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VHS of Michigan, Inc v State Farm Mut Auto Ins Co (COA – PUB 4/1/2021; RB #4244)


Michigan Court of Appeals; Docket #352881; Published (after release)  
Judges TukelJansen, and CameronPer Curiam
Official Michigan Reporter Citation: Forthcoming; Link to Opinion

Not Applicable

Actual Fraud 

In this unanimous  per curiam decision published after release, the Court of Appeals reversed the trial court’s denial of Defendant State Farm Mutual Automobile Insurance Company’s (“State Farm”) motion for leave to amend its affirmative defenses to plead fraud with particularity, and remanded for further proceedings.  State Farm asserted general fraud defenses in its answer to Plaintiff VHS of Michigan, Inc’s (VHS) complaint, but uncovered considerably more evidence of fraud through discovery, thereafter  seeking to amend its affirmative defenses to plead fraud with particularity.  The Court of Appeals held that the trial court abused its discretion in denying State Farm’s motion, because State Farm did not act with bad faith by waiting to amend its affirmative defenses, and because VHS would not be prejudiced by such an amendment.

VHS provided medical treatment to State Farm’s insured, Ferlita Reyes, after Reyes was injured in a motor vehicle accident, and thereafter filed a complaint against State Farm for failing to pay for the treatments it rendered to her.  In State Farm’s answer to VHS’s complaint, it included general fraud defenses, but then discovered more evidence of fraud through ensuing discovery.  For instance, it identified inconsistencies between Reyes’s and her passengers’ accounts of the accident, the description of the accident in the police report, and State Farm’s accident reconstructionist’s findings.  Moreover, State Farm obtained social media posts from two of Reyes’s passengers at the time of the accident in which they discussed activities relating to insurance fraud similar to that which State Farm alleged they had committed in this case.  After uncovering this information, State Farm moved to amend its answer to plead fraud with particularity, but the trial court denied its motion, finding that there was an undue delay and that VHS would be severely prejudiced if State Farm were allowed to do so.

The Court of Appeals reversed the trial court’s denial of State Farm’s motion to amend its answer, noting that State Farm did assert a fraud defense originally, therefore putting VHS on sufficient notice that it might advance an argument in that regard.  Moreover, VHS’s counsel was present at the depositions of Reyes and her passengers, and therefore knew that the issue was being explored by State Farm in discovery.

"Indeed, in its first responsive pleading, defendant provided plaintiff with reasonable notice that it would be pursuing a fraud defense.  Plaintiff claims that it suffered prejudice because the delayed motion to amend affected its 'ability to address [defendant’s] allegations of fraud during the course of depositions of the parties which [defendant] alleges committed it.'  However, not only was plaintiff on notice that defendant would be perusing a fraud defense, but it had counsel present at the depositions of Reyes and the other occupants of the Yukon.  Notably, plaintiff does not claim that the proposed amendment would prevent it from receiving a fair trial. [citation omitted] We conclude that plaintiff has not claimed prejudice sufficient to deny defendant’s motion for leave to amend, and the trial court abused its discretion by finding otherwise."

The Court also rejected VHS’s argument that State Farm’s motion to amend would be futile in light of the Michigan Court of Appeals' and Supreme Court’s rulings in Haydaw v Farm Bureau Ins Co, Mich App (2020), Meemic Ins Co v Fortson, 506 Mich 287 (2020), and Williams v Farm Bureau Mut Ins Co, Mich App (2021).  The Court of Appeals distinguished this case from those on procedural grounds, noting that, in those cases, “litigation had proceeded to the summary disposition phase,” whereas in this case, “the discovery period had not yet expired when [State Farm] moved to amend its affirmative defenses, and no motion for summary disposition had been filed by either party.”  The Court of Appeals also distinguished this case from those on factual grounds, noting that, in those cases, “the insurers sought to rescind or void the subject insurance policies on the basis of allegations of fraud on the part of the insured,” whereas in this case, “defendant ha[d] not sought to rescind its policy,” but rather sought “to plead with fraud with particularity in order to justify denial of claimed benefits.” 

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