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Supreme Court vacates lower court's holding and allows insurer to argue over whether policy is void--even if ruling negates rights of innocent third-party

In prior years, Michigan law held that insurance companies could not void a policy based on fraud if the action would negate the rights of innocent third parties.  When the insurance-friendly Republican majority took control of the Court, this was one of many holdings that the majority overturned.  In 2012, the Court majority ruled that even if the rights of innocent third persons were adversely affected, an insurer could argue fraud and invalidate a policy.  In a recent case, that reversal of law rose up to bite an insurance company.

In Frost v Citizens,  Citizens Insurance Company intervened in a case where it had paid PIP benefits on behalf of a minor child who was an occupant in an uninsured car.  Citizens argued that Progressive should reimburse the PIP benefits it had paid for the girl's care, because Progressive did not attempt to void its policy with its insured until after the accident that resulted in Citizens paying the claims of the minor child.  Citizens argued to the trial judge that Progressive could not transfer its PIP obligations to Citizens after-the-fact.

The trial judge agreed with Citizens and entered a ruling that would have held Progressive liable for the PIP benefits.  Progressive appealed and the Court of Appeals vacated this judgment in September of 2014.  It entered an order that would have required the trial judge to determine whether Progressive could establish "proper grounds" for rescinding the insurance contract.  This week, the Supreme Court vacated the Court of Appeals' opinion, pending the outcome of a similar case already pending in the latter court.

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