FRAUD PROVISIONS IN NO-FAULT INSURANCE POLICIES DO NOT PROVIDE GROUNDS FOR RESCISSION BASED UPON FALSE STATEMENTS MADE BY THE INSURED DURING FIRST PARTY LITIGATION

Zachary M. Zurek

In a published decision, Haydaw v Farm Bureau Insurance Company, the Court of Appeals reversed summary disposition for a No-Fault insurer, holding that the insured’s false statements made during his deposition in this first-party litigation were not grounds for rescission of the policy even though they violated the policy’s fraud provision.

In Haydaw the plaintiff claimed that he injured his back, neck and shoulders in a motor vehicle accident. He filed suit against Farm Bureau alleging entitlement to no-fault benefits for these alleged injuries.

During the course of litigation, Farm Bureau’s attorney obtained Haydaw’s pre-accident medical records which showed that, prior to the accident in question, he had complained of back, neck and shoulder complaints.

After obtaining his medical records, Farm Bureau’s attorney deposed Haydaw. When asked at the deposition whether he had ever treated with a doctor before the accident, Haydaw responded that he treated only for “flu, that’s it.”

Farm Bureau moved for summary disposition on the grounds that Haydaw’s deposition testimony denying his documented pre-accident treatment for back, neck and shoulder complaints constituted a false representation and thereby voided the policy pursuant to its fraud provision.  The Wayne County Circuit Court granted Farm Bureau’s motion and dismissed the case. Haydaw appealed.

The Court of Appeals framed the issue on appeal as “whether statements made during litigation after the insured’s claim is denied constitute grounds to void the policy under a fraud provision.” In reaching its holding, the Court cited federal precedents and several cases from other jurisdictions.  In so doing, the Court rejected the rationale of four unpublished opinions of the Michigan Court of Appeals that held such statements made during litigation do provide grounds for voiding the policy.  The Court attempted to distinguish those cases from the present one, suggesting that those cases did not analyze whether the policies’ fraud clauses may be read to apply to statements made during the course of litigation.  Notably, the Court in Haydaw also did not analyze the applicable language of Farm Bureau’s policy, instead briefly citing to it in a footnote.

The Court went even further in its holding by ruling that “statements made during litigation are by their nature incapable of satisfying the elements for voiding a policy on the basis of post-loss fraud.” This necessarily means that even if the insured is continuing to submit claims during litigation, as is very often the case in no-fault claims, the insured’s false statements during litigation cannot serve as the basis for voiding the policy.

In reaching its holding, the Court of Appeals has drawn a strict line of demarcation: the filing of a lawsuit. Taken at face value, this opinion stands for the proposition that once an insured files a first-party suit, the insured is then free to make false representations,  unencumbered by the risk that such statements may serve to void his or her policy.

It is this author’s opinion that the Court’s analysis and decision ignore the realities of first-party no-fault litigation. Quite often insureds continue to submit claims after filing suit. Yet this opinion seemingly insulates the insured from consequence for fraudulent statements made in support of ongoing claims merely by virtue of the insured having sued the very insurance company they are attempting to defraud.