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Activist Michigan Supreme Court justice bends law to favor auto insurance companies in fraud cases

Justice Stephen J. Markman creates new double standard favoring auto insurance companies, harming consumers

Stephen J. Markman

Michigan law just got uglier, thanks to Supreme Court Justice Stephen J. Markman, and Michigan’s Republican majority. In a series of fraud case rulings, including the recent decision by Markman & Company in Titan Insurance Company v. Hyten, at al., these activist Justices have now changed the rules for proving fraud in this state.

It seems to this writer that the only criteria for this double standard is who is claiming the fraud and who is defending against it.

It sadly comes as no surprise to Michigan personal injury lawyers, law professors, and judges in this state as to who wins and who loses under this Court.

When an auto insurance company is accused of fraud by one of its insureds, Markman & Company raised the bar for proving fraud.

But, when it is the auto insurance company accusing one of its insureds of fraud, the activist, Republican justices lowered the bar.

Raising the bar to protect Michigan insurance companies

In Cooper v. Auto Club Insurance Association (2008), where a No Fault auto insurance company is accused of having fraudulently denied No Fault benefits, Justice Markman first reveals his protectionist inclinations.

He wrote in his majority opinion, which was joined by the Supreme Court’s other activist Republicans, that:

“[T]rial courts should exercise special care in assessing these types of fraud claims … [and] carefully consider in this context whether insureds can satisfy the reliance factor.”

In order to establish fraud under Michigan law, a person must prove she “suffered injury” from having “acted in reliance upon” another person’s knowingly false, material misrepresentation.

Markman went on to emphasize that the only way for an insured to satisfy the “reliance” element of a fraud claim is to prove that her reliance on the insurer’s alleged misrepresentation was “reasonable”:

“Insureds must ‘show that any reliance on [the insurer’s] representations was reasonable.”

To further support his position, Markman cited approvingly the following statement from the Michigan Court of Appeals 1994 ruling in Nieves v. Bell Industries, Inc.:

“There can be no fraud when a person has the means to determine that a representation is not true.”

Raising the bar higher to protect auto insurance companies against harmed customers

Without objection from Justice Markman or his activist, Republican colleagues, the Michigan Court of Appeals in 2009 raised the bar even higher for an insured who is accusing her auto insurance company of fraudulently denying No Fault benefits.

Building on Markman’s “reasonable reliance” rule in Cooper, the Court of Appeals in Johnson v. Wausau Insurance Company, et al., ruled that reliance is not reasonable when the insured “had the means to determine the accuracy of [the insurer’s allegedly fraudulent] representation …”

The court rejected the insured’s reliance argument in Johnson for the following reasons:

The insurer’s allegedly fraudulent “representation did not involve information or facts that were exclusively or primarily in the control of [the insurer].”

* * *

The insured “had the means, i.e., consultation with a lawyer, to determine whether [the insurer’s allegedly fraudulent] representation was true.”

* * *

The insured “does not claim, nor is there even the slightest hint of evidence, that [the insurer] in any way prevented her … from determining the truthfulness of [the insurer’s allegedly fraudulent] representation.”

When the insured in Johnson asked the Supreme Court to review the Court of Appeals ruling, the justices declined in October 2010. Notably, neither Markman nor his colleagues took issue with the Court of Appeals’s “reliance” ruling or how it applied Cooper.

Here’s a blog post we wrote about Johnson: Why your insurance company can now lie to you and legally get away with it

Dropping the bar

Then, in 2012, along came a case where it was the auto insurance company accusing an insured of fraud.

And out the window flew all of the highfalutin rules about there being no reasonable reliance when a person has the means to determine the truth of a questionable representation.

In Titan Insurance Company v. Hyten, et al., Markman & Company distanced themselves from their “reasonable reliance” rule in Cooper quicker than you can say “Double Indemnity.”

Indeed, by never mentioning Cooper and, effectively, pretending that Cooper did not exist, Markman & Company gave themselves a blank slate on which to rewrite the rules for proving fraud so as to relieve auto insurance companies of the pesky, burdensome requirements that insureds are saddled with.

In Hyten, Titan Insurance Company was trying to avoid paying out on a liability policy by arguing that the insured committed fraud in her application for insurance by lying about having a valid driver’s license.

The insured in Hyten countered that Titan could not prove fraud because the insured’s allegedly fraudulent representation about her driver’s license was “easily ascertainable” by Titan.

In other words, it is not reasonable to rely on an alleged misrepresentation whose truth is “easily ascertainable.”

Apparently struck by an acute case of jurisprudential amnesia and oblivious to the fact that “reasonable reliance” and “easily ascertainable” were two ways of saying the same thing, Markman & Company scoffed at the insured’s contention in Hyten.

In his majority opinion, which was joined by the other activist, Republican justices in the Supreme Court’s right-leaning wing, Markman wrote:

“To hold an insurer to a different and higher standard, one that would require it affirmatively to investigate the veracity of all representations made by it contracting partners before it could [avoid liability under an insurance policy on the ground of fraud in the application for insurance], would represent a substantial departure from the well-established understanding of fraud.”

From there, Markman & Company went into full-on denial and revisionist-history mode “[c]oncerning the reliance prong” of a fraud claim.

Careful to not mention the fact that Markman, himself, in Cooper had opened the door to the argument that reliance on a misrepresentation is not reasonable for fraud purposes if a person “has the means to determine” the truth, Markman insisted:

“[T]here is no common-law duty to attempt to acquire such knowledge.”

Although this contradiction of what he had said just four years prior was remarkable, Markman was not content to stop there.

Next, he took on the Court of Appeals opinion that he cited so approvingly in 2008.

In Cooper, Markman cited Nieves’s statement that “There can be no fraud when a person has the means to determine that a representation is not true” for its support of his contention that reliance must be reasonable.

Yet, in Hyten, Markman disavowed such a reading of Nieves:

“When read in isolation, this statement [in Nieves] might support the … conclusion that an insurer has a duty to investigate representations made by a potential insured. However, when the statement is read in the full context of the Nieves opinion, as well as other precedent, it is clear that an insurer has no duty to investigate the representations of a potential insured.”

I have been a critic of the double-standard of this Court for many years now. I have watched as our highest Court has dismantled one protection after another for accident victims. My blog has served as a monthly obituary at times for important cases that have been overturned by what certainly seems to be an activist, politically motivated, results-oriented Republican majority in this state. Indeed, entire areas of personal injury and consumer protection have been wiped out by this Court.

Justice Markman is up for re-election this November. I believe we can do better.

– Steve Gursten is head of Michigan Auto Law. Steve is president of the Motor Vehicle Trial Lawyers Association. He frequently writes and speaks about Michigan No-Fault and case law, and is available for comment.

Michigan Auto Law is the largest law firm exclusively handling car accident, truck accident and motorcycle accident cases throughout the entire state. We have offices in Farmington Hills, Detroit, Ann Arbor, Grand Rapids and Sterling Heights. Call (800) 777-0028 to speak with one of our attorneys.

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