Over the last few years, the question of fraud has become all too prevalent in auto accident cases. Policy holder fraud can void a no-fault policy. But what about passenger fraud? A newly published Court of Appeals case takes up the issue.
Since Bahri v IDS Prop Cas Ins Co, auto insurance companies are aggressively litigating any fraud issue they can find. But in the recent published Michigan Court of Appeals decision, Shelton v Auto-Owners Insurance Co, the court said that passenger fraud is different.
On January 22, 2013, Tyann Shelton was a passenger in the car owned and operated by Timothy Williams. She was injured when the car was involved in a single-car crash. Shelton did not have her own no-fault policy, nor did she live with anyone who did, so she filed her claim for no-fault benefits against Williams’ insurer, Auto-Owners Insurance Company. She requested compensation for medical expenses and replacement services related to household chores.
Auto Insurance Fraud Exclusionary Policy
Auto-Owners denied Shelton’s claim, arguing that she had fraudulently misrepresented her need for replacement services. By doing so, the company said she violated the policy’s fraud exclusionary policy, which said:
“We will not cover any person seeking coverage under this policy who has made fraudulent statements or engaged in fraudulent conduct with respect to procurement of this policy or to any OCCURRENCE for which coverage is sought.”
The insurance company argued that this policy applied to Shelton even though she was a passenger and not a policy holder. They provided the report and some photos by a private investigator that they said established she did not need the replacement services she claimed.
Passenger Fraud and Bahri
In 2014, a Michigan Court of Appeals determined in Bahri that fraud in the application or litigation could void an insurance policy and relieve the insurance provider of the need to pay no-fault benefits. Since then, auto insurance attorneys have been aggressively filing Bahri motions at every sign of fraud. But when the company raised a similar defense, the Michigan Court of Appeals said this case is different.
In Bahri, the policy holder tried to collect no-fault benefits for replacement services allegedly performed prior to the accident. The first significant difference between Bahri and Shelton’s case was who was filing the claim.
The court distinguished Shelton from those filed by policy holders, which are based on the insurance policy itself, as a contract between the parties. It cited a Michigan Supreme Court decision, Harris v Auto Club Ins Ass’n, which said:
“[The passenger plaintiff] is not claiming benefits under a no-fault insurance policy that he or anyone else procured. [He] is neither a third-party beneficiary nor a subrogee of the no-fault policy issued to the person that struck him and thus he [was] not eligible to receive benefits under that policy. Rather, [the plaintiff’s] right to PIP benefits arises solely by statute.”
The court noted that policy holders and passengers file their claims for no-fault benefits under two different subsections of the Michigan No-Fault Act. Subsection 1 says:
“[A] personal protection insurance policy . . . applies to the person named in the policy, the person’s spouse, and a relative of either domiciled in the same household.” MCL 500.3114(1).
But passengers file their claims under Subsection 4, which says:
“[A] person suffering accidental bodily injury arising from a motor vehicle accident while an occupant of a motor vehicle shall claim personal protection insurance benefits from insurers. . . .”
The difference in the language between subsections 1 and 4 suggests that an auto insurance policy does not “apply” to a passenger’s claim for benefits. The statute doesn’t reference the policy at all.
Instead, the court indicated that it would be up to the fact finder to determine that a passenger plaintiff’s claims were unfounded based on the evidence presented at trial. Given that the plaintiff has the burden to prove she is entitled to a claimed benefit, if the claim is fraudulent, she will likely not prevail at trial.
Summary Disposition and Evidence of Fraud
The Court of Appeals went on to consider whether the insurance company had presented sufficient evidence to be entitled to a decision on its affirmative defense of fraud as a matter of law. According to Bahri, to prevail on a fraud claim, there must not be any question of material fact on any of the following elements:
- That The Insured Willfully Misrepresented A Material Fact
- That The Fact Was Reasonably Relevant To The Investigation Of A Claim
- That The Statement Was False
- That The Insured Knew It Was False Or Made The Statement Recklessly
- That The Insured Intended That The Insurer Would Act Upon The Fact.
To meet this burden, Auto-Owners put forward an investigator’s report and several photos. However, the insurance company’s arguments in its brief often conflicted with the investigator’s report. The report indicated that at one time a man raised a toddler above his head with both hands. Auto-Owners attributed this behavior to the (female) plaintiff. Many of the photos were so blurry that it was impossible for the court to determine who was doing what. The court said:
“While such repeated activities are sufficient to establish the elements of fraud beyond a question of fact, a single episode of wringing out a shirt does not; nor do isolated examples of an injured person participating in simple physical actions such as bending, modest lifting, or other basic physical movements that they testify are painful or difficult.”
Together, the two prongs of Shelton v Auto-Owners provide a dose of realism to the frenzy of fraud motions that have flooded the courts since Bahri. The court makes clear that insurance exclusionary policies don’t apply to passenger fraud, and that any such claim requires significant proof of misrepresentation. That will protect many injured passengers, and make sure they get the benefits they need, and that the No-Fault Act makes sure they receive.