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Settler v Auto Owners Ins Co (COA – UNP 12/22/2020; RB #4200)


Michigan Court of Appeals; Docket # 350925; Unpublished
Judges Swartzle, Beckering, and Gleicher; per curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion

§500.3113 Disqualification From PIP Benefit Entitlement (Misrepresentation / Fraud as a Basis to Rescind Coverage)

Cancellation and Rescission of Insurance Policies

In this unpublished per curiam opinion, the Court of Appeals remanded to the trial court on the issue of whether the fraud provisions of Defendant’s insurance policy applied to Plaintiff in light of recently published holdings by the Michigan Supreme Court and Michigan Court of Appeals in Meemic and Haydaw.

This case arose when Plaintiff was injured in a motor vehicle accident while traveling in a vehicle rented by his cousin while his cousin’s vehicle was undergoing repairs at North End Collision, an auto repair shop. Defendant Auto Owners Insurance Company issued the policy to North End Collision. Plaintiff was listed as a secondary driver on the rental agreement. Following the accident, Plaintiff suffered a traumatic brain injury and was placed in a medically induced coma. As a result of these injuries, Plaintiff brought suit for benefits – specifically, attendant-care services. Defendant moved for summary disposition, arguing that Defendant was entitled to deny coverage due to Plaintiff’s numerous fraudulent statements regarding the accident, his prior medical history, and attendant-care services. The trial court concluded that the fraud provisions of the insurance policy were enforceable against Plaintiff and granted Defendant’s motion.

On appeal, Plaintiff first argued that the fraud provisions of the insurance policy issued by Defendant Auto Owners to North End Collision could not be enforced against him because he was not an insured under the policy and that the no-fault act should govern his entitlement to benefits instead. The court rejected this argument, finding that the insurance policy issued by defendants included “[a]ny person while using an auto owned, maintained or used in your garage business,” that Plaintiff was listed as a secondary driver on the rental agreements, and that Plaintiff himself had alleged in his complaint that he “was covered under the provisions of a motor vehicle insurance policy issued by defendant insurance company which was then in effect.” The Court then looked to Plaintiff’s next argument that fraud provisions in insurance policies are contrary to the no-fault act by their very nature. In its analysis, the Court looked to Meemic Ins Co v. Forton, which was not available to the trial court at the time of its decision. In Meemic, the Michigan Supreme Court held that fraud provisions in insurance policies are valid “when based on a defense to mandatory coverage provided in the no-fault act itself or on a common-law defense that has not been abrogated by the act,” but cannot “go beyond either the statutory or common-law defenses and thereby limit mandatory coverage to a greater extent that either the statute or the common law. Further, the Michigan Court of Appeals stated that “[a]t common law, the defrauded party could only seek rescission or avoidance of the transaction, if the fraud related to the inducement to or inception of the contract.” In the case at hand, the Court noted that Defendant had not asserted that the insurance policy at issue was procured by fraud or that the rental agreement was procured by fraud. Instead, the Defendant argued that the plaintiff’s application for benefits and statements made during litigation were fraudulent. Accordingly, the Court held that “under the no-fault act, an insurer may only deny all coverage under an auto-insurance policy based on fraud if the policy itself was procured by fraud, but not if the fraud related to post procurement activity.

The court held similarly for Plaintiff’s final argument regarding attendant-care forms. While Defendant argued that surveillance videos and information when taken in context of the attendant-care forms showed no issue of fact that Plaintiff “made false statements by claiming services he did not need or actually receive,” the court held that under Haydaw v. Farm Bureau Ins Co, which was also decided by the Michigan Court of Appeals after the trial court had made its holding, “an insurer cannot assert that it denied a claim because of fraud that occurred after litigation began; the fraud must have occurred before the legal proceeding.” Thus, the Michigan Court of Appeals held that “[t]he only source of statements that may form the basis of a viable fraud defense would be those made by plaintiff on his application for benefits.” Therefore, the Court remanded the case to allow the trial court to hear Defendant’s other arguments and to apply the holdings of Meemic and Haydaw.

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