Michigan Court of Appeals Allows Insurance to Rescind Coverage

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Bahri v. IDS Property Casualty Insurance Company – Michigan Court of Appeals Allows Insurance Companies to Rescind Coverage

Insurance companies can unilaterally cancel all outstanding no-fault benefits it owes if the claimant is purportedly lying about receiving even one benefit according to a recent Michigan Court of Appeals decision.

The case, Bahri v. IDS Property Casualty Insurance Company, involved a woman involved in a car accident who claimed she required household replacement services following the accident. According to the court’s decision, surveillance video showed the plaintiff running errands, lifting items and carrying other items on the same days she claimed the replacement services.

The insurance company – claiming the plaintiff made fraudulent representations when she asked for replacement services – filed a motion asking the court to dismiss not just the plaintiff’s claim for replacement services, but an intervening doctor’s claim for outstanding medical bills as well. The trial judge granted the motion, and dismissed the entire case.

The Court of Appeals affirmed the trial judge’s ruling, holding that based on the insurance policy’s general fraud exception – which allows car insurance companies to rescind coverage for a claimant engaging in fraudulent conduct  – the defendant car insurance company did not owe any benefits.

As a result, the doctors who provided medical treatment to the plaintiff and incurred expenses that were compensable by the car insurance company, could not collect payment for their medical services. This despite the fact the doctors had nothing to do with the plaintiff’s purported fraud.

This decision is horrendous on a number of different levels.

First, it penalizes innocent parties who did nothing to contribute to the plaintiff’s purported fraud. Under this ruling, just because a person is lying about a single no-fault benefit, insurance companies can get out of paying all the other benefits they owe – including hospital and doctor bills.

Furthermore, this decision allows one party to use a defense the other party cannot. It is almost impossible for a car accident plaintiff to prove fraud against an auto insurance company in a Michigan car accident case. However, with the stroke of a pen, the Court of Appeals now allows car insurance companies to successfully claim fraud against its own policyholders.

The Bahri decision was originally released in October as an unpublished decision. That meant the decision was not binding precedent on other courts, in particular trial courts. However, the decision has since been approved as a published decision, meaning it is now binding precedent and all judges throughout the state of Michigan must follow it.

In my opinion, the Bahri ruling makes it “open season” for insurance companies to use every alleged misstatement made by a car accident victim against them. The insurance company can now claim the misstatement is fraud, and then file motions with the court to get the entire case dismissed.

For example, say you claim reimbursement for prescription drugs from an auto accident, but you accidently included for reimbursement prescription medication you were already taking prior to the accident. Under the Bahri case, in theory the car insurance company responsible for paying no-fault benefits could use this misstatement to claim fraud and then act to deny the payment of all further benefits, including wage loss benefits and the payment of outstanding medical expenses.

This is not how the Michigan no-fault system is supposed to work. The Michigan legislature enacted the Michigan no-fault system to ensure the prompt payment of expenses incurred by citizens injured in a car or truck accident. It was not enacted so people were left out to dry, simply because the car insurance company did not want to compensate accident victims.

This decision is one of the most important rulings to come out of the Michigan Court of Appeals regarding the Michigan no-fault law in years.

Unfortunately, the holding will have a lasting and tragic impact for years to come. Innocent claimants, such as hospitals and surgeons, will be forced to eat their own bills simply because of the supposed fraud of their patient.

Innocent accident victims, many of who are unsophisticated an ill equipped to go up against very sophisticated and deep pocketed insurance companies, will lose out on valuable compensation they are entitled to receive.

The Michigan car accident attorneys at the Lee Steinberg Law Firm, P.C. – CALL LEE FREE – will watch this ruling and its ramificaitons closely.