Garan Lucow Miller remains open during COVID-19. Learn More.
May 12, 2021
The Court of Appeals, in Saad v Westfield Ins Co, unpublished Court of Appeals opinion No. 350557 (April 22, 2021), analyzed four recent fraud opinions from the Court of Appeals and Michigan Supreme Court and provided a clear test for determining whether a claimant’s alleged fraud was sufficient to invalidate an insurance policy in this post-Bahri world.
In Saad, Plaintiff claimed she suffered an injury arising out of a motor vehicle accident and further claimed that because of her injury, she was unable to drive for several months. Plaintiff’s insurer, Westfield, denied her claim for PIP benefits and obtained surveillance of Plaintiff driving prior to her filing a lawsuit. During her deposition, Plaintiff testified she was unable to drive. Westfield filed a motion for summary disposition arguing its policy was invalidated by Plaintiff’s fraud. The Circuit Court granted Westfield’s motion.
On appeal, the Saad Court first looked at Haydaw v Farm Bureau Ins Co, 332 Mich App 719 (2020)(currently pending before the Michigan Supreme Court on application). The Haydaw Court found that fraudulent statements made during the discovery process are incapable of satisfying the elements necessary to void a policy on the basis of post-procurement fraud. The Saad Court next looked to Fashho v Liberty Mut Ins Co, ___ Mich App ___ (9/17/20)(currently pending before the Michigan Supreme Court on application), in which the Fassho Court clarified Haydaw, establishing that fraud obtained during the course of litigation may still be used to void an insurance contract so long as it relates back to the fraud that took place before the proceedings began. Where fraud only occurs after litigation begins, it cannot be used to void an insurance contract.
The Saad Court then looked at the Supreme Court’s opinion in Meemic Ins Co v Fortson, 506 Mich 287 (2020). The Meemic Court determined that rescission is available as a remedy for post-procurement no-fault insurance fraud only if the fraud amounted to a substantial breach of the insurance contract. Rescission, however, remains available as a remedy for pre-procurement fraud. Lastly, the Saad Court looked at Williams v Farm Bureau Mut Ins Co, __ Mich App __ (No. 349903, January 28, 2021), in which the Williams Court found that Bahri’s fraud test applies only to instances of fraud in the inducement, not to post-procurement fraud. (See also the dissent in Williams.)
Reading Haydaw, Fashho, Meemic, and Williams together, the Saad Court found that unless an insured’s fraud results in a substantial breach of the insurance contract, fraud provides a basis for the opposite party to a contract to rescind the contract only if the fraud occurred before the contract was signed and before litigation commenced. To determine whether a “substantial breach” occurred, a trial court considers whether the non-breaching party obtained the benefit which he or she reasonably expected to receive. The Saad Court noted that Plaintiff’s alleged fraud occurred after the insurance contract was signed, but before litigation commenced and thus her alleged fraud was post-procurement fraud and could only invalidate her insurance policy if it amounted to a substantial breach of her insurance contract, which it did not.