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Court disapproves of Home-Owners’ ‘sandbagging’ of auto accident victim

After withholding evidence to avoid paying insured customer’s No Fault PIP benefits, could Home-Owners be liable under Michigan’s ‘Mend the hold’ doctrine?

 

sand bagging

On Monday, I wrote about Home-Owners car insurance, which I gave a “meh” rating in my 2015 Attorneys Guide to the best and worst auto insurance companies.

But the way the insurer behaved in the case I’m going to discuss today already makes me reserve a potential spot for Home-Owners on my “worst” insurance companies list for 2016.

Apparently, the insurance company thinks it should be allowed to withhold evidence and information to avoid paying No Fault PIP insurance benefits to one of its own insured and injured customers.

As an auto accident attorney, I read this and thought “absolutely not.” And the Michigan Court of Appeals agreed.

In Levander v. Home-Owners Insurance Company, a unanimous appellate panel harshly criticized Home-Owners’s “sandbagging” strategy for handling the No Fault PIP claim from its injured customer, warning that, depending on the facts and rulings that come to light on remand, the auto insurer may be deemed liable for No Fault PIP (Personal Injury Protection) insurance benefits based on the Michigan legal doctrine of “mend the hold.”

Time will tell if the ruling gives auto accident attorneys and insurance lawyers a new tool to fight clearly dishonest conduct by insurance companies. But it comes as very welcome news.

For attorneys who practice in auto negligence law, the fact that an auto insurance company would try to “sandbag” (i.e., hide critical evidence and/or information from) its own customer in order to avoid having to pay on a claim isn’t surprising. In a state without meaningful bad faith laws and where people harmed by insurance companies cannot even sue under the Michigan Consumer Protection Act (after our Republican Supreme Court decided that consumers should not be protected from insurance companies, apparently) there’s very little for people to do other than be forced to hire a lawyer to sue for the No Fault insurance benefits that the insurance company should be paying voluntarily.

What’s surprising is a ruling like Levander, where an appellate court unequivocally rebukes this shameful, unethical and arguably even fraudulent avoidance-scheme by an insurance company.   Perhaps it’s the money in politics today, and the money pouring into judicial elections in particular, but such opinions are very rare in this state.

How No Fault lawyers can use the ‘Mend the hold’ doctrine

The “mend the hold” doctrine referred to by the judges in Levander may just be that weapon that beleaguered attorneys can use to protect their clients against unscrupulous claims adjusters and  “sandbagging” auto insurance companies.

In a previous blog post, “Is this the biggest mistake MI No Fault lawyers make in PIP litigation?,” I explained that the “mend the hold” doctrine:

“[B]ars an insurance company from changing – after a lawsuit has been filed – its pre-litigation tune about why it denied your client’s claim for No Fault PIP benefits.”

Similarly, the Levander court explained the “mend the hold” doctrine as follows:

“This court has many times held, and it must be accepted as the settled law of this state, that, when a loss under an insurance policy has occurred and payment refused for reasons stated, good faith requires that the company shall fully apprise the insured of all the defenses it intends to rely upon, and its failure to do so is, in legal effect, a waiver, and estops it from maintaining any defenses to an action on the policy other than those of which it has thus given notice.”

‘Apprise the insured of all the defenses’

How the “mend the hold” doctrine could apply in Levander and similar cases is as follows.

Norman Levander was seriously injured when he crashed on his motorcycle after being dangerously tailgated by what he believed was an unidentified vehicle.

Because he didn’t know the identity of the vehicle, its owner or the owner’s auto insurer, Mr. Levander filed an application for No Fault PIP auto insurance benefits with his auto insurer, Home-Owners.

However, Home-Owners denied the claim, insisting their “investigation revealed that the accident did not involve a motor vehicle, as necessary to be eligible for PIP benefits in regard to injuries incurred while operating a motorcycle.”

Significantly, Home-Owners failed to tell Levander that it had identified a driver (and, thus, her auto insurance company) who had been driving “‘right behind’” Levander by “‘probably a couple feet’”  just before Levander crashed.

Home-Owners didn’t reveal this information until much later, when it sought dismissal of the lawsuit that Levander had been forced to file to recover the No Fault PIP benefits Home-Owners had refused to pay.

At that point, Home-Owners asserted for the first time the defense that the auto insurer of the other vehicle, not Home-Owners, was liable for Levander’s No Fault PIP benefits (which, ultimately, were time-barred because Home-Owners withheld the information long enough that it was too late for Levander to proceed against the other vehicle’s auto insurance company).

In reversing and sending the case back to the trial court for further proceedings, the Court of Appeals ordered that, by withholding evidence and information and, thus, violating the “mend the hold” doctrine, Home-Owners may be liable for No Fault PIP benefits – even though the auto insurer might have been of “higher priority” in terms of paying.

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Blog Author Steven M. Gursten
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