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Ferndale Rehab Ctr, et al v Allstate Ins Co (COA – UNP 5/20/2021; RB #4266) 

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Michigan Court of Appeals; Docket #351478; Unpublished 
Judges Kelly, Servitto, and Letica;  Per Curiam 
Official Michigan Reporter Citation: Not Applicable, Link To Opinion


STATUTORY INDEXING: 
Fraudulent Insurance Acts [§3173a]

TOPICAL INDEXING:
Fraud/Misrepresentation 
Evidentiary Issues


SUMMARY:  
In this unanimous unpublished per curiam opinion, the Court of Appeals affirmed the trial court’s summary disposition order dismissing Plaintiff Ferndale Rehabilitation Center’s (“FRC”) first-party lawsuit against Defendant Allstate Insurance Company (“Allstate”).  The Court of Appeals held that FRC’s assignor, Tommie Thomas, committed fraud in his application for no-fault PIP benefits through the Michigan Assigned Claims Plan, and that his claims for benefits—and FRC’s claims as his assignee—were therefore barred by MCL 500.3173a.

Tommie Thomas was injured while traveling in an uninsured vehicle that was involved in a crash.  Thomas subsequently received treatment from FRC and assigned his right to benefits for that treatment for FRC.  Thomas then applied for no-fault PIP benefits through the MACP, and the MACP assigned his claim to Allstate.  FRC submitted a claim to Allstate pursuant to its assignment, but Allstate denied its claim, and moved for summary disposition in FRC’s subsequent lawsuit, arguing that Thomas had made materially false statements regarding his medical history in the original application he submitted to the MACP.  Specifically, Allstate contended that Thomas significantly downplayed his preexisting conditions and medical history, and produced his past medical records and Social Security records as evidence.  FRC argued in response that Thomas’s past medical and Social Security records were inadmissible hearsay, and further that Thomas’s misrepresentations were neither material nor binding on FRC’s assigned claims.  Ultimately, the trial court held that Thomas had committed a fraudulent insurance act for purposes of MCL 500.3173a, and that he was therefore ineligible for benefits through the MACP.

The Court of Appeals affirmed the trial court’s summary disposition order in favor of Allstate, noting firstly that Thomas’s medical records and Social Security records were both admissible as hearsay exceptions. Specifically, the Court held that Thomas’s past medical records qualified as both “statements made for purposes of medical treatment or medical diagnosis in connection with treatment” and “records of regularly conducted activity,” and were therefore admissible pursuant to the hearsay exceptions set forth in MRE 803(4) and MRE 803(6).  As for Thomas’s Social Security records, the Court of Appeals held that those qualified as “public records and reports,” and were therefore admissible pursuant to the hearsay exception set forth in MRE 803(8).

"Here, Thomas’s medical records largely include statements made for purposes of medical treatment before the accident occurred, which were made at or near the time Thomas sought medical attention. There is no question that a patient’s medical records are routinely made in the course of a medical provider’s business. As a result, Thomas’s medical records qualify for admission under MCL 803(4) and MRE 803(6). Thomas’s Social Security records, which were recorded by the Social Security Administration (SSA), for purposes of providing federal benefits to Thomas, also qualify for admission under a hearsay exception, MRE 803(8). The trial court thus properly considered the records when deciding defendant’s motion for summary disposition." 

The Court of Appeals next rejected FRC’s argument that Thomas’s misrepresentations on his application amounted merely to a reasonable mistake and that Thomas clearly did not intend to make false statements, evidenced by the fact that he gave truthful testimony during his examination under oath and gave Allstate access to his past medical records.  The Court of Appeals enumerated numerous instances where Thomas omitted material facts regarding his preexisting limitations and past treatment, and held that there was “no question that Thomas was dishonest in his application” to the MACP.

"In Thomas’s application for no-fault benefits, he indicated that he injured his back, neck, and head in the accident. Thomas wrote in the application that the extent of his medical history consisted of arthritis, his medication history consisted of valium, and he was not eligible for Social Security benefits. When questioned at his EUO, however, Thomas admitted that he has been unemployed since 1997 due to a disability in his knees. Thomas testified that he had a knee replacement on his left leg in 2006 and was going to schedule a knee replacement in his right leg. He further testified that he had taken Vicodin for four to five years for knee pain prior to his 2006 surgery, but had taken no prescription medications in the year prior to the accident. At a later deposition, taken in another lawsuit arising out of the same car accident, Thomas testified that he had been taking Klonopin for anxiety off and on both before and after the accident at issue. He had also been taking Tylenol 4 prior to the accident and had used heroin prior to the accident and a couple of times after the accident. He further testified that he been in inpatient treatment for substance abuse in 2016 and that he had been using methadone for seven or eight years as of his 2019 deposition. Thomas admitted that it would be false to say the only medication he took before he accident was valium. 

Thomas’s medical records establish that Thomas omitted many, many, significant facts from his application for benefits. A medical record from 2000, for example, shows that he had a history of ulcers from IV drug abuse and also had HIV for which he was taking medications. A medical record from 2008 shows that Thomas had a lumbar spine exam due to a history of low back pain. The lumbar exam showed degenerative arthritis in his lower lumbar spine. A medical record from 2015 shows Thomas went to the emergency room due to ankle swelling. In the document, Thomas also reported a 9-month history of chronic headaches and blurry vision as well as a history of 3 slipped discs in his back. Another 2015 medical record shows Thomas again reported back pain and was prescribed medication for the issue; that he had hypertension for which he was prescribed medication, and; that he had chronic severe obstructive pulmonary disease for which he was prescribed medication. A 2017 medical record shows that Thomas went to the doctor for back pain. At that appointment, Thomas’s current medications included a multitude of prescriptions. A medical record dated less than a month prior to the accident shows that Thomas went to the doctor for back and hip pain and anxiety. His medical history taken at the time listed a significant number of both ailments and currently prescribed medications. 

In a 2013 application for social security benefits, Thomas stated that he could not walk because it was too painful, that he does house and yard work when he is able, that it was difficult for him to go outside, and that he used a cane every day. Additionally, Thomas admitted at his deposition that he had been receiving Social Security disability benefits for approximately six or seven years prior to the accident. 

Thomas also testified that he had been convicted of retail fraud in 1996 but that was the only conviction he had. Thomas’s criminal history, however, revealed many other convictions both prior to and after 1996. His convictions included several of larceny, an additional retail fraud, and possession of controlled substances[.] 

Finally, Thomas testified that Kellie Hyman assisted him with household chores from approximately April 15, 2018 through September 2018. Thomas testified at his EUO that she came to his three-room flat once per month to vacuum, do dishes, and clean for three to four hours. In his replacement services statements, however, it was claimed that Hyman provided daily household services to Thomas after the accident. Notably, some of the claimed services included snow shoveling in July and August of 2018. 

A review of the above leaves no question that Thomas was dishonest in his application for no-fault benefits, at his EUO, and in documents claiming replacement services. Therefore, the trial court did not err in finding Thomas made false statements on his application for no-fault benefits."

The Court next rejected FRC’s argument that Thomas’s misrepresentations were not material because Allstate “had the means to discover the truth, which it did obtain through Thomas’s deposition testimony and medical records,” and also because Allstate did not rely on Thomas’s false statements.  The Court of Appeals held that the fact that Allstate was able to discover the truth for itself was immaterial, and that, since Thomas’s misrepresentations were made with the intention of obtaining no-fault benefits, they were material.

"Despite these false statements, FRC maintains the statements were not material to bar FRC’s claim because defendant had the means to discover the truth, which it did obtain through Thomas’s deposition testimony and medical records, nor did defendant rely on Thomas’s false statements. MCL 500.3173a(4) states that a fraudulent insurance act occurs if 'a person who presents or causes to be presented an oral or written statement . . . knowing that the statement contains false information concerning a fact or thing material to the claim[,]' which does not exclude situations in which the insurer is able to discover for itself the truth of the statements. MCL 500.3173a(4). In fact, it has been consistently held that 'an insurer has no duty to investigate or verify the representations of a potential insured.' Titan Ins Co v Hyten, 491 Mich 547, 570; 817 NW2d 562 (2012). As stated, MCL 500.3173a(2) 'does not require that any particular recipient have received the false statement in order for the act to qualify as a fraudulent insurance act, as long as the statements [were] used as part of a or in support of a claim to the [MACP].' Candler, 321 Mich App at 780 (quotation marks and citation omitted). Because the fraudulent acts occurred when Thomas submitted his application to MACP, the fact that defendant uncovered the truth during its investigation of Thomas’s medical and medication history is irrelevant. FRC’s distinction that the false statements were submitted to MACP, and not defendant, is similarly without merit because the false statements in Thomas’s application were submitted to obtain no-fault benefits."

The Court next rejected FRC’s argument that Thomas’s misrepresentations were not material because his past medical history had no bearing on his eligibility for PIP benefits from the subject crash.  The Court held that Thomas’s past medical history was material to his claim for benefits, because Allstate “had to ensure it was not also compensating for medical expenses related to Thomas’s prior (or other current) medical conditions.

"On this basis, Thomas’s medication and medical history was material to his claim for no- fault benefits because defendant had to ensure it was not also compensating for medical expenses related to Thomas’s prior (or other current) medical conditions. The questions on the application reasonably gave the MACP and defendant a place to start when determining Thomas’s eligibility for no-fault benefits. As a result, the trial court did not err in finding Thomas’s statements were material to his claim."

Lastly, the Court rejected FRC’s argument that the trial court erred by barring its assigned claim, holding that an assignee stands in the shoes of the assignor and therefore possesses the same rights as the assignor.  Since Thomas had no right to collect benefits by virtue of his fraudulent insurance acts in violation of MCL 500.3173a, neither did FRC as his assignee.

"Lastly, FRC argues that, it was an error to bar FRC’s assigned claim against defendant. To support its argument, FRC points to the agreements executed after each of Thomas’s appointment with FRC, assigning Thomas’s claims to FRC 'all rights to collect benefits directly from the insurance company for the service or services that [Thomas has] received; and all rights to proceed against the insurance company obligated to provide benefits of which [Thomas is] due.' But, '[a]n assignee stands in the shoes of the assignor and acquires the same rights as the assignor possessed.' First of America Bank v Thompson, 217 Mich App 581, 587; 552 NW2d 516 (1996). On this basis, FRC only holds the same rights as Thomas held before the assignment to FRC. As a result, FRC is only entitled to a recovery of no-fault benefits if Thomas is entitled to no-fault benefits— which he is not due to his false statements. Because FRC’s claim for no-fault benefits are derivative of Thomas’s claim, a misrepresentation that bars Thomas’s claim also bars FRC’s claim. Dawoud v State Farm Mut Auto Ins Co, 317 Mich App 517, 524; 895 NW2d 188 (2016)."

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