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It does not pay to lie to your insurer



Meemic Insurance Company appealed against a decision of a court of law granting summary judgment in favor of all defendants in its action for declaratory judgment which it had no obligation to defend or indemnify under a no-fault policy issued its insured, defendant Patricia Musser, in connection with a car accident.

In Meemic Insurance Company v. Estate Of Brendon Pearce, et al No. 352724, Court of Appeals of Michigan (November 23, 2021), the Court of Appeal resolved the case and remanded the trial court. The appeal covers Meemic's obligation to provide insurance cover in connection with a motor vehicle accident. Melissa Sue Musser was driving south in an Oldsmobile Silhouette from 2002 registered to her mother, Patricia Musser, when the vehicle encountered a large puddle of water. Melissa lost control of the vehicle, left the road, turned and hit a tree. Ryan Harston, Joseph Grinage, John Musser, Andrew Musser and Brendon Pearce were all passengers in the vehicle. Melissa and Brendon received fatal injuries, and the others received non-fatal injuries. Brendon's mother, Lynn Pearce, claimed damages for Brendon's death, and other residents sought reimbursement of benefits from Meemic's personal insurance policy under its no-fault policy issued to Patricia.

Meemic claimed that her insurance was invalid due to Patricia's alleged fraud in the acquisition of the policy and her alleged failure to inform Meemic of changes in the members of Patricia's household. ] Melissa was a household member at the time of taking out the insurance;

  • Melissa was a household member "for all or part of the date of entry into force of the insurance"; and
  • Melissa drove a covered vehicle "during all or part of the insurance's effective date."
  • Patricia failed to inform Meemic of "all persons living in the dwelling" at the time of the first application or when the insurance was renewed. [19659013] Although the house was divided into two dwellings, Patricia and Melissa lived together at the time of the accident.

    At the time of the accident, Patricia owned a Ford Focus and a Silhouette. Patricia bought Silhouette in 2014 to transport her family members to school activities. Patricia testified that Melissa did not drive the Focus because it had a manual transmission, which Melissa did not know how to use. According to a Meemic representative, if Meemic had known of Melissa's alcohol-related conviction, it would not have continued to insure Patricia's vehicle. . its policy on the basis of fraud and granting summary judgment to the defendant.

    The current state of insurance fraud disputes in Michigan divides fraud into two broad categories based on when it occurred:

    fraud that occurred before the parties entered into an insurance contract (pre-procurement fraud); and

    • fraud that occurred after the parties entered into an insurance contract (fraud after procurement). Post-procurement fraud has been further divided into two types:
      1. fraud that occurred before litigation; and
      2. fraud that occurred after litigation was initiated.

    The crucial difference between the two types of fraud after procurement is when the fraud occurred, not when it was discovered. Consequently, evidence of fraud obtained during litigation can be used to invalidate an insurance contract as long as it relates to fraud that occurred before litigation began.

    I Meemic Ins Co v Fortson 506 Mich 287, 293; 954 NW2d 115 (2020), the Michigan Supreme Court concluded that anti-fraud provisions in insurance policies "are valid when they are based on a defense against compulsory coverage provided in the act itself without error or on a defense that has not been repealed by law."

    Revocation is available as a remedy for fraud in pre-procurement even for a regular, non-material breach of contract. This distinction is important because not every breach of contract constitutes a material breach. If fraud occurred before the parties entered into the insurance contract

    PRE-PROCUREMENT FRAUD

    Although Meemic, at least initially, appears to have relied on pre-contract fraud as justification for its claim, on appeal it refers only to the original application and it is based solely on Melissa. at the time of oly ckan. In a brief reply, Meemic argued: "While the policy was not necessarily" obtained "through fraud. ] "" Thus, the court concluded that Meemic abandoned all claims of pre-procurement fraud.

    FRAUD AFTER PROCUREMENT

    In order to be entitled to cancellation due to fraud after procurement, Meemic must show that Patricia has materially breached the insurance contract. The insurance contract required Patricia, in the relevant part, to inform Meemic of any changes in her household as well as any changes to the drivers of her vehicles. The contract clearly stated that Patricia's failure to do so would allow Meemic to "declare this policy invalid." did. Importantly, Patricia was aware that Melissa had an alcohol-related driving offense, but she failed to disclose this to Meemic.

    Patricia therefore gave Meemic some information about Melissa who drove Silhouette. However, the information Patricia gave to Meemic did not cause Meemic to add Melissa as a "regular" driver of Silhouette under Patricia's insurance. And Patricia failed to inform Meemic about Melissa's alcohol-related driving offense. Thus, Patricia Meemic provided some information that Melissa used Silhouette, but not all of her available information.

    Revocation is only available as compensation if Patricia has materially breached the insurance contract. A material breach occurs when a party does not receive the benefit of the settlement. In fact, Meemic has a policy of not insuring vehicles driven by people with alcohol-related driving offenses. As such, if Patricia had tried to add Melissa to her policy as a Silhouette driver, Meemic would have refused to insure the vehicle.

    However, the document did not provide the Court of Appeal with sufficient information to resolve this issue. Patricia testified that she contacted Meemic to see if Melissa would be covered when she drove Silhouette. When she did, Patricia did not ask Mellissa to be added to her insurance, and she did not notify Meemic of Melissa's alcohol-related driving offense. That said, Patricia told Meemic that Melissa would often drive Silhouette. Whether this level of disclosure was sufficient to inform Meemic that Melissa would be a "regular driver" of the Silhouette is a matter for the jury to decide.

    Who drives a vehicle on a regular basis is an integral part of a car insurance policy. Thus, if Patricia failed to disclose sufficient information, it constituted a material breach of contract because Meemic was no longer aware of the actual terms of the agreement which they had entered into. Such a material breach would enable Meemic to terminate the contract. believe in those they insure to inform the insurer of the risks they are asked to take. When an insured person lies about an application for facts that are important for the risk that the insurer takes, there are sufficient reasons to cancel the insurance. Similarly, if after the insurance has taken effect but before the event that resulted in damages, the insured is incorrectly presenting or concealing an essential fact that termination is appropriate in Michigan. From the evidence discussed by the Court of Appeal, Patricia lied about who lived in her home, which vehicles were in the home and who drove the vehicles both before and after the entry of the insurance. It is now up to the jury to decide whether Meemic can prove the allegations even if Patricia acknowledged the secrecy and Meemic could show that it would not have assured her of the known truth.


    © 2022 – Barry Zalma [19659006] Barry Zalma, Esq. , CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance breach beliefs and insurance fraud almost equally for insurers and policyholders.

    He also serves as an arbitrator. or media tor for insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry.

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    You can contact Mr. Zalma at https://www.zalma.com, https: //www,claimschool.com, zalma@claimschool.com and zalma@zalma.com. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

    The podcast "Zalma On Insurance" may be of interest at https://anchor.fm/barry-zalma; you can follow Zalma on Twitter at; you should watch Barry Zalma's videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos at https://rumble.com/zalma. Go to Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance- fraud -letter-2 /


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