The Michigan Court of Appeals and Michigan Supreme Court recently issued opinions, which will significantly impact the ability to raise a fraud defense moving forward. Specifically, these cases will limit the ability to successfully bring a Motion for Summary Disposition based upon fraud.

Haydaw v Farm Bureau Insurance Company

On July 9, 2020, the Court of Appeals issued an opinion in Haydaw v Farm Bureau Ins Co, ___ Mich App ___, ___ NW2d ___ (2020) (Docket No. 345516). This case involved a first-party lawsuit for PIP benefits in which Farm Bureau moved for summary disposition on the grounds that Plaintiff made false statements regarding his medical history during his deposition. Farm Bureau argued that it was entitled to summary disposition based on the fraud exclusion provision in the insurance policy and the trial court granted Farm Bureau’s motion.

On appeal, the Court of Appeals framed the issue as “whether statements made during litigation after the insured’s claim is denied constitute grounds to void the policy under a fraud provision.” The Court held that a fraud provision in a policy does not apply to statements made during the course of litigation, and therefore reversed the grant of summary disposition. The Court reasoned that false statements during discovery are not grounds to void a policy because by that time the parties are adversaries in litigation, and “if it can be shown that a party intentionally testified falsely, it is up to the court to determine what, if any, sanction is proper.”

Fortson v Meemic Insurance Company

The Michigan Supreme Court also recently issued an opinion which significantly impacts the ability of an Insured to raise a fraud defense. In Meemic Insurance Company v Fortson ____ Mich ____, ___NW2d____ (2020), Meemic discovered that the claimant’s parents had made fraudulent claims for attendant care services provided to the claimant. The fraud occurred 4 years after the initial claim was made, and Meemic filed suit against the Fortsons to void the policy under Meemic’s contractual antifraud provision in the policy.

The trial court granted summary disposition to Meemic and entered an order voiding the insurance policy under Meemic’s antifraud provision. The Michigan Court of Appeals reversed this decision on the ground that the fraud did not occur in the procurement of the policy and thus did not affect the validity of the contract, and Meemic appealed to the Supreme Court.

The Michigan Supreme Court held that “a no-fault insurance policy may contain contractual defenses mandated by the no-fault act if the defense is provided by the act or the contractual defense is based on a common-law defense that has not been abrogated by the act; a policy provision may not go beyond either statutory or common-law defenses to limit mandatory coverages to a greater extent than either the act or the law.” Here, Meemic was attempting to use the antifraud provision as a defense to PIP benefits, which are mandatory under the no-fault act. Therefore, the main issue before the Court was whether Meemic’s contract based fraud defense is available under the no-fault act or whether it is a common law defense that has not been abrogated by the act.

The Court reached two main conclusions in determining that Meemic’s contractual antifraud provision is invalid and unenforceable.

First, the Court held that the no-fault act does not provide a fraud defense to PIP coverage, and therefore Meemic’s antifraud defense cannot be statutory.

Second, the Court determined that Meemic’s antifraud defense was not available at common law. At common law, a defrauded party only could seek rescission or avoidance of a contract if the fraud was related to the inducement or inception of the contract. Here, the fraud occurred in 2013 and 2014, while the policy went into effect in 2009. Meemic did not rely on the fraud at the time that the policy was incepted, and therefore the Court held that Meemic was unable to assert a common law fraud defense in order to rescind the contract.

Impact/Options Going Forward

The Haydaw and Fortson decisions significantly impact fraud defenses in policy case litigation. The Haydaw decision significantly limits the scope of the holding in Bahri v IDS Prop Cas Ins Co, 308 Mich App 420; 864 NW2d 609 (2014), which affirmed the grant of summary disposition to an insurer based on a fraud exclusion provision where the plaintiff submitted false replacement services forms to the insurer for payment prior to commencing the litigation. After Bahri, trial courts and the Court of Appeals (in unpublished opinions) often granted/affirmed summary disposition in first-party PIP cases on the basis of fraudulent statements made during the plaintiffs’ depositions, provided the policy included a fraud provision. After Haydaw, statements made after litigation is commenced, including during the plaintiff’s deposition, no longer may be used to void a policy based on a fraud exclusion provision.

The overarching takeaway from Fortson is that fraud defenses now are limited to what is covered in the no-fault act and defenses available under common law. This means that once a policy is in place, fraud committed by the insured no longer may be grounds for rescinding the entire policy.

There is some uncertainty in the application of Fortson to future cases. However, in a footnote, the Court reasoned that because there was no allegation of fraud relating to Justin’s claim for benefits, the Court did not need to address whether fraud related to proof of loss can justify voiding a policy of insurance. The Court further reasoned that they did not address the issue of voiding a policy due to post-procurement fraud by an individual who is both a policy holder and a claim beneficiary, because the fraud in Fortson was committed by someone other than the claim beneficiary.

Although there are negative implications from the new case law, we still have options for seeking summary disposition. First, the Court in Fortson was unclear how its decision would transpire in a case where the Plaintiff is a policy holder and beneficiary. Additionally, in the concurrence of the Fortson decision, Justice Zahra addressed fraudulent claims, stating that they are “ipso facto neither reasonable nor necessary”. This likely allows for dismissal of any claims that can be proven to be fraudulent on the grounds that Plaintiff failed to meet their burden of proof. This dismissal will likely apply only to the fraudulent claims. Of note, Fortson and Haydaw will not affect seeking summary disposition in Assigned Claims matters.

Finally, if the fraud occurred during the inducement of the policy, an antifraud provision would still be valid and enforceable. The insurer, however, must prove that the fraud was material and that it relied on the fraud when entering into the contract. This could be grounds to void the policy and to move for summary disposition as to all claims for benefits.

Authored by: Alana Silver, Paul Wilk, & Jesse DePauw

Any information included here or through our web site is presented solely for general informational purposes and is not in any way intended as legal advice, is not a substitute for getting actual legal advice from an attorney, and should not be acted upon as legal advice without first seeking qualified professional counsel specific to your needs and situation. Additionally, by providing this general information and the information on our web site, no attorney client relationship is created.

Recent Michigan Court Decisions Limit Application of Fraud Exclusion Provisions

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