To avoid ‘silent fraud,’ let your insurance company know who else is driving your car at car insurance renewal time. Here’s what can happen if you don’t, according to Dewley v. Pioneer State Mutual
Be careful next time you renew – or make changes to – your Michigan No Fault auto insurance policy, as absent-mindedly going-through-the motions could cost you dearly. Your failure to update essential, pertinent information – especially disclosing all other people who drive your vehicle — could result in you being accused of committing “silent fraud,” having your policy rescinded and being denied No Fault insurance benefits in the event you or a loved one is injured in a Michigan car accident.
It happened to Robert Woodyard of Genesee County. And it could happen to you.
Failure to update and disclose other drivers of your car = silent fraud
The story of Robert Woodyard is both an illustration of how harsh and unforgiving Michigan’s law has become (unless you’re an insurance company), and a cautionary tale for all drivers, car insurance consumers and auto accident victims.
Woodyard was living with Tiffany Lynn Dewley, whom he allowed to drive his car – even though she, apparently, had a “poor driving record.” When Dewley was injured in a motor vehicle accident while driving Woodyard’s car, his auto insurer, Pioneer State Mutual Insurance Company, refused to pay her No Fault auto insurance benefits.
Pioneer insisted Woodyard had a duty to disclose that Dewley was driving his car and because he didn’t – and because “Dewley’s driving record would have made her ineligible for coverage under its policy” – he committed “silent fraud,” thereby justifying Pioneer’s rescission of its policy with Woodyard.
The Michigan Court of Appeals in Dewley v. Pioneer State Mutual Insurance Company, agreed with Pioneer:
“Woodyard had a duty to disclose that Dewley was using his vehicle on a regular basis as a member of his household, and that the failure to disclose that information, which would have caused Pioneer to cancel the policy given Dewley’s poor driving record, was sufficient to establish silent fraud.”
The important takeaway from this case is that when renewing or updating your car insurance policy in Michigan, make sure to disclose to your auto insurance company all other people who drive your vehicle.
Duty to disclose other drivers of your car
A big question in Dewley was whether Woodyard actually had a duty to disclose to Pioneer that Dewley was driving his car.
Of course, the appellate court said he did, but here’s why:
- “Under the terms of the policy, an insured [such as Woodyard] was obligated to review the information provided to Pioneer, both at the time of the initial application and each time the policy was renewed, to determine if the information was accurate or required updating.”
- Woodyard was “advised of the necessity of updating his insurance information when there were changes” to the policy, but, when he did make changes, he “did not disclose [to Pioneer] that Dewley was an additional driver in his household.”
- Woodyard never mentioned Dewley during his “several … contacts” with Pioneer agents, even though “agents are required to make inquiries about additional drivers when an insured contacts the agency about coverage or coverage changes under the policy …”
- He knew and “understood that all drivers in a household needed to be identified in order to receive coverage,” i.e., “additional drivers require separate coverage.”
Silent fraud and rescission of an auto insurance policy
The court explained that “silent fraud” is one of the “fraud doctrines that allow a party to rescind a contract that is obtained as a result of fraud.’” The “silent fraud” doctrine provides:
“[W]hen there is a legal or equitable duty of disclosure, ‘[a] fraud arising from the suppression of the truth is as prejudicial as that which springs from the assertion of a falsehood, and courts have not hesitated to sustain recoveries where the truth has been suppressed with the intent to defraud.’”
Unlike cancellation – which means the auto insurance policy is terminated, albeit effective up to the cancellation date – rescission means that the policy being rescinded “‘is considered void ab initio and is considered never to have existed.”
This year, I’m serving as President of the Motor Vehicle Trial Lawyers Association. I normally speak at seminars every couple weeks to lawyers all over the country, so I’m familiar with the auto law in many different states.
Sadly, this “silent fraud” doctrine is just one more example of Michigan being on the extreme end of things. The penalties for this could not be more harsh. The misapplication of the “silent fraud” doctrine gives insurance companies a free pass to get out of hundreds of claims that they would still be responsible for in most other states in the nation today.