STATE OF MICHIGAN

                           COURT OF APPEALS



SOUTHEAST MICHIGAN SURGICAL                                         FOR PUBLICATION
HOSPITAL, LLC, doing business as                                    August 9, 2016
SOUTHEAST MICHIGAN SURGICAL                                         9:00 a.m.
HOSPITAL, and JAMIE LETKEMANN,

               Plaintiffs-Appellees,

v                                                                   No. 323425
                                                                    Wayne Circuit Court
ALLSTATE INSURANCE COMPANY,                                         LC No. 11-015300-NF

               Defendant-Appellant.


Before: RONAYNE KRAUSE, P.J., and SAWYER and STEPHENS, JJ.

RONAYNE KRAUSE, P.J.

        In this no-fault insurance action, the parties filed cross-motions for summary disposition;
the trial court denied Allstate Insurance Company’s (Allstate) motion and granted summary
disposition in favor of Southeast Michigan Surgical Hospital LLC (SEMSH) and Jamie
Letkemann (collectively plaintiffs). The trial court concluded that, even though the vehicle’s
owner and primary driver committed fraud that induced Allstate to issue a no-fault policy
covering the vehicle involved in the accident, the innocent third party doctrine precluded Allstate
from rescinding the policy to deny coverage of Letkemann’s injuries. Allstate appeals by leave
granted.1 We are bound, pursuant to MCR 7.215(J)(1), by this Court’s recent opinion in Bazzi v
Sentinel Ins Co, ___ Mich App ___; ___ NW2d ___ (Docket No. 320518, issued June 14, 2016),
to hold that the trial court’s decision must be reversed and the matter remanded. However, we
agree with the dissenting opinion in that case and, were we not bound, we would decline to
continue the trend of eroding injured plaintiffs’ recovery options and conclude that the innocent
third party doctrine remains a viable part of the law in Michigan; we would therefore affirm.
Consequently, we declare a conflict with Bazzi pursuant to MCR 7.215(J)(2).

       The proceedings arose out of injuries Letkemann suffered as a passenger in a vehicle that
was rear-ended. SEMSH provided medical treatment to Letkemann for those injuries and then


1
 Southeast Michigan Surgical Hospital LLC v Allstate Insurance Co, unpublished order of the
Court of Appeals, entered November 25, 2014 (Docket No. 323425).


                                                -1-
asserted the instant third-party no-fault claim against Allstate. Letkemann filed his own action
against SEMSH for first-party no-fault benefits, and the claims were consolidated for discovery
purposes. During discovery, Allstate discovered that the no-fault policy covering the vehicle in
which Letkemann had been a passenger had been obtained on the basis of fraudulent
misrepresentations the driver made on behalf of Letkemann’s former wife. Allstate then moved
for summary disposition, arguing that it was entitled to rescind the policy because of the fraud
and thus avoid plaintiffs’ claims. Plaintiffs responded by asserting that even if the policy had
been procured by fraud, Letkemann was an innocent third party, so Allstate could not rescind the
policy as to him. The trial court found that the policy had been procured by fraud, but agreed
with plaintiffs that Letkemann was an innocent third party to that fraud and protected against
rescission by the innocent third party doctrine. Accordingly, the trial court denied Allstate’s
motion for summary disposition and instead granted summary disposition to plaintiffs under
MCR 2.116(I)(2).

        A trial court’s resolution of a motion for summary disposition is reviewed de novo to
determine if the moving party is entitled to judgment as a matter of law. Maiden v Rozwood, 461
Mich. 109, 118; 597 NW2d 817 (1999). When reviewing a motion under MCR 2.116(C)(10),
which tests the factual sufficiency of the complaint, this Court considers all evidence submitted
by the parties in the light most favorable to the non-moving party and grants summary
disposition only where the evidence fails to establish a genuine issue regarding any material fact.
Id. at 120. Summary disposition is granted “in favor of an opposing party under MCR
2.116(I)(2) if there is no genuine issue of material fact and the opposing party is entitled to
judgment as a matter of law.” City of Holland v Consumers Energy Co, 308 Mich. App. 675, 681-
682; 866 NW2d 871 (2015). We review de novo, as a question of law, the proper interpretation
and application of the no-fault act. MCL 500.3101 et seq.; Farmers Ins Exch v AAA of Mich,
256 Mich. App. 691, 694; 671 NW2d 89 (2003). “Equitable issues, such as arguments for
rescission or reformation, are also reviewed de novo.” Kaftan v Kaftan, 300 Mich. App. 661, 665;
834 NW2d 657 (2013).

        As an initial matter, we affirm the trial court’s conclusion that Letkemann was an
innocent third party. The parties functionally agree on the material facts. The vehicle at issue is
a 2010 Ford escape owned and insured by David Kreklau. In obtaining insurance for the vehicle,
Kreklau represented to Allstate that the vehicle would be garaged at his residence and that he
would be the principal driver. However, within days of purchasing the vehicle and obtaining
insurance, Kreklau turned the car over to his sister-in-law, Danielle Riordan. For the next six
months, the vehicle was driven primarily by Riordan and garaged at her residence. During this
time, Riordan made monthly car and insurance payments to Kreklau. Given this evidence, the
trial court correctly determined that the insurance policy was procured by Kreklau’s fraudulent
representations to the insurer, Allstate.

       At the time this arrangement was established, Letkemann was living in North Carolina.
He did not participate in Riordan and Kreklau’s scheme to defraud Allstate and made no
representations to Allstate. Subsequently, Letkemann moved into Riordan’s residence and later
married Riordan. Letkemann owned and insured his own vehicle without the assistance of
Kreklau but would occasionally drive the 2010 Escape insured under Kreklau’s name. During
the few months they were married, Letkemann and Riordan would both contribute money to the
payments made to Kreklau. Letkemann testified that he understood that the Escape was in

                                                -2-
Kreklau’s name because it would be cheaper than naming Riordan as the driver. During the time
in which Riordan and Letkemann were cohabitating prior to marriage, Allstate informed Kreklau
that the policy needed to be renewed. Kreklau signed the renewal and Allstate did not personally
ask him for additional information. Allstate’s investigation at the time of renewal relied
primarily on Kreklau’s statements made when initially obtaining the policy.

        Clearly, Letkemann was not involved in, or knowledgeable of, the initial obtaining of
coverage. Equally clearly, Letkemann received a benefit from the fraudulently obtained
insurance. The innocent third party doctrine—presuming its continued viability for the
moment—assumes that the third party will receive benefits that he or she otherwise would not be
entitled to as a result of the fraud. The public policy allowing the third party’s receipt of these
benefits is undergirded by the third party’s innocence in the fraudulent procurement of the
policy. Notwithstanding the renewal of the policy during Letkemann’s cohabitation with
Riordan, there is no evidence that Letkemann was aware of that renewal, and there is no
evidence that even Kreklau made any representations at that time. Because Letkemann did not
make a fraudulent misrepresentation nor allow such a misrepresentation to be made to the
insurer, Letkemann should be protected by the innocent third party doctrine despite Kreklau and
Riordan’s fraud in obtaining the policy. The trial court’s factual findings are affirmed.

        Before addressing the innocent third party doctrine, we also note that plaintiffs have
asserted two alternative grounds for affirmance that are unrelated to the innocent third party
doctrine and would therefore, if applicable, render any analysis of that doctrine moot. This Court
will, after all, affirm a correct result whether or not the trial court employed proper reasoning to
achieve it. Neville v Neville (On Remand), 295 Mich. App. 460, 470; 812 NW2d 816 (2012).

        Plaintiffs first argue that Allstate never validly asserted fraud in the inducement as an
affirmative defense and, therefore, waived it. Plaintiffs correctly note that fraud in the
inducement of a policy is an affirmative defense as a mechanism for avoiding the enforcement of
an insurance policy. Stein v Home-Owners Ins Co, 303 Mich. App. 382, 387-388; 843 NW2d 780
(2013). Furthermore, we agree with plaintiffs that Allstate did not validly assert fraud in the
inducement; although it generally described plaintiffs’ claims as “fraudulent,” it did not explain
why, how, or any implications thereof. However, “[a]lthough affirmative defenses are not
‘pleadings,’ McCracken v City of Detroit, 291 Mich. App. 522, 528; 806 NW2d 337 (2011), the
court rules unambiguously permit them to be amended in the same manner as pleadings.” Tyra v
Organ Procurement Agency of Mich, 302 Mich. App. 208, 213; 850 NW2d 667 (2013), rev’d in
part on other grounds 498 Mich. 68 (2015).

        Rather, a party’s failure to set forth a valid statement of an affirmative defense in its first
responsive pleading does not necessarily result in waiver of the defense. Id. at 213-214. A party
“may move to amend [his or her] affirmative defenses to add any that become apparent at any
time, and any such motion should be granted as a matter of course so long as doing so would not
prejudice the plaintiff.” Id. at 213 (emphasis added), citing MCR 2.118(A)(2) (providing that,
where a party requires leave to amend a pleading, “[l]eave shall be freely given when justice so
requires.”). Under MCR 2.118(A)(2), a plaintiff is prejudiced where an amendment adds an
affirmative defense “after the expiration of the limitations period,” thereby precluding the
plaintiff from a recovery that could have been secured had the affirmative defense been timely


                                                 -3-
asserted. Id. at 214. It appears undisputed that the fraud at issue did not become apparent until
discovery took place.

         A one-year statute of limitations generally applies to an insured’s claim for personal
protection insurance (PIP) benefits, measured from “the date of the accident causing the injury,”
with two exceptions: (1) “when ‘written notice of injury as provided herein has been given to the
insurer within 1 year after the accident,’” and (2) “when ‘the insurer has previously made a
payment of [PIP] benefits for the injury.’” Jesperson v Auto Club Ins Ass’n, 306 Mich. App. 632,
642; 858 NW2d 105 (2014), lv gtd 497 Mich. 987 (2015), quoting MCL 500.3145(1). Where a
responsible insurer cannot be identified, or there is a dispute regarding the priority of various
insurers, an insured can submit an Assigned Claims Facility (ACF) claim under MCL 500.3172.
To do so, however, the insured must “notify the Michigan automobile insurance placement
facility of [the] claim within the time that would have been allowed for filing an action for [PIP]
benefits if identifiable coverage applicable to the claim had been in effect.” MCL 500.3174;
Spencer v Citizens Ins Co, 239 Mich. App. 291, 309; 608 NW2d 113 (2000).

        Other than Allstate, there is no evidence that any no-fault insurer in the chain of priority
to pay plaintiffs’ claims was ever identified, or that such an insurer made a payment of PIP
benefits or received written notice of Letkemann’s injuries. Likewise, there is no evidence that
Allstate ever made a payment of PIP benefits for Letkemann’s injuries (LCF), but it was, within
a year of the accident, evidently provided with notice of the injuries. The accident at issue
occurred on December 12, 2010, and plaintiffs did not file suit against Allstate until December
18, 2011. Because this was more than one year after the accident causing Letkemann’s injuries,
they evidently relied on the notice exception in MCL 500.3145(1).

        As a consequence, plaintiffs were already time-barred by the time Allstate became a
party. Had Allstate asserted a valid affirmative defense immediately, the result would have been
the same: it would have been too late for plaintiffs to file a new claim against a different insurer,
MCL 500.3145(1), and also too late to file the requisite notice for an ACF claim, MCL
500.3174; Spencer, 239 Mich. App. at 309. Accordingly, whether or not Allstate’s delay in
asserting the claim could be considered good practice, it did not have a practically prejudicial
effect. See Jesperson, 306 Mich. App. at 647 (“[H]ad the trial court found that [the] defendant
had failed to plead the statute of limitations defense with sufficient clarity, it could have, in its
discretion, granted [the] defendant leave to amend . . . in which case the result would be the
same—the limitations period of MCL 500.3145(1) would still bar plaintiff’s claim.”).

        Plaintiffs also assert that Allstate is equitably estopped from rescinding the policy.
Plaintiffs argue that Allstate’s initial representations that it insured the vehicle induced plaintiffs
to believe that it was in fact insured, plaintiffs justifiably relied on that belief, and if Allstate
could not deny that it insured the vehicle, plaintiffs would be prejudiced because it was too late
for them to file a claim seeking payment of no-fault benefits for the accident from the ACF. As
discussed, plaintiffs were already time-barred from pursuing an ACF claim before the complaint
was filed in this action. Prejudice is an essential element of establishing an equitable estoppel.
Hughes v Almena Twp, 284 Mich. App. 50, 78; 771 NW2d 453 (2009). The party seeking
equitable estoppel bears “a heavy burden” of proving its applicability. Genesee Co Drain
Comm’r v Genesee Co, 309 Mich. App. 317, 333; 869 NW2d 635 (2015). Because plaintiffs
cannot establish prejudice, they cannot establish an equitable estoppel.

                                                 -4-
        Therefore, remaining at issue is whether the innocent third party doctrine is legally
available. “Insurance policies are contracts and, in the absence of an applicable statute, are
‘subject to the same contract construction principles that apply to any other species of contract.’”
Titan Ins Co v Hyten, 491 Mich. 547, 554, 817 NW2d 562, 567 (2012); quoting Rory v
Continental Ins Co, 473 Mich. 457, 461, 703 NW2d 23 (2005). Under the common law of this
state, an insurer may deny coverage under an insurance contract where that insurance policy was
procured by the policy holder’s fraudulent “misrepresentation material to the risk and hazard”
attendant in the policy. Keys v Pace, 358 Mich. 74, 82-83; 99 NW2d 547 (1959). In State Farm
Mut Auto Ins Co v Kurlyowicz, 67 Mich. App. 568, 578-79; 242 NW2d 530 (1976), this Court
held that an insurer may not invoke this common law exception where the insurer has not
undertaken a reasonable discovery to uncover easily ascertainable fraud within the 55 day
window in which MCL 500.3220 allows an insurer to cancel a policy.

        Applicable to this case, Michigan’s insurance statutes separate personal liability coverage
from personal protection insurance. Under MCL 257.520, an insurer is required to insure the
owner of the policy and authorized persons driving the covered vehicle at a minimum dollar
amount for liability arising from injury to other persons or property. MCL 257.520(b)(2).
Further, under MCL 257.520(f)(1), “[o]nce an innocent third party is injured in an accident in
which coverage was in effect with respect to the relevant vehicle,” the insurer cannot invoke the
common law rule to avoid mandatory coverage, and “is estopped from asserting fraud to rescind
the insurance contract.” Lake States Ins Co v Wilson, 231 Mich. App. 327, 331; 586 NW2d 113
(1998).

         Nonetheless, the parties to an insurance contract are free to contract for personal liability
coverage in excess of the statutory minimums. In Hyten, our Supreme Court was faced with the
question of whether an insurer may avail itself of the traditional common law remedy to avoid
liability coverage amounts in excess of the statutory minimum where the insurance contract was
procured by fraud and coverage extended to an innocent third party. The insurer in Hyten
challenged only its responsibility for the liability coverage in excess of the statutory minimum,
acknowledging its responsibility for the statutory minimum liability coverage. Hyten, 491 Mich.
at 552 n 2. Our Supreme Court overruled Kurlyowicz, holding that when an insurance contract
providing coverage in excess of the statutory minimum is procured via fraudulent
misrepresentation, the insurer may invoke the traditional remedy to rescind the excess coverage
“notwithstanding that the fraud was easily ascertainable and the claimant is a third party.” Id. at
572-73.

        What Hyten did not address is an insurer’s responsibility for personal protection coverage
(aka, PIP benefits) under Michigan’s statutory “no-fault” insurance regime. Michigan’s “no-
fault” insurance regulations require vehicle owners to obtain personal protection insurance.
MCL 500.3101(1). A “person suffering accidental bodily injury arising from a motor vehicle
accident while an occupant of a motor vehicle” may seek personal protection insurance benefits
from “the insurer of the owner or registrant of the vehicle occupied.” MCL 500.3114(4)(a). An
injured occupant is entitled to certain unlimited benefits covering the medical expenses resulting
from the accident. MCL 500.3105; MCL 500.3107. The insurance company will pay the
entirety of the claim but may be reimbursed by the Michigan Catastrophic Claims Association
for expenses incurred in excess of a specified dollar amount. MCL 500.3104. Accordingly,
there is no need to contract for excess personal protection benefits coverage.

                                                 -5-
       An insurer may invoke the common law rule above to avoid payment of PIP benefits
when the policy was procured by fraud. Lake States Ins, 231 Mich. App. at 331. However, this
Court has issued a “long line of published opinions indicating that, although fraud in the
inducement was generally a valid basis to rescind a no-fault policy, such rescission did not avoid
a no-fault insurer’s obligation to pay benefits to innocent third parties.” See, e.g., Hammoud v
Metro Prop & Cas Ins Co, 222 Mich. App. 485, 488; 563 NW2d 716 (1997); Katinsky v Auto
Club Ins Ass’n, 201 Mich. App. 167, 171; 505 NW2d 895 (1993); Darnell v Auto-Owners Ins Co,
142 Mich. App. 1, 9; 369 NW2d 243 (1985); Kurlyowicz, 67 Mich. App. at 578, overruled in part
by Hyten, 491 Mich. at 572-73.

        We are bound by Bazzi’s holding that the innocent third party doctrine is no longer viable
in any situation after our Supreme Court’s decision in Hyten. Nevertheless, Hyten involved the
avoidance of contractual insurance entitlements in excess of the statutory minimum; here, the
alleged innocent third party’s insurance entitlement is statutorily mandated, not contractual. As
this court observed in State Farm Mut Auto Ins Co v Michigan Muni Risk Mgmt Auth:

       “The insurer in Titan did not seek to avoid payment of statutorily mandated no-
       fault benefits; in fact, that insurer acknowledged its liability for the minimum
       liability coverage limits. [Hyten, 491 Mich. at 552 n 2.] Nor did Titan address a
       claim for PIP benefits from an innocent third party. Thus, the holding of Titan,
       that an insurance carrier may seek reformation to avoid liability for contractual
       amounts in excess of statutory minimums, does not compel a finding that Titan
       overruled the many binding decisions of this Court applying the ‘innocent third-
       party rule’ in the context of PIP benefits and an injured third party who is
       statutorily entitled to such benefits. [Id. at 552.]” [State Farm Mut Auto Ins Co v
       Michigan Muni Risk Mgmt Auth, unpublished opinion per curiam of the Court of
       Appeals, issued February 19, 2015 (Docket Nos. 319709 & 319710) slip op. at 9.]

We have not found any authority other than Bazzi that invalidates the innocent third party
doctrine in the context of an insurer’s responsibility for statutorily mandated personal protection
benefits, and were we not bound by Bazzi, we would find that the innocent third party doctrine is
still viable in the context of an innocent third party’s claim for PIP benefits under Michigan’s no-
fault insurance act. Furthermore, we agree completely with the dissenting opinion authored by
Judge BECKERING in Bazzi, and we adopt it in its entirety herein.

        We are required to reverse the trial court and remand for further proceedings consistent
with this opinion. However, we do so strictly because MCR 7.215(J)(1) requires us to do so, and
we call for the convening of a special conflict panel pursuant to MCR 7.215(J)(2).

                                                             /s/ Amy Ronayne Krause
                                                             /s/ Cynthia Diane Stephens




                                                -6-