After a serious auto accident, should your insurance coverage depend on the honesty of another person? The Michigan Supreme Court recently said that insurance companies are allowed to cancel no-fault benefits paid to an innocent third party if they can prove fraud when the contract was signed.
Michigan No-Fault Act Protects Innocent Accident Victims
Michigan law is designed to make sure anyone injured in an auto accident can collect no-fault auto insurance benefits to pay for medical expenses, lost wages, and other covered expenses. If you don’t have an auto insurance policy of your own, the law sets out priorities for which insurance company is required to pay the benefits:
- The policy of a relative you live with
- The policy of the owner of the vehicle you were driving
- The policy of the owner or driver of another vehicle involved in the accident
- The Michigan Assigned Claims Facility
If you are driving someone else’s vehicle or are a passenger, pedestrian, or cyclist, you can work your way down the priority list until you find an insurance policy to cover your costs.
Insurance Company Fraud Defenses Interfere With Claims for Benefits
Finding the right insurance company is only the start of the process. Increasingly, auto insurance providers are using technical details in the application to cancel policies and avoid paying benefits to their customers. By claiming customers committed “fraud” in their applications, they take advantage of language buried in their contracts to void the policies and avoid paying benefits, even when the customer has been diligently keeping up with their insurance bills for years. This fraud often comes down to technicalities, like:
- Where the vehicle is garaged
- Failing to list secondary drivers
- Omitting past accident history
- Making claims for services or expenses not covered
Innocent Third Party Doctrine Struck Down by Michigan Supreme Court
This harsh result has generally been justified because it was a result of the person’s own actions in applying for the policy. Until recently, Michigan courts protected an innocent third party filing claims under the Michigan No-Fault Act from those aggressive fraud defenses. Because they were not involved when the contract was formed, courts said they should not be affected when insurance companies didn’t research the truth of applicants’ claims before issuing the policy.
Then, in 2012, the Michigan Supreme Court decided Titan Insurance Co v Hyten. That case said it didn’t matter if misrepresentations were easily discoverable. The insurance company was still entitled to fraud defenses and did not waive them by waiting to do their investigation. But it wasn’t clear if the court’s innocent third party doctrine still applied.
In 2016, in Bazzi v Sentinel Insurance Company, a Michigan Court of Appeals said that it didn’t. Ali Bazzi had been driving his mother’s vehicle when he was in an auto accident. But her insurance company denied him benefits because she had used a commercial policy to insure her personal vehicle. The innocent third party doctrine would have protected Bazzi, but the court said Titan eliminated that protection.
In the past year, insurance companies across the state have used the Bazzi decision to deny injured motorists coverage. Personal injury attorneys and their clients have been waiting to hear from the Michigan Supreme Court to find out if the innocent third party doctrine was truly dead.
On July 18, 2018, the state’s highest court agreed that Titan had stripped injured motorists of the court-created protection. The Court reasoned that insurance companies can raise “common-law” defenses, including fraud, unless a statute says otherwise. Since the No-Fault Act didn’t limit fraud defenses, the option was available to insurance companies, even when the case involved innocent third parties.
The news wasn’t all bad for consumers, though. The Court ruled that this is an “equitable” defense. If an insurance company wants to avoid paying benefits because of misrepresentations on the application, the state’s trial courts will have to decide if doing so is fair under the circumstances. This case-by-case approach makes it important now, more than ever, for injured motorists to hire an experienced personal injury attorney who can fight against insurance companies and protect their access to no-fault benefits.