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April 12, 2021
Just when we thought the appellate courts finally had decided that, thanks to last summer’s Supreme Court decision in Meemic Inc Co v Fortson, 504 Mich 287 (2020), the Bahri fraud defense was a thing of the past, a new decision has pushed back. Featuring a lively debate between the majority and dissenting opinions, the Court of Appeals in Bernard v Avers, unpublished Court of Appeals opinion No. 348048 (April 8, 2021), has decided that Bahri remains good law in allowing a no-fault policy’s fraud exclusion to be enforced against a claimant committing fraud in the course of a PIP claim.
First came Bahri in 2014. The Court of Appeals in that case was called upon to address a policy’s fraud exclusion, which by its terms would operate to disqualify an injured claimant altogether from entitlement to benefits if the claimant engages in fraud in connection with any part of the PIP claim:
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.
Bahri v IDS Property & Cas Co, 308 Mich App 420, 423-424 (2014). When the accident victim claimed benefits for replacement household services due to injuries she sustained in her accident and then was caught red-handed on video surveillance fully able to bend, lift, drive and run errands, the insurer relied on the fraud exclusion and regarded the insured as having forfeited her right to benefits under the policy. The Court of Appeals upheld the ruling in favor of the insurer. For the next several years, “Bahri fraud motions” became a regular feature in no-fault PIP litigation.
Then came the Supreme Court’s opinion in Meemic Ins Co v Fortson, 506 Mich 287 (2020). To be sure, the Court in that case did not explicitly overrule Bahri. Indeed, the Fortson opinion refers only once to Bahri–and even then only in a footnote–stating that the Court “need not address the issue” of whether and to what extent fraud related to the claims process might justify voiding the policy. Id., at 307 n 15. Yet what the Court did hold in Fortson can reasonably be understood as leaving no room for Bahri to breathe.
Specifically, the Supreme Court declared that when it comes to entitlement to mandatory no-fault PIP benefits, the only disqualifying provisions permitted as valid in a no-fault policy are those expressly allowed by the no-fault act itself (for example, see those listed in MCL 500.3113), and those based on a defense under the common law of contracts preexisting the no-fault act (for example, rescission for material misrepresentation in formation of the contract itself). 506 Mich at 302 (“a provision in an insurance policy purporting to set forth defenses to mandatory coverage is only valid and enforceable to the extent it contains statutory defenses or common-law defenses that have not been abrogated”). Rather clearly, an exclusion clause that would operate to disqualify a claimant from entitlement to all PIP benefits as a penalty for committing fraud in connection with the claim is a contractual defense that neither arises from common law nor is affirmatively allowed by the no-fault act.
Next came Williams v Farm Bureau Mut Ins Co, __ Mich App __ (No. 349903, January 28, 2021), which confirmed–or at least seemed to confirm–that Fortson did indeed extinguish the Bahri-fraud defense. The Court in Williams directly applied Fortson’s holding to Bahri and specifically declared what the Fortson opinion itself declined to say out loud – that insofar as fraud in connection with a claim for benefits is concerned, Bahri is no longer good law. Since the no-fault policy’s exclusion based on claim-related fraud is not a defense provided by the no-fault act and was not a defense that existed at common law, the exclusion clause is, quite simply, invalid and unenforceable.
Since Williams is a published opinion and it was not appealed to the Supreme Court and thus is now final, it would appear to constitute binding precedent on the issue and resolve any remaining doubt about whether the Bahri fraud defense is gone. But, not so. It is now clear that all appellate judges do not agree, and doubt surely remains. Even Williams itself was a two-to-one decision, in which the dissenting judge rejected the notion that Fortson necessarily extinguished Bahri.
And now the Court of Appeals has issued a new opinion, albeit an unpublished one, that upholds the defendant insurer’s Bahri-defense. The two judges comprising the majority in Bernard v Avers went to great lengths to explain why they believed they were not bound to follow Williams. Fortson itself, they said, chose not to overrule Bahri, and thus, as between Bahri and Williams (both published Court of Appeals decisions), Bahri remains the controlling authority since it was the first of the two issued.
The Bernard majority’s explanation was in response to a stinging dissenting opinion by Judge Elizabeth Gleicher, one of the two judges, coincidentally, who comprised the majority in Williams. She scolded the majority for not following Williams and, even more so, for failing to adhere to the very core of the Supreme Court’s ruling in Fortson. The debate revolves around which prior case constitutes the binding rule of law; and that question is now up in the air.
The decision in Bernard was not issued as a published opinion, and, therefore, it is not binding on any court facing this same question. Yet the rationale posited by the Bernard majority unavoidably throws the issue wide-open for the trial courts and future panels of the Court of Appeals. Does the Bahri fraud defense survive Fortson or does it not? It appears inevitable that the Supreme Court will need to weigh in to answer the question.