922 N.W.2d 154
Mich. Ct. App.2018Background
- Louise and Richard Fortson (named insureds) submitted false attendant-care PIP claims on behalf of their son Justin from 2009–2015, collecting over $100,000.
- Justin was injured in a motor-vehicle accident and, as a resident relative domiciled with the policyholders, was covered under the Fortsons’ no-fault policy.
- Meemic Insurance discovered that attendant-care claims continued during periods when Justin was incarcerated, in rehab, or living elsewhere.
- Meemic sought to void (rescind) the policy under its fraud provision, which voids the entire policy if any insured intentionally conceals or misrepresents a material fact in the application, the insurance, or any claim made under it.
- The majority declined to allow rescission as to Justin, applying a form of the innocent-third-party rule and holding the fraud provision conflicted with the statutory right of a resident relative to PIP benefits; the dissent disagrees and would uphold rescission.
Issues
| Issue | Plaintiff's Argument (Meemic) | Defendant's Argument (Fortson) | Held (dissent) |
|---|---|---|---|
| Whether an innocent third party (Justin) can continue to collect PIP benefits when the policyholder committed post-issuance fraud | Fraud in claims allows insurer to void the policy and bar benefits to third parties | Justin is an innocent third party and should not be penalized for insured’s fraud | Dissent: Innocent-third-party rule should not apply; insurer entitled to rescind for insured’s fraud and bar third-party benefits |
| Whether the policy’s fraud provision conflicts with MCL 500.3114(1) (resident-relative statutory entitlement) | Fraud provision valid; it governs claims by insureds and resident relatives and does not conflict with the no-fault act | Fraud exclusion invalid as applied to resident relatives because their entitlement is statutory and cannot be reduced by policy terms | Dissent: Fraud provision is valid and does not contravene the no-fault statute; Bahri supports enforcement of fraud clause against resident-relative claims |
| Whether the fraud provision can be applied to void a policy when the fraudulent claim was made after the policy was issued | Policy language covers any claim made under it; post-issuance misrepresentations are actionable and material | The innocent-third-party rule or statute-based rights prevent applying the fraud clause to resident-relative claims | Dissent: Policy terms must be enforced; material, knowing misrepresentations in claims permit voiding the policy under the clause |
| Whether cancellation of the policy after claims were made defeats application of the fraud provision or insured status | Occurrence policy covers claims arising during policy period; cancellation does not negate insured status for claims originating before cancellation | Cancellation terminated insured status and thus precludes applying the fraud clause to later-submitted attendant-care requests | Dissent: Cancellation does not eliminate the named insureds’ status for occurrence-based claims that originated during the policy period; fraud still voids the policy |
Key Cases Cited
- Bazzi v. Sentinel Ins. Co., 315 Mich. App. 763 (Mich. Ct. App.) (innocent-third-party rule and insurer rescission)
- Bahri v. IDS Prop. Cas. Ins. Co., 308 Mich. App. 420 (Mich. Ct. App.) (policy fraud provision can preclude PIP benefits)
- Titan Ins. Co. v. Hyten, 491 Mich. 547 (Mich.) (statutory-mandated policy terms vs. contractual interpretation)
- Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197 (Mich.) (insurance policies enforced as written absent ambiguity)
- Stine v. Continental Cas. Co., 419 Mich. 89 (Mich.) (occurrence policies cover claims that arise during policy period)