In this 2-1 published opinion written by Judge Kelly, the Court of Appeals reversed the trial court grant of summary disposition for Defendant IDS Property and Casualty Insurance Company (“IDS”) regarding Plaintiff Percy Baker’s (“Baker”) alleged fraud. The Court reversed the trial court because it found that IDS failed to raise its defense below and its failure to do so was fatal to its claim since its assertion was an affirmative defense.
The case arose out of a motor vehicle accident between Edward Marshall (“Marshall”) and Baker. Baker had a no-fault policy with IDS, which included uninsured motorist coverage. Baker initially asserted that Marshall was an uninsured motorist as was Hertz Vehicles, LLC, which was the owner of the vehicle Marshall had been driving. Baker submitted a claim for benefits to IDS, but it was denied. Baker filed a complaint against IDS and IDS failed to allege fraud as a defense. Later, Baker amended her complaint and IDS asserted a number of affirmative defenses; however, fraud was not amongst the defenses. In 2016, IDS moved for summary disposition asserting that Marshall and Hertz had no-fault insurance; however, IDS again did not allege fraud by Baker. In May, while the trial court was ruling on claim that Marshall and Hertz had insurance, IDS alleged fraud by Baker for the first time. The trial court granted summary disposition on the basis of a fraud-exclusion clause in the no-fault contract.
The Court of Appeals found that IDS waived its defense of fraud because it was an affirmative defense. The Court cited to Stanke v State Farm Mut Auto Ins Co, 200 Mich App 307, 317; 503 NW2d 758 (1993), which explained that an affirmative defense not asserted in the responsive pleading or by motion as provided under MCR 2.111(F)(2) was waived, except for the defense of lack of jurisdiction and failure to state a claim on which relief can be granted. The Court then defined an affirmative defense as one that “does not controvert the plaintiff’s establishing a prima facie case, but that otherwise denies relief to the plaintiff.” Here, IDS’s fraud claim did not contravene Baker’s prima facie case because IDS had to argue that under the no-fault policy Baker was not entitled to benefits. The claim required the Court to accept the underlying claim and bar Baker based on the fraud-exclusion clause. Because the claim did not undermine the claim for benefits, it was an affirmative defense. Thus, under Stanke and MCR 2.111(F)(2), IDS waived its affirmative defense by not pleading it in a response or responsive motion.
“In this case, however, the existence of the fraud-exclusion clause does not controvert Baker’s entitlement to prevail on her prima facie case. Her claim is essentially a claim that she had a no-fault policy with IDS and was entitled to benefits under that policy. In order to directly controvert that claim, IDS would have to argue that, under the language in the policy, she was not entitled to recover benefits. Its claim that Baker is not entitled to benefits on the basis of the fraud-exclusion clause, however, requires that it accept that, in the absence of fraud, it would be required to pay her benefits under the policy. Stated differently, in order for fraud to bar Baker’s claim, she must first have a claim to be barred. The claim to be barred is the claim raised in her prima facie case.”
Thus, the Court reversed the trial court’s grant of summary disposition for IDS and found that IDS waived fraud as an affirmative defense.
Dissent by Judge Jansen:
Judge Jansen disagreed that IDS asserted an affirmative defense. Judge Jansen argued that IDS was advocating that Baker did not have any medical condition resulting from the auto accident. Judge Jansen agreed that if IDS was advocating to void the policy ab initio then it would be barred by Stanke because it failed to raise an affirmative defense. However, Judge Jansen argued that IDS was in fact arguing about the underlying medical condition, even though IDS based its action on contract fraud. Because the underlying defense contradicted the prima facie case, namely the entitlement to benefits, its pleading was not an affirmative defense.