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Saad, et al v Westfield Ins Co, et al (COA - UNP 4/22/2021; RB #4248)

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Michigan Court of Appeals; Docket #350557; Unpublished
Judges Tukel, Jansen and Cameron; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion


STATUTORY INDEXING:
§500.3113: Disqualification from PIP Benefit Entitlement (Misrepresentation / Fraud as a Basis to Rescind Coverage)

TOPICAL INDEXING:
Fraud/Misrepresentation


SUMMARY:
In this unanimous unpublished per curiam opinion, the Court of Appeals reversed the trial court’s grant of summary disposition in favor of Defendant Westfield Insurance Company ("Westfield") on the issue of whether Plaintiff Kawthar Saad's claim for PIP benefits was barred by the insurance policy’s antifraud clause. In so holding, the Court clarified that the cases of Haydaw, Meemic, Fasho, and Williams have resulted in “significant change” to the law since the time the trial court granted summary disposition to Westfield, and that, when taken together, the cases establish that “unless an insured’s fraud  results  in  a  substantial  breach  of  the  insurance contract, fraud provides a basis for the opposite party to a contract to rescind the contract only if the fraud occurred before the contract was signed and before litigation commenced.”

This case arose from a motor vehicle accident in which Saad was injured. At the time of the accident, Saad had a no-fault insurance policy with Westfield. Following the accident, Saad required medical care, but Westfield declined Saad's claim for personal protection insurance (PIP) benefits, prompting Saad to file suit against Westfield. During a deposition in the course of litigation, Saad testified that she was unable to drive from the time of the accident in August 2017 until approximately March of 2018. Following the deposition, Westfield produced surveillance footage showing Saad driving on two instances in November of 2017. Consequently, Westfield moved for summary disposition, contending that Saad's claim for PIP benefits was barred by the insurance policy’s antifraud clause. The trial court granted Westfield's motion, and Saad appealed.

On appeal, the Court of Appeals noted that when the trial court granted summary disposition to Westfield, it did so based on the holding of Bahri v IDS Property Cas Ins Co, 308 Mich App 420; 864 NW2d 609 (2014). However, the Court also noted that “the circumstances under which an insurer may invalidate an insurance contract based on fraud has significantly changed in recent months, starting with this Court’s opinion in Haydaw v Farm Bureau Ins Co, __ Mich App __; __ NW2d __ (2020) (Docket No. 345516). Specifically, the Court clarified that Haydaw, and the line of cases following it, have addressed two issues, “(1) whether fraud discovered during the course of litigation can be used to void an insurance contract, and (2) the significance of whether the fraud occurred before or after the parties entered into the insurance contract.” In addressing the first issue, the Court noted that Haydaw stood for the proposition that “statements made during the course of litigation . . . cannot constitute fraud that would void an insurance policy,” and that the subsequent case of Fasho v. Liberty Mutual Ins Co, __ Mich App __; __ NW2d __ (2020) (Docket No. 349519) established that “evidence of fraud obtained during the course of litigation can still be used to void an insurance contract as long as it related to fraud that occurred before the litigation began,” whereas fraud occurring after the course of litigation cannot void an insurance contract.  In addressing the second issue, the Court noted that:

"Less than a month after this Court’s decision in Haydaw—and before this Court’s opinion in Fashho—our Supreme Court addressed whether fraud clauses in insurance contracts can ever be  used  to  invalidate  an  insurance  contract.    In Meemic  Ins  Co  v  Fortson, 506Mich 287;  ___ NW2d ___ (2020) (Docket No. 158302), our Supreme Court concluded that antifraud provisions in insurance contracts 'are valid when based on a defense to mandatory coverage provided in the no-fault act[, MCL 500.3101,]itself or on a common-law defense that has not been abrogated by the act.'  Id.  at 293. Fraud defenses  are  not  statutory  and,  therefore,  they  are  only  available  to insurers to the extent that they arise from the common law and are not abrogated by the no-fault act.  Id. at 303-305. 'At 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.'  Id. at 305.Nevertheless, 'a postprocurement fraud clause that rescinds a contract would be valid as applied to a party’s failure to perform a substantial  part  of  the  contract  or  one  of  its  essential  terms.  Generally, however, the mere breach of a contract would not entitle the injured party to avoid the contract at common law.' Id. at 308.Instead, in circumstances in which the misrepresentations do not 'constitute[] a failure to perform a substantial part of the contract or an essential term,' the insurer may still bring a claim for damages.2Id. at 310.Consequently, under Meemic, rescission is available as a remedy for postprocurement no-fault insurance fraud only if the fraud amounted to a substantial breach of the insurance contract.3Id. at 307-308.Rescission, however, remains available as a remedy for preprocurement fraud.  Id

A few months later, this Court returned to the issue of postprocurement fraud in no-fault cases  in Williams  v  Farm  Bureau  Mutual  Ins  Co  of  Mich,  ___  Mich  App  ___;  ___  NW2d  ___ (2021)  (Docket  No.  349903).    The Williams Court  examined Meemic  and  considered  whether Bahri remained  good  law  in  light  of Meemic. The Williams Court  held that Bahri’s fraud test applies only to  instances of  fraud  in  the  inducement, i.e.  preprocurement  fraud, not  to postprocurement fraud.  Id.___;slip op at 6-7 ('We conclude that Bahri remains good law only to the extent that it is consistent with the no-fault act and common law as explained in Meemic.  In other words, it applies only in cases of fraud in the inducement.').  In essence, Williams simply clarified Meemic’s holding by specifically addressing its effect on Bahri.  See id.4"

Applying these principles to the case at hand, the Court found that “[t]ogether, Haydaw, Meemic, Fashho, and Williams . . . establish that, unless an insured’s fraud  results  in  a  substantial  breach  of  the  insurance contract, fraud provides a basis for the opposite party to a contract to rescind the contract only if the fraud occurred before the contract was signed and before litigation commenced.” As such, the Court noted that Saad's alleged graud had occurred after the insurance contract was signed, but before litigation had commenced. Thus, even if Saad's claim were fraudulent, the fraud constituted postprocurement fraud, which can only be used to invalidate the insurance contract if it amounted to a substantial breach of the insurance contract, which was not the case here. Thus, the Court reversed the trial court’s order granting summary disposition to Westfield.

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