Fraud/Special Investigation

The unpublished case of Settler v. Auto-Owners Ins. Co., 2023 WL 5157685, illustrates the impact of evolving case law and changes in insurance fraud litigation in the state of Michigan. In Settler, the plaintiff was injured in a motor vehicle accident that occurred in 2017. The plaintiff sought no-fault benefits from his insurance carrier and submitted an application for benefits. The application contained material misrepresentations regarding the nature of the plaintiff’s injuries. Moreover, the plaintiff continued to make material misrepresentations through statements and related documents during the claims process. Three months after the plaintiff submitted his application for benefits, formal litigation against the defendant insurance carrier for no-fault benefits commenced. 

At the trial level, the insurance carrier sought summary judgment, asserting that under the fraud provision of the insurance policy, it was entitled to deny coverage because the plaintiff made numerous fraudulent statements with respect to the accident, his prior medical history and his need for attendant-care services. The trial court concluded that the fraud provision of the insurance policy was enforceable against the plaintiff, granting the defendant’s motion based on the plaintiff’s submission of attendant-care forms, which the trial court concluded contained fraudulent statements about services needed or performed.

The plaintiff appealed, arguing the defendant was not entitled to deny all coverage on the basis of the purported fraud in the attendant-care forms. On appeal, the appellate court concluded that the trial court erred when it granted the defendant’s motion for summary disposition as to all of the plaintiff’s claims because, under Meemic Ins. Co. v. Fortson, 506 Mich. 287; 954 N.W.2d 115 (2020), an insurer may only void the policy when the fraud is committed when procuring the policy. In addition, the appellate court noted that under Haydaw v. Farm Bureau Ins. Co., 332 Mich. App. 719; 957 N.W.2d 858 (2020), a defendant could not rely on allegedly fraudulent statements made by the plaintiff in his attendant-care forms because the “statements” were made after the litigation commenced. The appellate court vacated the trial court’s order for summary judgement and remanded for the trial court to render a decision consistent with the framework set forth in Meemic and Haydaw, which were decided after the trial court rendered its decision. 

On remand, the trial court granted the defendant insurance carrier’s renewed motion for summary judgment, which the plaintiff appealed. The plaintiff argued that the trial court erred since the application for benefits was post-procurement and any such fraud cannot form a basis to dismiss the entire claim. The appellate court rejected the plaintiff’s argument and found the trial court’s decision consistent with Meemic and Haydaw. The appellate court found that, regardless of whether the plaintiff’s application for benefits is considered pre- or post-procurement, there was no dispute that the application was submitted to the defendant before litigation commenced. Thus, even if the application was considered post-procurement, the defendant was still entitled to deny coverage on the basis of the purported fraud. The defendant was not entitled to void the policy as a result of the plaintiff’s application for benefits, but it was entitled to deny the claims that flowed from it. Therefore, the trial court did not err when it concluded that the plaintiff’s application for benefits could serve as a basis for the defendant’s fraud defense and denial of coverage.

As seen in Settler, the framework of Meemic and Haydaw created nuance and potential limiting factors as to when a fraud defense can be asserted. Now more than ever, claim analysis and strategic discovery are critical. The added complexity requires insurance carriers to diligently investigate and ascertain the basis of potential fraud defenses in order to navigate a legal landscape that is constantly evolving. 

Jonathan is a member of the firm’s Fraud and Special Investigation Unit (SIU) Practice Group. His practice is dedicated to large loss and medical provider fraud and he has litigated and filed affirmative litigation recovery actions multiple states and jurisdictions. He is admitted to practice in Michigan, New Jersey, and District of Columbia.  

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