The Michigan Court of Appeals recently held that the fraud provision in the no-fault act only applies to statements offered during the pre-litigation insurance claims process, and not to false statements made during litigation.
The decision is one of several recent appellate cases breaking from Bahri line of fraud cases, which had allowed insurers to use fraud to seek summary dismissal of no-fault cases.
In 2014, the Michigan Court of Appeals held in Bahri v IDS Prop Cas Ins Co, 308 Mich App 420 (2014) that a plaintiff’s fraud during litigation barred her ability to recover benefits under the policy. Since then, the scope of Bahri has been narrowed by subsequent cases, most notably in Haydaw v Farm Bureau Ins Co, 332 Mich App 719 (2020). In Haydaw, the Court of Appeals held that false statements made during discovery cannot void the insurance policy because, by the time the case is in discovery, the claim has already been denied and the parties are adversaries in litigation. Consequently, the Haydaw court reasoned that once suit is brought, what is truth and what is false is a matter for a jury or judge acting as a factfinder. Further, if it can be shown that a claimant intentionally testified falsely, the court can determine what, if any, sanction is proper.
Until recently, the Michigan Automobile Insurance Placement Facility (MAIPF) and its assigned claims plan carriers operated in a somewhat different sphere outside the reach of Haydaw, as entitlement to benefits from the MAIPF is statutory in nature, rather than contractual. While Haydaw explicitly addressed contractual anti-fraud provisions in an insurance policy, the assigned claims plan had alternatively relied upon statutory grounds to obtain summary disposition in situations involving fraudulent insurance acts – specifically, MCL 500.3173(a)(4).
On September 22, 2022, in a unanimous published opinion, the Court of Appeals essentially extended the Haydaw decision to cases involving the MAIPF and its assigned carriers. In Williamson v AAA, the Court of Appeals held that the anti-fraud provision in MCL 500.3173(a)(4) only applies to statements made by a claimant before litigation, but not to false statements made during litigation. On its face, this decision may seem like the continued diminishing of fraud defenses by insurance carriers. But just as Williamson extends Haydaw’s limitations on dispositive motions to the MAIPF and its assigned carriers, it stands to reason that Williamson also extends Hayday’s potential defense strategies to the MAIPF and its assigned carriers.
In Williamson, the insurance carrier sent discovery to the estate of the deceased injured claimant, seeking proof of household replacement services and attendant care. In response, the estate produced documents purporting to claim those benefits were rendered after Williamson had already died. The insurance carrier moved for summary disposition based on the anti-fraud provision in MCL 500.3173a(4), asserting that the fraudulent forms were submitted to the MAIPF in support of the estate’s “claim” for no-fault benefits. The estate argued in response that the forms were not submitted in support of the “claim,” but were in compliance with a discovery request, and accordingly, MCL 500.3173a(4) was inapplicable.
The trial court granted the insurer’s motion, concluding that the estate knowingly made material misrepresentations in support of its “claim” for no-fault benefits and consequently the estate was ineligible for payment for benefits under the assigned claims plan.
On appeal, the Court of Appeals focused on the use of the phrase “claim” in MCL 500.3173a(4), noting that the pertinent case law and the no-fault act itself (including sections addressing the assigned claims plan) distinguish the concepts of an insurance “claim” from a lawsuit or “action.” The Court of Appeals reasoned that the legislature’s intent was to limit the anti-fraud provision in MCL 500.3173a(4) to circumstances where the claimant makes material misrepresentations in submitting a claim to the MAIPF or servicing insurer before litigation, and not to evidence submitted for the first time during litigation.
While recognizing that the case was governed exclusively by statute, the Court of Appeals nonetheless likened the circumstances to Haydaw, finding that the material misrepresentations were not made in support of the estate’s “claim” for no-fault benefits, but rather were disclosed during discovery. As a result, the court held that summary disposition under MCL 500.3173a(4) was not appropriate.
Williamson will effectively shift the grounds on which carriers can seek dismissal of litigated cases and resulting sanctions. Indeed, the Williamson opinion explicitly provides that insurance carriers may still seek sanctions under the court rules (particularly MCR 2.313) when false statements are made during discovery. Further, under the Michigan Supreme Court’s decision in Meemic Ins Co v Fortson, 506 Mich 287 (2020), the MAIPF and its servicing carriers may still reject fraudulent claims without finding the entire claim ineligible, and may also seek statutory attorney fees when defending a claim that was in some respect fraudulent.
Ultimately, Williamson extends Haydaw to the assigned claims context and eliminates the possibility of relying upon fraud during litigation as a basis for dismissal under MCL 500.3173a(4). Still, evidence of fraud that occurs after litigation commences can be used as a defense at trial or in other contexts to limit exposure.
Kyle Warwick’s ability to understand and frame complex issues makes him an important part of our Insurance Coverage and Insurance Defense practice groups.
