On Thursday, the Michigan Court of Appeals in a case of first impression, gave Plaintiffs a big victory in first party (PIP) litigation cases. In Haydaw et. al v. Farm Bureau Insurance, the Court of Appeals determined that once litigation commences, insurance companies may no longer rescind their policies and seek summary disposition where a Plaintiff makes an inaccurate statement or an inconsistent statement that the Insurance company deems to be fraud.
Previously, Insurers would simply refuse to pay on medical claims, wage loss, attendant care or replacement services, and wait until a Plaintiff made an inaccurate or inconsistent statement in litigation, file a motion for summary disposition claiming fraud and rescission of the insurance policy under Bahri v. IDS Prop. Cas. Ins. Co., 308 Mich. App. 420 (2014). Bahri permitted dismissal of no fault actions in some circumstances where a Plaintiff committed fraud.
Haydaw limits the reach of Bahri and, citing to and adopting precedent from the United States Supreme Court and the United States Third Circuit Court of Appeals (Republic Fire Ins. Co. of North America v. Weides, 81 U.S. 375, 382-383; 20 L. Ed. 894; 14 Wall 375 (1871); American Paint Service, Inc. v. Home Ins. Co. of New York, 246 F.2d 91 (CA 3, 1957)), found that, once an insurer refused to pay for contracted benefits, and a Plaintiff begins litigation, the insurer may not seek summary disposition because of fraud. Further, the Court determined that the question of whether the Plaintiff committed fraud was a question of fact for a trier of fact, and, in essence, was a credibility issue, that would be used to determine total recovery, as opposed to a basis upon which an insurer could seek rescission of their policy and dismissal of the case.
The following paragraph from the decision best summarizes the Court’s arguments: False statements made during discovery do not provide grounds to void the policy because, by that time, the claim has been denied and the parties are adversaries in litigation. Once suit is brought, what is truth and what is false is a matter for a jury or a judge acting as factfinder. And if it can be shown that a party intentionally testified falsely, it is up to the Court to determine what, if any, sanction is proper. Indeed, defendant is essentially seeking dismissal of Plaintiff’s claim on the basis of alleged discovery misconduct. Given that questions of credibility and intent are generally left to the trier of fact, “it is doubtful whether dismissal for intentionally false deposition testimony is ever appropriate.” (Citing Swain v. Morse ___ Mich. App. ___ (2020)).
The Court goes on to say: For similar reasons, statements made during litigation are by their nature incapable of satisfying the elements for voiding a policy on the basis of post loss fraud. In order to obtain relief under Bahri … the material misrepresentation must have been made with “the intention that the insurer would act upon it.” Yet, an insured’s statements during discovery are made with the intention that the trier of fact, not the insurer, will act on them. To the extent that the insurer acts on those statements, it is through counsel for purposes of litigation strategy, rather than processing the claim under the policy’s terms.
To say the case has a huge impact for auto plaintiffs would be putting things mildly. Litigation over Bahri v. IDS and its scope has consumed many cases and impacted many results. Even the threat of a legitimate Bahri motion from an insurer could impact a settlement by tens of thousands of dollars. Many Plaintiffs have had their cases completely dismissed and medical providers left with nothing for treating injuries that arose from an auto accident because Bahri motions, like the one in Haydaw, were granted.
This is also a huge opinion for medical providers, even when they have separate suits. If a Plaintiff’s litigation case can no longer be dismissed for fraud, then providers who have separate cases, are able to survive summary challenges where Plaintiffs have made misstatements or inconsistent statements during litigation, without fear that a Bahri motion for summary disposition will impact the legitimacy of their separate claims. Also, the Court made clear this was an issue of first impression, and as such, it is controlling law, unless overturned by the Michigan Supreme Court or by exceptions created over time. A major victory for Plaintiffs in first party auto cases.