Reporting “all drivers” on your car insurance application will keep you covered by No Fault PIP benefits in case of a serious automobile accident
Committing car insurance fraud is a very bad thing. It’s a felony crime (see MCL 500.4503 and 500.4511) and it can cost you all of your invaluable No Fault benefits and protections in the event you’re seriously injured in a car accident.
That said, what’s happening now in Michigan is extremely troubling for me as an auto accident attorney. The pendulum has swung so far that auto insurance companies are now using any pretext to allege fraud and then suspend people’s auto No Fault insurance benefits. Wrongfully decided cases like Bahri v. IDS Casualty Insurance Company have given insurance companies a free pass to allege fraud for any minor mistake an auto accident victim makes.
Bahri was, without question, the worst auto No Fault case of 2014. Bahri is an absurd, draconian extension of an insurance fraud defense that has now been allowed to morph into allowing auto No Fault insurance companies who are legally responsible for paying PIP benefits to be the judge, jury, and executioner on whether these No Fault benefits should be paid. This type of behavior would never be allowed in 49 other states.
But it is here in Michigan.
Don’t misunderstand. I’m not condoning insurance fraud. I’ve used this blog to speak out repeatedly against my own fellow Michigan personal injury lawyers, and in particular, the attorneys who are committing widespread ambulance chasing and PIP fraud (the two go hand in hand).
The good news, at least as far as avoiding the allegation of auto insurance fraud when it comes to motorists is that there’s a simple way to prevent at least one form of so-called fraud-related mayhem and even possible incarceration.
When a No Fault application for insurance asks you to list “all drivers,” make sure you include ALL DRIVERS
When any application for car insurance asks you to list “all drivers” for the car(s) or truck(s) you wish to insure in this state, you must make sure you include ALL DRIVERS. This is especially important because so many people are being erroneously instructed on ways to save money by their insurance agents. As an insurance attorney, it’s staggering for me to see so many insurance agents telling customers to NOT list young drivers in the household on the policy as a way to save money. This is fraud, and even if it’s more of a “white lie” type of fraud that hundreds of other people are also doing – and not the ugly PIP fraud that so many auto attorneys and accident victims are now doing in cities like Detroit – it is still fraud. The consequences, as you’ll see below, are very dangerous and extreme if someone you have not listed on your auto No Fault policy application then gets in a bad automobile accident.
Think of it this way: Your car insurance company wants to know who will be driving your car so it can assess the risk of issuing coverage, and how much to charge for car insurance based on the risk it has assessed for each listed driver. Statistically, young drivers and older drivers are far more likely to cause a car accident.
Naturally, if the auto insurance company doesn’t know who all of the drivers are, then it can’t make a proper assessment of its risk. Then, when a car accident involving a driver not known to the insurer occurs – and a claim for auto No Fault insurance benefits is being made for medical bills, wage loss, and other allowable expenses – the auto insurer will not want to pay.
Based on the ruling in Oakwood Healthcare, Inc., v. Hartford Insurance Company of the Midwest, et al. or in a recent “silent fraud” case, the auto insurance company will likely get its wish and avoid paying outstanding No Fault PIP benefits entirely.
Why not including “all drivers” on your insurance application is so dangerous
The winning argument for auto insurance companies who decide they’d rather not pay appears to be that an insured customer’s failure to disclose “all drivers” on an insurance application is tantamount to procuring auto insurance by fraud. This, in turn, means the insurer has a legal right to rescind the auto policy and deny all coverage for Michigan No Fault insurance benefits.
Specifically, in Oakwood Healthcare, after the insured customer’s son was injured in a car accident and had submitted a claim for No Fault benefits under the insured’s policy with Hartford Insurance Company, the Michigan Court of Appeals held:
Hartford Insurance Company was “entitled” “to rescind” a commercial automobile insurance policy on grounds it had been “procured by fraud” because the insured failed to disclose on his commercial insurance application that one of the cars to be covered was owned (“titled and registered to”) and driven by his teenage son, who was not “identified as an employee of the business …”
The court observed the insured had “made a number of misrepresentations when he procured the Hartford commercial insurance policy at issue,” such as “the ownership, use and primary driver” of the car belonging to the car accident victim.
Significantly, the court concluded the insured’s “misrepresentations were relied upon with regard to the issuance of this commercial insurance policy” and “that, given the correct information, Hartford would not have insured the [car in question] under the commercial policy …”
As Hartford Insurance Company argued to the trial court:
Hartford “issued a commercial insurance policy on a vehicle that was reportedly being used for the business purposes of [the insured’s construction business]; it did not issue a personal no-fault policy for a high risk teenage driver who was driving his personal vehicle.”
When can an auto insurance company rescind a policy that was allegedly ‘procured by fraud’?
The Oakwood Healthcare court explained that rescission of a car insurance policy allegedly “procured by fraud” can occur under the following circumstances:
“A no-fault insurer may be entitled to rescind a policy and declare it void ab initio when the insured makes a material misrepresentation in the application for insurance that affected either the acceptance of the risk or the hazard assumed by the insurer … That is, a misrepresentation is material if, given the correct information, the insurer would have rejected the risk or charged an increased premium, i.e., not issued the same contract.”
The thing is, even if Hartford hadn’t been able to rescind the policy on “fraud” grounds, this Wayne County, Michigan car accident victim would have still been denied auto No Fault PIP benefits on the basis that he was an uninsured driver.
As the court in Oakwood pointed out (in footnote 1 on pages 6 and 7):
The car “was titled and registered in” the car accident victim’s name. “As the owner, registrant and driver of that vehicle, it was [his] responsibility under the law to ensure that he had no-fault automobile insurance. See MCL 500.3101(1) … [A]bsent insurance, the operator of the motor vehicle [such as the victim in this case] is personally liable for his own medical bills and the related costs of being in an automobile accident … [The car accident victim in this case] was not entitled to PIP benefits …”
Additionally, this case also brings up the issue of “non-owner-secured insurance” which I will write about next week. But for a quick preview, an injured car owner is disqualified from collecting No Fault benefits if “the only insurance on the motor vehicle involved in the accident was secured by a non-owner.”
Significantly, in this case, the car accident victim, who was the owner of the car, had not obtained the legally required Michigan No Fault auto insurance for his car.
Instead, the only No Fault coverage of the vehicle was secured by the victim’s father, who was a non-owner, i.e., not an owner of the motor vehicle.