The Danger Of ‘Bahri’: An Honest Mistake Can Cost A Lifetime Of Benefits

It has been several years since the Michigan Court of Appeals issued its groundbreaking decision in Bahri v IDS Property Casualty Ins Co, holding that alleged fraud by an insured voids the entire no-fault policy, thereby eliminating the insurance company’s obligation to pay benefits.
Although the Bahri ruling was appealed, the Michigan Supreme Court declined to review the decision. As a result, Bahri stands as a victory for auto insurance companies across the state.

Once Bahri was decided, insurance carriers immediately began scouring the no-fault claims of Michigan auto accident victims, looking for any sign of potential fraud, in hopes they will not have to pay personal injury protection (PIP) benefits.

Bahri triggered a firestorm in the auto insurance industry: aggressively litigate any possible sign of fraud – even the littlest mistake by an insured.

And therein lies the danger of Bahri. The slightest misstep … even an honest error… will now result not only in protracted litigation, but the denial of PIP benefits – lifetime benefits to which insureds are entitled under the No-Fault Act.

Bahri’

In Bahri, the plaintiff had a no-fault insurance policy with the defendant, IDS Property Casualty Insurance Company. Like most no-fault policies, the plaintiff’s policy included a general fraud exclusion. The fraud exclusion in the policy said, “We do not provide coverage for any insured who has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under this policy.”

The plaintiff alleged she was injured in a car accident and sought PIP benefits from the defendant, including replacement services. As required, the plaintiff submitted “Household Services Statements” setting forth the replacement services provided to the plaintiff on a daily basis from October 2011 through February 2012. The defendant noted that, while the car accident happened on October 20, 2011, the Household Services Statements indicated the plaintiff received replacement services for the full month of October. In addition, the defendant surveilled the plaintiff and captured her on video bending, lifting, driving and running errands during the time she had claimed replacement services.

The defendant filed a motion to dismiss the plaintiff’s claim for PIP benefits, arguing she was not entitled to coverage because she had made fraudulent misrepresentations in violation of the policy’s general fraud exclusion. The trial court agreed and dismissed the plaintiff’s no-fault claim.

The Court of Appeals affirmed. “Reasonable minds could not differ in light of this clear evidence that plaintiff made fraudulent representations for purposes of recovering PIP benefits,” the Court of Appeals said. The Michigan Supreme Court denied the plaintiff’s application to appeal.

Gotcha’ Defense Tool

The Bahri decision opened the fraud floodgates. Now, insurance companies are constantly filing dismissal motions and relying on Bahri to assert that the insured engaged in some type of fraud.

Let’s be clear: plaintiffs’ attorneys acknowledge that Bahri involved a clear-cut case of insurance fraud. However, insurers have been taking the Bahri ruling further and arguing that any questionable statement by an insured supports a motion to dismiss the entire PIP claim. For example, insurers are continuously filing motions to dismiss PIP claims based on inconsistencies on forms. Insurers are also filing dismissal motions based on statements that raise questions about the credibility of the insured, which is an issue for a jury to decide and not a judge on a dismissal motion.

Basically, Bahri is being used as a “gotcha” insurance defense tactic to call out what is often a minor technical and oftentimes honest mistake, in hopes of eliminating PIP coverage.

Problem is, this is not how Michigan’s no-fault system is designed to operate. The No-Fault Act was adopted to ensure the prompt payment of insurance benefits to persons who are injured in auto accidents. It was not enacted so that insurance companies could try to wiggle out of paying the statutory benefits to which policyholders are entitled.

Also, keep in mind that if an insured cannot collect PIP benefits because of alleged fraud under Bahri, then neither can the medical providers that treated their auto accident injuries. “Because plaintiff’s claim for PIP benefits is precluded, intervening plaintiffs’ claim for PIP benefits is similarly barred, as they stand in the shoes of plaintiff,” the Bahri Court said of the doctors who treated the plaintiff and who were seeking to recover payment for their services.

To make matters worse, after the Bahri Court ruled the plaintiff’s medical providers could not recover no-fault benefits, the Michigan Supreme Court came to its sweeping conclusion in Covenant Medical Center Inc v State Farm Mutual Automobile Ins Co that medical providers cannot directly sue insurance companies to collect PIP benefits – that is, payment for their services.

Innocent Mistake Or Fraud?

Bahri is the law unless the decision is overturned by a Michigan appellate court. Therefore, the crucial question for insureds is this: when is a mistake a mistake, and when is it fraud?

Unfortunately, it appears under Bahri that any misstep by a policyholder will be labeled as fraud – even an innocent mistake. The cry of “fraud” by insurance carriers is similar to what currently happens during independent medical exams (IMEs), where doctors hired by insurance companies quickly conclude the insured is really not injured at all or that the injuries are being exaggerated.

Because of Bahri, Michigan auto accident victims must be extremely careful when filing a claim for no-fault benefits. For example, a claim for PIP benefits will come under intense scrutiny where a mistake is made or inconsistences are found on replacement services, attendant-care or wage-loss forms, or the insured simply forgot to include information about a prior medical condition.

At one time, innocent mistakes on an insurance form would not have necessarily jeopardized a PIP claim. Instead, the insurance company would have asked for clarification or denied only that part of the claim where the mistake occurred.

Unfortunately, this is no longer the case under Bahri. Rather than asking for clarification or denying only part of a claim, insurers are seeking to eliminate all no-fault coverage. The past few years since Bahri was issued have proven this to be true. Insurance companies are scrutinizing every detail of PIP claims and are surveilling their policyholders, hoping to find even the slightest notion of fraud. It is not an exaggeration to say that insurers are screaming “fraud!” at every possible opportunity.

Michigan drivers now live in the world of Bahri. As such, no-fault policyholders must be more vigilant than ever when completing insurance claim forms because an innocent mistake can cost a lifetime of insurance coverage.

If you have questions about your no-fault insurance benefits, Christensen Law can help.