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No notice = No cancelling auto insurance policy for alleged fraud

Bulletin from DIFS director says auto insurance policies are ‘not enforceable’ if ‘fraud’ provisions allow coverage to be ‘terminated’ ‘without notice’; and more effects of ‘Bahri’ ruling

Michigan insurance commissioner Patrick McPharlin

Michigan Insurance Commissioner Patrick McPharlin

Who’s looking out for Michigan auto accident victims, trying to protect them from losing No Fault auto insurance benefits on the basis of alleged fraud?

I was as surprised to hear as you might be.

It is Michigan’s Insurance Commissioner, Patrick M. McPharlin, Director of the Michigan Department of Insurance and Financial Services (DIFS).

In a June 19, 2015, Bulletin 2015-14-INS, entitled “Automobile Policy Cancellations for Fraudulent Claims,” the DIFS Director puts the brakes on auto insurers’ attempts to use alleged fraud “in the making of a claim” to cut-off auto accident victims’ No Fault benefits. In particular, McPharlin reminds Michigan auto insurance companies that auto insurance policies cannot be rescinded or terminated without the notice required by the Insurance Code.

As an attorney who has dedicated my nearly 20-year legal career to helping people injured in auto accidents, I applaud the wisdom of this recent announcement.

In particular, given the way Michigan judges are misusing the Michigan Court of Appeals’s poorly-reasoned (yet published) decision in Bahri v. IDS Property Casualty Insurance Company to deny No Fault insurance benefits to auto accident victims whom the insurers have accused of having committed fraud, I’m optimistic the bulletin will provide much-needed protection to the victims – and long-overdue guidance to the judges.

To learn more about the Bahri ruling, please check out Michigan Auto Law’s blog post, “Open season on No Fault claimants after Bahri case.”

Specifically, here’s what the DIFS Director’s bulletin said:

  • “It has come to the Director’s attention that certain automobile insurance policy forms contain provisions that impermissibly allow the insurer to rescind or terminate policies without notice when the insurance company denies a claim because the insured person has committed fraud in the making of a claim.”
  • “Insurers should be aware that automobile policies may be terminated only in accordance with the applicable notice provisions in the Insurance Code … when the alleged fraud has occurred in connection with a claim (as opposed to fraud that occurs in the application for a policy).”
  • “Insurance policy form provisions that provide for termination or rescission without notice in the event of fraud in connection with a claim are not enforceable.”

The ‘bulletin’ and ‘Bahri’

Although McPharlin’s bulletin makes no mention of Bahri – or the havoc its reckless application has wreaked on Michigan auto accident victims – it nevertheless appears to provide auto accident victims with substantial anti-Bahri protections.

Arguably, the bulletin even goes so far as to call into question the continued applicability of Bahri.

Why? Because the Michigan Court of Appeals in Bahri allowed the auto insurer to deny No Fault benefits on the basis of a “general fraud exclusion” in its auto insurance policy. But the judges did so without ever examining the issue of whether the auto insurer had provided the “notice” that’s required by “applicable notice provisions” in the Insurance Code.

In light of the following statement in the DIFS Director’s Bulletin, the court’s failure to address the “notice” issue appears to be a significant oversight – one that could possibly be fatal to the opinion’s precedential value:

“Insurance policy form provisions that provide for termination or rescission without notice in the event of fraud in connection with a claim are not enforceable.”

To learn about how judges are wrongfully applying Bahri – and what can and should be done about it, take a look at my blog post, “Attention Wayne County judges: ‘Bahri’ case does not stand for what you think it does.”

Insurance Code’s ‘applicable notice provisions’

So what are the “applicable notice provisions in the Insurance Code” that Michigan auto insurers must comply with if they wish to rescind or terminate an auto insurance policy, based on allegations that an “insured person has committed fraud in the making of the claim?”

Here’s what the bulletin said:

“Specifically, [MCL 500.2123] and [MCL 500.3224] of the Code require an insurance company to provide a policyholder with 30 days’ notice for individual policies and 20 days’ notice for group policies if an insurer terminates policy because the policyholder has committed fraud in connection with a claim.”

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