In an April 5, 2018 published opinion, Baker, et al v Marshall et al, ___ Mich App ___ (4/5/18), the Court of Appeals majority, in a 2-1 decision, determined that because IDS failed to plead fraud as an affirmative defense, it waived the defense, and the trial court erred by granting summary disposition in favor of IDS.
In Baker, Plaintiff Percy Baker claimed to have sustained injuries when a vehicle driven by defendant Edward Marshall ran a red light and broadsided the vehicle in which Baker was a passenger. At the time of the accident, Baker had a policy of no-fault insurance with IDS; the policy included uninsured motorist coverage.
Baker filed suit in May 2015, with IDS filing its answer in June 2015. With its answer, IDS generally denied the allegations that it had wrongfully failed to pay uninsured motorist or no fault PIP benefits under the policy. IDS asserted numerous affirmative defenses, however, most notably, IDS did not include a defense that the insurance policy was void ab initio on the basis of fraud. Baker filed a denial of each of IDS’ affirmative defenses and demanded a recitation of the legal basis for each affirmative defense as required by MCR 2.111(F)(3). Baker later filed an amended complaint, and again, in its answer to the amended complaint, IDS failed to raise contractual fraud as an affirmative defense.
In May 2016, IDS moved for summary disposition on the basis that Baker had fraudulently misrepresented facts and that the fraud-exclusion clause in the IDS policy applied barring Baker from receiving any coverage. Baker argued that IDS waived is fraud defense by failing to raise it as required by MCR 2.111(F). The trial court granted summary disposition in favor of IDS on the basis that the fraud-exclusion clause applied.
On appeal, Baker argued that IDS’ failure to properly raise fraud as an affirmative defense meant a waiver of that defense under MCR 2.111(F). MCR 2.111(F)(2) provides in pertinent part, “[a] defense not asserted in the responsive pleading or by motion as provided by these rules is waived, except for the defense of lack of jurisdiction over the subject matter of the actions, and failure to state a claim on which relief can be granted.” The Court noted, “It is worth repeating that it has long been established that under MCR 2.111(F), ” ‘[t]he failure to raise an affirmative defense as required by the court rule constitutes a waiver of that affirmative defense.’ ” Dell v Citizens Ins Co of America, 312 Mich App 734, 753; 880 NW2d 280 (2015), quoting Stanke v State Farm Mut Auto Ins Co, 200 Mich App 307, 312; 503 NW2d 758 (1993).
IDS argued that based upon the rationale used in Stanke, the defense in this case is not an affirmative defense because it directly controverts Baker’s prima facie case against IDS. The Court found this unpersuasive.
The Court noted that the existence of the fraud exclusion clause in the IDS policy does not controvert Baker’s entitlement to prevail on her prima facie case. Baker’s claim is essentially that she had a no-fault policy with IDS and was entitled to benefits under that policy. In order to directly controvert that prima facie case, IDS would have to argue that under the policy language, Baker was not entitled to recover benefits. That is, in order for the fraud provision to bar Baker’s claim, she must first have a claim to be barred; the claim to be barred is the claim raised in the prima facie case. “The fraud defense is therefore an affirmative defense, one that if successful would prevent Baker from recovering under the policy despite the fact that she would otherwise prevail on her prima facie case.”
The Court of Appeals majority held: “Because the fraud defense is an affirmative defense, the failure to raise it constitutes a waiver of that defense. Consequently, the trial court erred by granting IDS summary disposition on the basis of fraud.”
Justice Kathleen Jansen prepared a dissenting opinion, arguing that although IDS referred to Baker’s alleged fraud as contractual fraud, the fraud at issue was not in fact contractual. Justice Jansen notes that the crux of IDS’s argument is that Baker’s injuries are not related to and arising out of the subject motor vehicle accident, and therefore that she is not entitled to recover PIP benefits from IDS. The basis of IDS’s argument is that Baker is fraudulently misrepresenting the nature and extent of her alleged injuries, and therefore she cannot succeed on her claim because she cannot successfully prove her prima facia case.
NOTE: IDS has filed an Application for Leave to Appeal in the Michigan Supreme Court. We will update this report if the Supreme Court decides to take some action.
_____________________________________________________________________________________
Sarah Nadeau, Editor of the Law Fax Publication, is a Shareholder in our Detroit Office. Sarah can be reached at 313.446.1530 or snadeau@garanlucow.com
