COURT CONSIDERS APPLICABILITY OF ANTI-FRAUD PROVISION

Kyle C. Kamidoi

In Kimberly Johnson v. Geico Indemnity Company, the Plaintiff sought both attendant care services and household replacement care services arising from an injury allegedly sustained in a 2017 motor vehicle accident and pursuant to a policy of insurance issued by Geico. Geico denied benefits and voided the policy under the policy’s antifraud provision after it determined Plaintiff made claims for services while plaintiff was in Ohio and Florida without the service care providers. The trial court denied Geico’s motion for summary disposition. Geico appealed, and the Court of Appeals originally held that pursuant to Bahri v. IDS Prop Cas Ins, 308 Mich App 420; 864 NW2d 609 (2014), Geico was entitled to summary disposition since there was no genuine issue of material fact that plaintiff misrepresented her need for services while out of state, and therefore, submitted fraudulent claims under her insurance contract.

The Michigan Supreme Court then vacated the Court of Appeals judgment and remanded the case back to the Michigan Court of Appeals for reconsideration under the standard established in Meemic Ins. Co v. Fortson, 506 Mich 287, 954 NW2d 115 (2020). On remand, the Johnson Court held that upon reconsidering the facts of the case under Fortson, as directed by the Michigan Supreme Court, Geico could not void the policy of insurance entirely, however, Geico should not be obligated to pay claims that are clearly fraudulent.

In determining the validity and enforceability of the antifraud provision of the Geico policy, the Johnson Court concluded that the provision is only “valid and enforceable to the extent it contains statutory defenses or common-law defenses that have not been abrogated”. In other words, since there is no statutory fraud defense contained in the Michigan No-Fault Act, such a provision is not enforceable in the policy language. As such, Geico’s contract-based fraud defense fails because it is not the type of common-law fraud that would allow for rescission. In furtherance, the Johnson Court highlights that if the fraud existed before the contract was formed (i.e. fraud in the inducement), then the provision could still apply. In defense of this portion of the ruling, the Johnson Court cites to Williams v. Farm Bureau Mut Ins Co of Mich, 335 Mich App 574; 967 NW2d 869 (2021) which held that the Supreme Court precedent established in Fortson forcefully reiterated that non-statutory policy exclusions and defenses only apply to optional coverages, not mandatory coverages such as No-Fault Benefits. Williams goes on to hold that the decisions of Bahri and Fortson only coexist to the extent that the policy language can only apply to fraud in the inducement.

In finalizing its decision, the Johnson Court set forth a 5 prong analysis to consider when determining whether a No-Fault antifraud provision is enforceable: 1) Whether there is any factual dispute that fraud was committed; 2) When the alleged fraud occurred, in relation to when the policy was procured and when litigation commenced; 3) Whether the insurer seeks to avoid paying mandatory benefits or optional ones; 4) Whether the policyholder is also the claimant and individual alleged to have caused the fraud; and 5) Whether the insurer seeks to void the entire policy or just deny specific claims based on the fraud.

The Johnson Court held that 1) Here no doubt fraud occurred when plaintiff claimed attendant care and A/C ; 2) Fraud did not induce the defendant to issue the policy (that occurred before the alleged fraud); 3) Defendant is trying to avoid paying mandatory benefits; 4) Plaintiff is both the claimant and individual who committed fraud; 5) Defendant does not seek to void entire policy, but intends to use fraud to deny certain specific benefits.

Given the binding instructions established by the Fortson ruling, the Johnson Court determined that Geico can most certainly deny benefits based on fraud, however it cannot void the policy ab initio as the antifraud provision of the policy is inapplicable. Additionally, while the insurance carrier can deny specific claims of fraud, it cannot flatly deny all PIP benefits that an insured may have legitimately incurred at other times. The Johnson Court refused to uphold the denials, and instead, remanded back to the trial court to make this determination upon reconsideration.

In his concurrence, Judge Christopher Murray argued that neither Fortson, nor Williams address the actual issue of this particular case. Rather, Judge Murray believed Fasho v Liberty Mutual Ins Co, 333 Mich App 612 (2020), controlled the issue, which he framed as whether an insurer can defend a claim on the basis that post-procurement information submitted in support of the claim was fraudulent. He noted that Geico was not seeking to rescind the entire policy, and instead, was seeking to plead fraud with particularity in order to justify denial of specific claims. Judge Murray concurred in remanding the matter back to the trial court for a “fresh review of the evidence under the controlling law.”