties in this case should have to assume the loss in the wake of Aida’s fraudulent procurement, not which party has a subjectively better track record or history in unrelated matters. In fact, the trial court’s consideration of plaintiff’s previous driving record seems to conflict with the third Pioneer factor, i.e., ‘the nature of the innocent third party’s conduct, whether reckless or negligent, in the injury-causing event' . . . Plaintiff’s past driving indiscretions should not have weighed in favor of rescission without evidence that he was acting negligently or recklessly in this instance.

The trial court’s consideration of the fact that the motorcycle was stolen was also misplaced in this procedural context . . . Viewing the evidence in the light most favorable to plaintiff as the court was obligated to do at the summary disposition phase, Lowrey, 500 Mich at 5, the trial court should have considered plaintiff’s contention that he believed Deliken was the owner of the motorcycle and properly gave plaintiff permission to test drive it. In light of the conflicting evidence on this issue, there was no reason to fault plaintiff for operating a stolen motorcycle at the time of the accident.

The last factor the trial court took into account was plaintiff’s inconsistent statements about his employment in this case and in an unrelated criminal case. In discovery responses dated December 30, 2015, plaintiff was asked to identify each of his employers for the preceding five years, and he identified only his preaccident employer, noting that he lost his job as a result of the accident. In an additional discovery response dated January 28, 2016, plaintiff indicated that he had not returned to work at all. The trial court observed that despite his assertions of nonemployment since the accident, plaintiff reported that he was working approximately 75 hours a week in order to get a modification of his tether restrictions in his criminal case. Plaintiff maintains that he never claimed to work 75 hours a week, and that a careful reading of the transcript shows that his attorney simply indicated that plaintiff wanted to work 12 hours a day. It is unnecessary to resolve this claimed ambiguity because plaintiff’s deposition testimony clarifies his postaccident employment.

When plaintiff was deposed in January 2016, he admitted that he had worked at a restaurant and his brother’s auto repair shop after the accident. His time at the restaurant was limited to less than a month because he was unable to stand for long periods of time. But plaintiff testified that he started working a desk job at his brother’s shop intermittently in late 2014 or early 2015. He did not have a consistent schedule, and his pay varied between $50 and $100 a day. Plaintiff acknowledged that he was unsure of his total wages from the shop, but opined that his brother would likely have records of what plaintiff was paid. Plaintiff’s failure to disclose his sporadic employment in his written discovery responses certainly suggests that he was attempting to take advantage of the no-fault system by claiming benefits to which he was not entitled. Because this point related directly to this claim, the trial court’s consideration of plaintiff’s inconsistent statements was not unreasonable.

That said, we are not convinced that this single proper consideration was sufficient to satisfy the trial court’s duty to balance the equities to determine whether to permit rescission as to plaintiff. As a general matter, an insurer cannot completely avoid liability for all statutorily mandated PIP benefits on the basis of postprocurement fraud. Meemic Ins Co v Fortson, 506 Mich 287, 303-308; 954 NW2d 115 (2020). While this understanding does not necessarily preclude the trial court from considering postprocurement fraud in balancing the equities, it cannot be the only basis for permitting rescission with respect to an innocent third party like plaintiff if it is insufficient to preclude coverage under other circumstances. See id. The trial court’s legal errors led to an abuse of discretion. We therefore remand to the trial court for further consideration of the equities involved in this case. On remand, the trial court should consider the nonexclusive list of factors adopted in Pioneer to the extent they apply to this case, as well as any other relevant factors consistent with this opinion.”

With respect to Progressive’s motion for summary disposition, the Court of Appeals held, first, that the former version of MCL 500.3113(a)—not the version which was amended by 2014 PA 489—was controlling in this case. For reference, the former version of MCL 500.3113 provided that, “A person is not entitled to be paid personal protection insurance benefits for accidental bodily injury if at the time of the accident any of the following circumstances existed: (a) The person was using a motor vehicle or motorcycle which he or she had taken unlawfully, unless the person reasonably believed that he or she was entitled to take and use the vehicle,” whereas subsection (a) of the amended version provided that, “The person was willingly operating or willingly using a motor vehicle or motorcycle that was taken unlawfully, and the person knew or should have known that the motor vehicle or motorcycle was taken unlawfully.”

In holding that the amended version did not have retroactive effect, the Court of Appeals utilized the framework set forth in LaFontaine Saline, Inc v Chrysler Group, LLC, 496 Mich 26, (2014):

“First, we consider whether there is specific language providing for retroactive application. Second, in some situations, a statute is not regarded as operating retroactively merely because it relates to an antecedent event. Third, in determining retroactivity, we must keep in mind that retroactive laws impair vested rights acquired under existing laws or create new obligations or duties with respect to transactions or considerations already past. Finally, a remedial or procedural act not affecting vested rights may be given retroactive effect where the injury or claim is antecedent to the enactment of the statute.”

Regarding the first factor, the Court of Appeals began with “the general presumption that statutes apply prospectively absent a clear expression of intent for retroactive application,” and noted that MCL 500.3113(a) is silent as to retroactivity. The Court deemed the second factor to be “inapplicable to this case because the amendment does not relate to an antecedent event.” Regarding the third factor, the Court noted that that factor weighed against rescission because the amended version of MCL 500.3113(a) impaired Hmeidan’s vested rights by “expand[ing] the scope of the exclusionary defense available to the insurance carrier in circumstances involving unlawful takings.” Thus, the Court of Appeals held that the amended version of MCL 500.3113(a) should not have been given retroactive effect.

The Court of Appeals next held that a question of fact existed as to whether Hmeiden reasonably believed that the motorcycle was not stolen. While Hmeiden claimed not to have noticed any signs of tampering with the ignition, an investigating police officer testified that the ignition had “obvious signs of tampering.” The Court also considered the fact that Hmeiden was familiar with motorcycles from his time working as a mechanic, which “could lead to a reasonable inference that the tampered-with ignition and absent key should have been readily noticeable to plaintiff, even upon a brief inspection.” Ultimately, however, the Court held that reasonable jurors could differ as to Hmeiden’s credibility, and thus summary disposition was improper.

“Plaintiff testified that he went to Deliken’s home on the day of the accident to look at a motorcycle he was considering purchasing, and he believed the motorcycle belonged to Deliken. Plaintiff did not notice any damage during his brief inspection before asking to test drive it. He further indicated that the motorcycle was running when he arrived at Deliken’s house, so he did not recall specifically examining the ignition or looking to see if there was a key in it. On the other hand, it is notable that plaintiff had a working knowledge of motorcycles from his experience as a mechanic and having previously owned several motorcycles. Additionally, the conspicuous location of the ignition—directly below the meter instruments, between the handlebars—could lead to a reasonable inference that the tampered-with ignition and absent key should have been readily noticeable to plaintiff, even upon a brief inspection. A police officer testified that the ignition had obvious signs of tampering. Reasonable jurors could differ as to the credibility of plaintiff’s claimed ignorance that Deliken did not own the motorcycle and, thus, whether plaintiff knowingly took the motorcycle unlawfully, i.e., without authority of the owner. In light of this unresolved fact question, this Court cannot affirm the trial court’s grant of Progressive’s motion for summary disposition on the alternative grounds suggested by Progressive.”

Lastly, the Court of Appeals held that the fact that Hmeiden did not have a motorcycle endorsement on his driver’s license did not mean that he took the motorcycle “unlawfully” for purposes of MCL 500.3113(a). Progressive argued that, regardless of which version of MCL 500.3113(a) applied, Hmeiden should be precluded from recovering PIP benefits because his lack of a motorcycle endorsement meant that he could not have believed he was lawfully taking or using the motorcycle. The Court of Appeals disagreed, observing that, under the former MCL 500.3113(a), the “reasonably believed” clause only applies if the vehicle was unlawfully taken. In this case, a question of fact existed as to whether the vehicle was unlawfully taken, and thus Progressive was putting “the cart before the horse” in making this argument. Regarding the amended version of MCL 500.3113(a), the Court of Appeals noted that, under Monaco v Home-Owners Ins Co, 317 Mich App 738 (2016), “ ‘the unlawful operation or use of a motor vehicle is irrelevant with respect to examining the ‘taken unlawfully’ phrase in MCL 500.3113(a)[.]’ ”

“Progressive also reasons that plaintiff should be excluded from recovering PIP benefits under either version of MCL 500.3113(a) because he lacked the endorsement on his driver’s license to operate a motorcycle, and therefore could not have believed he was lawfully taking or using the motorcycle, regardless of whether he believed he had permission from the owner. Progressive’s position attempts to put the cart before the horse. Before considering whether the claimant ‘reasonably believed that he or she was entitled to take and use the vehicle,’ for purposes of the saving clause under former MCL 500.3113(a), it is first necessary to determine whether the vehicle was unlawfully taken. Rambin I, 297 Mich App at 683. If the taking was lawful, consideration of the reasonable belief savings clause is unnecessary because MCL 500.3113(a) simply does not apply. Id. And because a question of fact remains as to whether plaintiff unlawfully took the motorcycle, whether plaintiff’s lack of motorcycle endorsement precluded him from reasonably believing he was entitled to take and use the vehicle is not dispositive. To the extent Progressive suggests that plaintiff’s lack of motorcycle endorsement speaks to the unlawful taking inquiry, this Court has previously concluded that ‘the unlawful operation or use of a motor vehicle is irrelevant with respect to examining the ‘taken unlawfully’ phrase in MCL 500.3113(a)[.]’ Monaco v Home-Owners Ins Co, 317 Mich App 738, 748-749; 896 NW2d 32 (2016).”


Lansing car accident lawyer Stephen Sinas is the lead editor of the appellate case summaries published on this site regarding the Michigan auto insurance law. To learn more about how Stephen Sinas and how the Sinas Dramis Law Firm can help you if you have been injured in a Michigan auto accident, visit SinasDramis.com.

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