It doesn’t take a long court decision to make a clear point. In a recent unpublished decision, the Michigan Court of Appeals made one thing clear: for an insurance company to avoid paying benefits on the basis of fraud, it will need to show the misrepresentation is material.
Reid v Michigan Property & Casualty Guaranty Association is a short, 3-page, unpublished opinion from the Michigan Court of Appeals. Those 3 pages provide the plaintiff’s trial attorneys one clear message: don’t be afraid of fraud defense.
In Reid, the Plaintiff, Pansy Reid, had suffered serious injury from an auto accident on November 14, 2012. She filed a First-Party no-fault insurance claim against American Fellowship Mutual Insurance Company (AFMIC), and it’s successor in interest Michigan Property & Casualty Guaranty Association (Michigan P&C) based on the policy of her son-in-law, Philip Parham.
Pansy had lived with Philip and her daughter Melissa Parham for several years before the accident. But when Philip filed his application for insurance in 2008 and 2009, he didn’t name Pansy as an “additional licensed residents” in the household or “additional drivers” of the vehicles.
When Pansy’s First-Party auto insurance claim went to court, that omission came back to haunt her. Michigan P&C said that it was fraud, and entitled it to summary disposition against Ms. Reid.
Proving Fraud and Misrepresentation
The Court of Appeals considered whether the insurance company could use a common law defense of fraudulent misrepresentation to defend against the Plaintiff’s breach of contract claim. It said that in order to sustain it’s claim, the insurance company needed to show:
- That the party made a material representation;
- That it was false;
- That when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion;
- That he made it with the intention that it should be acted upon by the other party;
- That the other party acted in reliance upon it; and (6) that he thereby suffered injury. Id at *2 (citing Titan Ins Co v Hyten, 491 Mich 547, 554; 817 NW2d 562 (2012)).
Because Pansy’s No-Fault claims depended on the validity of Philip’s insurance policy, the statements he made on his application applied to her.
In Reid, the question wasn’t whether a false statement was made. It was whether there was a “material” misrepresentation. The court quoted Oade v Jackson Nat Life Ins Co of Mich, 465 Mich 244, 254; 632 NW2d 126 (2001):
In the context of an application for insurance, a misrepresentation is ‘material’ when ‘communication of it would have had the effect of substantially increasing the chances of loss insured against so as to bring about a rejection of the risk or the charging of an increased premium.’
In other words, if an insurance company wants to avoid paying benefits because of misrepresentation, it must first demonstrate that correcting that error would have had an effect on the application – either by causing the insurance company to reject the application, or change the premium.
In Reid, the insurance company hadn’t done either. Had the company known Pansy lived in the home, there was no reason to believe that would change its consideration of Philip’s policy application. Because of that, the court said the insurance company’s summary disposition must be denied.
Advising Auto Accident Clients
Reid tells trial attorneys one thing: they don’t need to be afraid of the word fraud. It isn’t enough for an insurance company to show inaccuracies in the application. It has to go further to show the false statements would have affected the policy in the first place.
This requirement could still pose challenges when clients omit health concerns or driving histories. For example, Montgomery v Fid & Guar Life Ins Co, 269 Mich App 126, 129; 713 NW2d 801 (2005) struck down a policy when the insured hid his smoking habit. But where the problem is an additional driver, the insurance company will have to show a lot more.
When you are advising your client about mis-statements, dig into what would have happened if the information had been disclosed. Find out as much as you can about the person who wasn’t named or the medical condition that wasn’t listed.
Then, when the insurance company files it’s motion for summary disposition, you will be armed and ready to show that the omission was not “material.” By comparing your client’s misrepresentation with similar cases where the policy was enforced, you’ll show that the insurance company wouldn’t have changed its ways if your client had been more forthcoming.
There is no need to be afraid of a fraud defense. By doing your work and digging into your clients’ past, you’ll be ready to defend their claims and protect their interests.
David Christensen is an auto accident attorney at Christensen Law in Southfield, Michigan. He has been fighting against insurance company defenses for over 20 years. If your client is facing a tough First Person lawsuit, contact Christensen Law for a referral today.