November 04, 2016
By Paul Gipson
In the recent unpublished decisions, Lanurias v Progressive Ins Co, ___NW2d___; 2016 Mich. App. LEXIS 1906 (Ct App, Oct. 18, 2016) and Dewley v Pioneer State Mut Ins Co, ___NW2d___; 2016 Mich. App. LEXIS 1975 (Ct App, Oct. 25, 2016), the Court of Appeals addressed fraud that occurred in the pursuit of the claim and the often overlooked silent fraud in the renewal of the policy, respectively.
Lanurias v Progressive Ins Co
Lanurias was a fact intensive case that went through trial prior to Bahri v IDS Prop Cas Ins Co, 308 Mich App 420; 864 NW2d 609 (2014) app den 498 Mich 879; 868 NW2d 910 (2015). As such, this case addressed the relief specifically allowed under MCL 500.3148(2) and the facts were viewed through the lens of common law fraud. The relief of voiding the policy based on contractual language and recouping benefits mistakenly paid was not sought in this case.
Lanurias (hereinafter “Claimant”) was involved in a 2011 motor vehicle accident. After informing her Insurer that she was not seeking additional medical treatment, Claimant became a client of Brooks Neurological Practices (“BNP.”)
BNP referred Claimant to Level One, a company that provides home healthcare services and was owned by Saunders Dorsey (“Dorsey.”) Level One (not Claimant) hired Claimant’s husband, Abdullah Haqq (“Haqq,”) to provide daily attendant care for $1,085.00 per month and replacement services at $20.00 per day.
Haqq received preprinted forms from Level One indicating that various services were performed. This included times when Haqq was in Japan and, also, for future services. Haqq, who admitted the documented services were inaccurate, signed them at the direction of Level One. To further complicate matters, these forms also indicated that his services were supervised by Nikki Ford (“Ford,”) an R.N.
Haqq sent the inaccurate forms to Ford. Ford never verified the services were provided and did not supervise Haqq when he performed the services. Ford signed and sent the forms to Dorsey. Dorsey then submitted the forms to the Insurer for payment without verifying that the services were ever rendered. Level One billed the insurer 8.4x what it promised to pay Haqq.
The adjuster, relying on the representations that the services were actually provided as documented, negotiated a reduced rate of pay with Dorsey. This rate of pay was still 3.5x what Level One promised to pay Haqq. Payment was made in the amount of $21,450.00. The adjuster later testified that he would not have made that payment had he known about the above referenced facts.
Replacement and attendant care services were then terminated following an IME. Plaintiff filed suit seeking payment of benefits and the Insurer filed counterclaims of fraud, innocent misrepresentation, unjust enrichment, and payment under mistake of fact. Competing motions for summary disposition were filed related to the Insurer’s counterclaims; questions of fact were found.
At trial, the jury found Claimant was not injured in the subject accident and Level One had committed fraud. The jury awarded the Insurer the $21,450.00 that it had paid to Level One. The Insurer sought case evaluation sanctions and attorney fees under MCL 500.3148(2). The trial court found that the case to be fraudulent in “many respects, not just some respects” and “so excessive to have no reasonable foundation” and awarded the Insurer case evaluation sanctions and attorney fees under MCL 500.3148(2).
The first issue on appeal was whether the trial court erred when denying Claimant’s motion for a new trial as the verdict was against the great weight of the evidence. The Court of Appeals found that a jury could believe the Claimant was fabricating her claim based on her inconsistent reports of injuries, negative MRIs, and the testimony from the IME physician indicating there was only subjective complaints without objective evidence.
The second issue on appeal was Claimant’s argument that the great weight of the evidence showed that Level One did not commit fraud. The Court of Appeals relied upon the above referenced facts regarding the handling of the preprinted forms and found that Level One “at the very least” made reckless representations without knowledge of the truth.
The third issue on appeal was the denial of Plaintiffs’ motion for remittitur. Plaintiffs argued the $21,450.00 award in favor of the Insurer should have been reduced by the amount of attendant care actually performed. The Court of Appeals relied upon the jury finding that the Claimant was not injured and that no benefits should have been paid. The Court of Appeals did not address whether the common law fraud of at least a portion of the attendant care claim would result in the full repayment of benefits as that issue would have been moot. As stated, above, this case preceded Bahri.
Dewley v Pioneer State Mut Ins Co
In Dewley, the Court of Appeals again addressed the innocent third party rule and reaffirmed that nothing in the no-fault act restricts the defense of fraud at the inception of the policy.
Tiffany Dewley (“Dewley”) lived with Robert Woodyard (“Woodyard.”) Dewley was allowed to drive his vehicle and Woodyard never added Dewley to the policy as an additional driving residing in the same household. Dewley’s driving record would have made her ineligible for coverage under the policy.
Dewley was involved in a serious motor vehicle accident. She sought benefits through Woodyard’s Insurer. Following a bench trial, the trial court found there to be sufficient evidence of silent fraud on behalf of both Dewley and Woodyard to allow the Insurer to rescind the policy.
On appeal, Dewley argued that silent fraud was not established because Woodyard did not have a “duty to disclose.” The policy at issue required Woodyard to review the information provided to the Insurer at the inception of the policy as well as during each renewal. There was also evidence that the agents were required to make inquiries regarding additional drivers at the time of each renewal. The Court of Appeals held that Woodyard’s failure to disclose Dewley as a driver was silent fraud.
The Court of Appeals found that Dewley did not commit silent fraud as she had no duty to the Insurer. Because Woodyard had committed silent fraud, and the policy was properly rescinded, however, the Court of Appeals found the Circuit Court committed harmless error in finding Dewley had committed silent fraud. Thus, pursuant to Bazzi v Sentinel Ins Co, Dewley was precluded from seeking no-fault benefits from the Insurer as the innocent third party rule is now abolished.
The Court of Appeals also addressed the act of canceling a policy versus rescinding a policy. The Court of Appeals affirmed that once an insurer discovers fraud and elects a remedy for that fraud, it is bound by that relief. In other words, if the insurer cancels the policy due to fraud as opposed to rescinding a policy, any claim for benefits that pre-dates the canceled policy cannot later be denied based on the fraud that led to the canceling of the policy.
We proudly congratulate Christian Huffman, of our Ann Arbor office, on the publication of his new article A Contextual Understanding of the Phrase ‘Serious Impairment of Body Function’ in the University of Detroit Mercy Law Review.
Through a thorough analysis of the text of the statute, its history, and its context, the article explains what the “serious impairment” threshold actually means and the shortcomings with the Supreme Court’s current body of serious impairment jurisprudence. It is definitely a “must read” for anyone involved in third-party no-fault cases, especially attorneys and claims representatives. A copy of the article is available here: http://www.garanlucow.com/wp-content/uploads/2016/11/Huffman-UofD-Article.pdf
The Windy City Seminar will take place on
Thursday, November 10, 2016
at the Chicago Marriott Schaumburg. This is a complimentary
seminar for our clients. Click here for the Agenda.
Contact Eileen Carty to register at firstname.lastname@example.org or 248-641-7600.