Legal vs. Equitable Rescission: a Distinction without a Difference Under Bazzi?

Bazzi v Sentinel Ins Co, 502 Mich 390 (2018) confirmed that in no-fault cases, the innocent-third-party rule has been abrogated and insurers may rescind automobile policies based on fraud in the application for insurance – even when innocent third parties seek statutory PIP benefits. 

However, Bazzi further noted that rescission is an equitable remedy, not an absolute right. See Univ of Mich Regents v Mich Auto Ins Placement Fac, ___ Mich App ___ (2022) (Docket No. 354808).

Therefore, before the claim of an innocent third-party can be dismissed, courts must balance the equities to determine whether the insurer is entitled to the relief. Univ of Mich Regents, ___ Mich App at ___; slip op at 6.

Univ of Mich Regents, ___ Mich App at ___; slip op at 5, the panel found – in a published decision – that an equitable balancing under Bazzi was required, even though the insurer claimed that there had been a “legal rescission” through “mutuality of action, i.e., by return and acceptance of the premium.”

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