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Meemic Insurance Co. v. Fortson

Court of Appeals of Michigan

May 29, 2018

MEEMIC INSURANCE COMPANY, Plaintiff/Counter-Defendant-Appellee,
LOUISE M. FORTSON and RICHARD A. FORTSON, individually and as conservator for JUSTIN FORTSON, Defendant/Counter-Plaintiff-Appellant.

          Berrien Circuit Court LC No. 2014-000260-CK

          Before: Markey, P.J., and M. J. Kelly and Cameron, JJ.

          M. J. Kelly, J.

         Defendants/Counter-Plaintiffs, Louise Fortson and Richard Fortson, individually and as conservator for their son, Justin Fortson, appeal as of right the trial court's order granting plaintiff, Meemic Insurance Company's, motion for summary disposition under MCR 2.116(C)(10) and denying the Forton's motion for summary disposition under MCR 2.116(I)(2). For the reasons stated in this opinion, we reverse.

         I. BASIC FACTS

         This case arises out of a motor-vehicle incident that occurred in September 2009. On that day, Richard and Louise's 19-year-old son, Justin, was riding on the hood of a vehicle when the driver suddenly accelerated and turned. The motion flung Justin from the vehicle, and he struck his head. Justin suffered extensive injuries, including a fractured skull, a traumatic brain injury, and shoulder bruising. He was initially hospitalized, but eventually returned to his parents' home. According to Louise, Justin's brain injury continued to manifest itself after he returned home.

         Justin received benefits under his parents' no-fault policy with Meemic. Relevant to this appeal, Louise and Richard provided attendant care to Justin. The record reflects that from 2009 until 2015, Louise submitted attendant care services payment requests to Meemic. On each request, Louise simply noted "24" on each day of the calendar, indicating that she and Richard had provided Justin with constant daily supervision. Meemic routinely paid these benefits, and Meredith Valko, a claims representative employed by Meemic, testified that these payment requests were sufficient because she knew that Justin had a serious traumatic brain injury with significant residual effects requiring "24/7" supervision.

         Around 2014, Meemic initiated an investigation into Louise and Richard's supervision of Justin and discovered that they had not provided him with daily direct supervision. Indeed, the investigation showed that Justin had been periodically jailed for traffic and drug offenses and had spent time at an inpatient substance-abuse rehabilitation facility. Additionally, on social media, Justin had referenced spending time with his girlfriend and smoking marijuana. Based on its investigation, Meemic concluded that the Louise and Richard had fraudulently represented the attendant-care services they claimed to have provided. Meemic terminated Justin's no-fault benefits and filed suit against Louise and Richard, alleging that they had fraudulently obtained payment for attendant care services that they had not provided. Louise and Richard filed a counter-complaint, arguing that Meemic breached the insurance contract by terminating Justin's benefits and refusing to pay for attendant-care services. The parties filed cross-motions for summary disposition. Relying on this Court's decision in Bazzi v Sentinel Ins Co, 315 Mich.App. 763; 891 N.W.2d 13');">891 N.W.2d 13 (2016), lv gtd 500 Mich. 990 (2017), the trial court granted summary disposition in Meemic's favor.



         Louise and Richard argue that the trial court erred by granting summary disposition in Meemic's favor. We review de novo a trial court's decision on a motion for summary disposition. Barnard Mfg Co, Inc v Gates Performance Engineering, Inc, 285 Mich.App. 362, 369; 775 N.W.2d 618 (2009).

         B. ANALYSIS

         1. FRAUD

         Louise and Richard first argue that the trial court erred by finding that there was no genuine question of material fact with regard to whether they committed fraud. We disagree.

         Generally, whether an insured has committed fraud is a question of fact for a jury to determine. See generally Shelton v Auto-Owners Ins Co, 318 Mich.App. 648, 658-660; 899 N.W.2d 744 (2017). However, under some circumstances, a trial court may decide as a matter of law that an individual committed fraud. See Bahri v IDS Prop Cas Ins Co, 308 Mich.App. 420, 425-426; 864 N.W.2d 609 (2014). In order to establish that an individual committed fraud, the insurer must establish (1) that the individual made a material misrepresentation, (2) that the representation was false, (3) that when the individual made the representation he or she knew it was false or made it with reckless disregard as to whether it was true or false, (4) that the misrepresentation was made with the intention that the insurer would act upon it, and (5) that the insurer acted on the misrepresentation to its detriment. Titan Ins Co v Hyten, 491 Mich. 547, 555; 817 N.W.2d 562 (2012). Here, Louise and Richard admit that they were aware that Justin was incarcerated and that he spent time at an inpatient drug rehabilitation facility. Despite the fact that he was not being cared for by Louise and Richard at those times, Louise submitted payment requests to Meemic, stating that they had provided constant attendant care to Justin. That constituted a material misrepresentation. In addition, the payment requests were submitted with the intention that Meemic would rely on them and remit payment to Louise and Richard for constant attendant care services, despite the fact that Louise and Richard knew that they were not providing constant physical care for their son. Further, although Louise and Richard provided other services to Justin while he was incarcerated or at inpatient rehabilitation, such as paying his car loan or lease and contacting his lawyers, those general tasks are not properly compensable as attendant care services. See Douglas v Allstate Ins Co, 492 Mich. 241, 259-260, 262-263; 821 N.W.2d 472 (2012) (stating that allowable attendant-care services must be for an injured person's care, recovery or rehabilitation); see also MCL 500.3107(a). Moreover, even if they were compensable, it cannot be seriously argued that Louise and Richard provided those services to their son on a "24/7" basis, as was claimed on the payment request form. As a result, the trial court did not err by finding that Louise and Richard had committed fraud in connection with their request for payment for attendant care services.


         Louise and Richard next argue that the trial court erred by determining that Justin's argument-i.e., that Meemic could not deny him coverage based on fraud committed by other individuals-was, essentially, barred by Bazzi. In Bazzi, this Court concluded that the "innocent third party rule, " also known as the "easily ascertainable rule, " from State Farm Mut Auto Ins Co v Kurylowicz, 67 Mich.App. 568; 242 N.W.2d 530 (1976), was abolished by our Supreme Court's decision in Titan. Bazzi, 315 Mich.App. at 767-768, 771. Under the innocent-third-party rule, an insurer could not use fraud as a defense to avoid paying no-fault benefits if (1) fraud in the procurement of the policy was easily ascertainable and (2) an innocent third-party claimant was involved. Id. at 771-772; see also Titan, 491 Mich. at 563-564. Here, because there are no allegations or evidence that Justin participated in or even benefited from his parents' fraud, he is properly considered an innocent third party, which implicates the holdings in Bazzi and Titan.

         Nevertheless, Bazzi and Titan addressed fraud in the procurement of an insurance policy, not fraud arising after the policy was issued. Titan, 491 Mich. at 571 (stating "that an insurer is not precluded from availing itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, even when the fraud was easily ascertainable and the claimant is a third party"); Bazzi, 315 Mich.App. at 781-782 (holding that "if an insurer is able to establish that a no-fault policy was obtained through fraud, it is entitled to declare the policy void ab initio and rescind it, including denying the payment of PIP benefits to innocent third parties"). Here, because the fraud in this case was not fraud in the procurement of the policy and instead arose after the policy was issued, neither Titan nor Bazzi is dispositive.

         This is because there is a meaningful distinction between fraud in the procurement of a no-fault policy and fraud arising after a claim was made under a properly procured policy. For instance, when a policy is rescinded on the basis of fraud in the procurement of the policy, it is as if no valid policy ever existed. As this Court explained in Bazzi, mandating no-fault benefits when an insurer can declare a policy void ab initio on the basis of fraud in the procurement would be akin to requiring the insurer to provide benefits in a case where the automobile owner had never obtained an insurance policy in the first place. Id. at 774. Thus, fraud in the procurement essentially taints the entire policy and all claims submitted under it. In contrast, "if there is a valid policy in force, the statute controls the mandated coverages." Id. Here, when Justin submitted his claim there was a valid policy in place; there were no allegations of fraud in the application tainting the validity of the policy. Therefore, under the no-fault act Justin was required to seek no-fault benefits from his parents' no-fault policy. See MCL 500.3114(1). The mere fact that fraud arose in connection with attendant-care services forms submitted after Justin made his claim simply has no bearing as to whether there was a valid policy in effect at the time he made his claim. Accordingly, we conclude that the trial court erred by finding Bazzi dispositive.[1]


         We next address whether the fraud-exclusion clause-as applied to Justin's claim-is a valid contract provision. MCL 500.3114(1) provides that a person sustaining an accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor vehicle as a motor vehicle must first look to his or her own no-fault policy, to his or her spouse's policy, or to a no-fault policy issued to a relative with whom he or she is domiciled. Therefore, if Justin were not an "insured person" as defined by the policy, [2] he would be statutorily entitled to benefits under his parents' no-fault policy by virtue of the fact that he is a relative of his parents and was domiciled with them. In other words, if the policy did not define a resident relative as an "insured person, " then Meemic would be required by statute to pay Justin benefits and would be unable to terminate his coverage because of fraud committed by a policyholder with regard to his claim. See Shelton, 318 Mich.App. at 653-654 (stating that when a claimant's no-fault benefits are governed solely by statute an insurer cannot use a fraud-exclusion clause to bar the claimant's claim).

         Under Meemic's logic, by duplicating statutory benefits in a no-fault policy, an insurer can avoid paying no-fault benefits to an injured claimant if someone other than the claimant commits fraud and triggers a fraud-exclusion clause that allows the policy to be voided. We do not agree that the statutory provisions can be so easily avoided. "An insurer who elects to provide automobile insurance is liable to pay no-fault benefits subject to the provisions of the [no-fault] act." Lewis v Farmers Ins Exch, 315 Mich.App. 202, 209; 888 N.W.2d 916 (2016) (quotation marks and citation omitted; brackets in original). Contractual provisions in an insurance policy that conflict with statutes are invalid. Corwin v DaimlerChrysler Ins Co, 296 Mich.App. 242, 261; 819 N.W.2d 68');">819 N.W.2d 68 (2012). Because MCL 500.3114(1) mandates coverage for a resident relative domiciled with a policyholder, the fraud-exclusion provision, as applied to Justin's claim, is invalid because it conflicts with Justin's statutory right to receive benefits under MCL 500.3114(1). And, as explained above, his statutory right to receive benefits under the no-fault act was triggered because his parents had a validly procured no-fault policy in place at the time of the motor-vehicle incident. See Bazzi, 315 Mich.App. at 774.


         Finally, even if the fraud-exclusion clause were valid, Louise and Richard's fraud is insufficient to trigger it because, at the time they committed fraud, they were no longer "insured persons" under the policy. The fraud-exclusion clause in the no-fault policy provides:

This entire Policy is void if any insured person has intentionally concealed or misrepresented any material fact ...

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