It’s a long-standing principle that no-fault insurers can assert common-law defenses, such as fraud in the application, in order to obtain rescission of a policy and avoid liability for payment of benefits on a claim. If a policy is rescinded, it’s as if the policy was never issued in the first place.
The innocent-third-party rule was a judicially created exception to this principle. Under the rule, insurers couldn’t use the defense of fraud in the application against a third party (that is, someone other than the policyholder) making a claim under a policy. The reasoning was that, because the third-party claimant didn’t commit the fraud, it was unfair for insurance companies to rescind the policy based on fraud.
We take a look at the recent Michigan Supreme Court decision in Bazzi v Sentinel Ins Co, and what this means for insurance companies moving forward. Click the headline for further details.