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BlogsPublications | February 16, 2017
4 minute read

COA holds that a question of fact prevents summary disposition on a PIP claim based on an insurer’s fraud exclusion

In Tyann Shelton v Auto-Owners Insurance Company, No 328473, the Court of Appeals affirmed the trial court's decision in holding an exclusionary provision that defendant's no-fault policy does not bar plaintiff's personal injury protection (PIP) claim. The defendant sought summary disposition based upon a fraud exclusion clause in its policy, asserting that plaintiff made fraudulent statements concerning her need for replacement services and so was excluded by the policy from all PIP benefits. The trial court granted summary disposition as to replacement services and denied the motion as to payment for medical services and from that ruling, defendant appeals by leave granted.

Plaintiff was a passenger and alleges she was injured in a single-car collision while the defendant owned and operated the vehicle. Plaintiff sought PIP benefits from defendant because she did not own a vehicle, nor reside with a relative who did. Thus, defendant's insurer was to provide her with those PIP benefits to which she was entitled under the No-Fault Act. MCL 500.3114(4)(a). Plaintiff claimed PIP benefits that included medical expenses and replacement services for household chores. Defendant denied the claim and plaintiff brought suit.

Defendant moved for summary disposition asserting that plaintiff was not entitled to PIP benefits under an exclusionary clause in the policy reading ... “We will not cover any person seeking coverage under this policy who has made fraudulent statements or engaged in fraudulent conduct with respect to procurement of this policy or to any OCCURRENCE for which coverage is sought.”  Defendant argues that this policy exclusion applies to plaintiff despite the fact that she is not a policyholder and alleged plaintiff engaged in fraud as defined in the policy.

Defendant relies largely on Bahri v IDS Prop Cas Ins Co, 864 NW2d 609 (2014), in which the court held that a fraud provision in an insurance contract could bar a claim for PIP benefits when the policyholder filed a claim for replacement services for a date prior to the subject accident. However, this case is distinguished because plaintiff was not a party to, nor an insured under, the policy; she was injured while a passenger and because neither she nor her spouse or resident relative had a no-fault policy, defendant was required to pay her benefits pursuant to statute, not pursuant to a contractual agreement. Thus, the exclusionary provision in defendant’s no-fault policy does not apply to plaintiff and cannot operate to bar plaintiff’s claim since plaintiff is not an individual named in defendant’s policy. Therefore, pursuant to MCL 500.3114(1) defendant’s policy does not “apply” to plaintiff.

The court held that a question of fact exists as to whether plaintiff made material misrepresentations and, if so, whether they were made with the intent to defraud defendant. Reliance on an exclusionary clause in an insurance policy is an affirmative defense and so defendant has the burden of proof. Thus, to obtain summary disposition, the insurer must show that there is no question of material fact as to any of the elements of its affirmative defense.

Defendant argued that plaintiff fraudulently claimed assistance with doing laundry because the investigator’s report states that on that date, he saw plaintiff wringing out a shirt while on the front lawn of her home. The court held a single instance of a single shirt being wrung out does not demonstrate beyond question that plaintiff can operate a washer or dryer, carry loads of laundry or the like. Nor does it conclusively demonstrate intent to defraud. By contrast, the insurer in Bahri presented uncontested evidence (a) that plaintiff claimed replacement services benefits for three weeks before the auto accident even occurred; and (b) that over a period of seven weeks she repeatedly engaged in a wide range of chores on the days for which she claimed that someone else did them for her.  308 Mich App at 425-426. While such repeated activities are sufficient to establish the elements of fraud beyond a question of fact, a single episode of wringing out a shirt does not; nor do isolated examples of an injured person participating in simple physical actions. These types of inconsistencies with a claimant’s statements are not sufficient to establish any of the elements of fraud beyond a question of fact. Accordingly, the Court of Appeals affirmed the trial court decision.