Michigan Court of Appeals; Docket # 345516; Published
Judges Ronayne Krause, Cavanagh, and Shapiro; Per curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Fraud/Misrepresentation
SUMMARY:
In this unanimous published per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing the plaintiff’s first party no-fault action and remanded for further proceedings. The Court of Appeals held that the defendant, Farm Bureau Insurance Company, could not invoke the fraud provision in the plaintiff’s policy, and rescind the policy altogether, based on false statements made by the plaintiff during the course of litigation.
Nael Haydaw was involved in a motor vehicle collision, and sustained injuries to his back, neck, and shoulders. Haydaw’s automobile insurer, Farm Bureau, denied his subsequent claim for no-fault PIP benefits, prompting Haydaw to file the underlying first party action. Haydaw released all of his medical records to Farm Bureau, and was deposed shortly thereafter. During his depositions, Haydaw answered questions through an interpreter and was recorded as having said that he never sustained any neck, back, or shoulder injuries prior to the subject collision, when his medical records showed “intermittent complaints of back, neck, and shoulder pain and that at times he had been prescribed pain medication in the years preceding the accident.” Farm Bureau moved for summary disposition, arguing that the Haydaw’s misstatements constituted a breach of the fraud provision in his policy, and that Farm Bureau was therefore entitled to rescission of Haydaw’s policy. The trial court agreed, and granted Farm Bureau’s motion.
The Court of Appeals reversed the trial court’s summary disposition order, holding that “false statements made during discovery do not provide grounds to void the policy because, by that time, the claim has been denied and the parties are adversaries in litigation.” Furthermore, the Court held that “statements made during litigation are by their nature incapable of satisfying the elements of voiding a policy on the basis of post-loss fraud,” because, “in order to obtain relief under Bahri [citation omitted], the material misrepresentation must have been made ‘with the intention that the insurer would act upon it.’” False statements made during discovery are not made with the intention that the insurer would act on them in processing the claim under the policy’s terms. Rather, they are made with the intention that the trier of fact will act on them.
For similar reasons, statements made during litigation are by their nature incapable of satisfying the elements for voiding a policy on the basis of post-loss fraud. In order to obtain relief under Bahri, 308 Mich App at 424-425, that the material misrepresentation must have been made with “the intention that the insurer would act upon it.” Yet an insured’s statements during discovery are made with the intention that the trier of fact, not the insurer, will act on them. To the extent that the insurer acts on those statements, it is through counsel for purposes of litigation strategy rather than processing the claim under the policy’s terms.
The Court went on to note that allowing insurers to void policies based on false statements made during litigation would create perverse incentives:
For example, an insurer with full knowledge of the insured’s medical history could seek to bait or lead the insured into making an inaccurate statement at deposition and then seek summary disposition on those grounds. Such tactics are directly at odds with the purpose of discovery.
And lastly, the Court of Appeals held that “a contrary ruling—that a fraud or misrepresentation clause applies to statements made during the course of litigation—would implicate the first-breach rule”:
That is, if the insurer, by the denial of the claim, was first to breach the contract, it may not defend on the grounds that the plaintiff subsequently failed to adhere to the contract. “An insurance policy is a contractual agreement between the insured and the insurer.” Farm Bureau Ins Co v TNT Equip, Inc, 328 Mich App 667, 672; 939 NW2d 738 (2019). “The rule in Michigan is that one who first breaches a contract cannot maintain an action against the other contracting party for his subsequent breach or failure to perform. . . . [T]his rule only applies when the initial breach is substantial.” Michaels v Amway Corp., 206 Mich App 644, 650-51; 522 NW2d 703 (1994) (citations omitted). Defendant has refused to provide PIP benefits despite the existence of the policy. If the denial is unjustified it is clearly a substantial breach that would relieve plaintiff of his contractual duties under the policy. Accordingly, summary disposition on the basis of false statements would not be warranted unless and until it is determined that the denial of the claim did not breach the contract.
