Insurance company cannot use ‘inconsistent statements’ alone to deny PIP benefits to injured car crash victim based on No-Fault fraud
I’ve been an outspoken critic of the Bahri v. IDS Property Casualty Insurance opinion, which is one of the worst legal opinions I’ve ever encountered. I’ve seen insurance defense lawyers and claims adjusters rely on this case to allege No-Fault fraud over every innocent mistake or inconsistency in record-keeping – no matter how slight or inconsequential.
I’ve watched over the past several years how insurance companies legally responsible under the Michigan No-Fault law for paying No-Fault PIP benefits have completely avoided these legal obligations just by calling people frauds. Insurance companies have used the Bahri decision to deny present and future No-Fault insurance benefits to hundreds of seriously injured car crash victims. Claims adjusters and insurers could use any pretext to allege No-Fault fraud so they could then deny PIP benefits to people who desperately need them.
But a recent case brings some desperately needed clarity — and sanity — to the situation by pointing out the obvious: that not every innocent mistake or inconsistent statement makes a person a fraud.
That’s the main lesson for auto No-Fault attorneys from the new Michigan Court of Appeals ruling in Hatcher v. Liberty Mutual Insurance Company, a case involving a Macomb County car accident victim whose “injuries resulted in her undergoing a cervical discectomy and fusion surgery,” where a unanimous, three-judge panel found:
- “The existence of inconsistent statements in and of themselves is not sufficient to … provide a basis to claim, let alone prove, intentional fraud” by a car crash victim.
- “Mistakes of fact or isolated examples of conduct inconsistent with a claim for benefits are not sufficient for an insurer to achieve summary disposition on an allegation that the insured attempted to fraudulently establish a proof of loss.”
- “Intent to defraud is not shown where false statements are made as a result of inadequate memory, unintentional error, confusion, or the like.”
- A No-Fault auto insurance company seeking to get a car crash victim’s lawsuit dismissed on “fraud” grounds “is required to show more than simply that plaintiff made a factual mistake, or an honest misstatement.”
It’s likely the court’s decision will come as quite a shock to many claims adjusters, defense lawyers and insurance companies that have been using Bahri to get out of paying properly owing No-Fault benefits, and it will hopefully come as a shock to two Wayne County judges that have been using Bahri as a docket-clearing mechanism.
Since the Bahri opinion came out in 2014, they’ve been relying on what I call the “Bahri No-Fault fraud rule” to parlay every mistake or inconsistency — no matter how slight or inconsequential — into a full-blown denial of all present and future No-Fault benefits to car crash victims.
But for auto accident attorneys like myself and the other lawyers here at Michigan Auto Law, the Hatcher ruling comes not only as a breath of fresh air, but as a welcome and long-overdue dose of sanity and common sense.
The Court of Appeals has given us the shield to protect our clients and their cases from the assault fueled by the madness unleashed by Bahri.
The pronouncements in Hatcher take the legs right out from under those who have been fly-specking and nit-picking every statement, utterance, replacement services and attendant care calendar and mileage reimbursement statement to look for any inconsistency to allege fraud.
These last few years have seen a preposterous game of insurers calling anyone they can a “fraud” (with or without evidence). But this game of ruining people’s lives and reputations under the “Bahri No-Fault fraud rule” has hopefully been stopped by the Hatcher ruling.
The Hatcher ruling is a great example of this preposterous game. You can see how the judges regarded the Bahri “fraud” arguments that Liberty Mutual was attempting to make in its effort to avoid its contractual promise to provide auto No-Fault benefits to its own seriously injured insured – No Fault benefits for which Liberty Mutual had gladly accepted the car crash victim’s premiums.
I will discuss this aspect of Hatcher in greater detail in tomorrow’s blog post.
How does an insurer prove a car accident victim committed No-Fault fraud?
In Hatcher, the appellate judges noted, the “test for determining whether an insured engaged in fraudulently attempting to prove a loss” requires proof of the following:
The car crash victim made a misrepresentation that “was material” and “false” and the car accident victim “knew of its falsity” or “made the statement recklessly, i.e. without any knowledge of its truth.”
Importantly, the court also explained that the “[i]ntent to defraud is not shown where false statements are made as a result of inadequate memory, unintentional error, confusion, or the like.”
Proving No-Fault fraud is very different on a motion to dismiss a case versus at a No-Fault trial
Insurance companies have been filing motions to dismiss, hoping to draw the right judge and argue that these alleged examples of No-Fault fraud allow them to deny No-Fault benefits and void the underlying insurance policy.
Significantly, the Hatcher judges clarified that the appropriate legal standard of proof for so-called “fraud” on a motion to dismiss is much higher than the “preponderance of the evidence” standard that applies at a civil auto accident trial.
Indeed, to get a No-Fault lawsuit dismissed without a trial, the court noted that an insurer “must show” that “no rational trier of fact could reach a conclusion other than that plaintiff engaged in fraud.”
To do that, the insurance company must prove that plaintiff ‘knowingly and intentionally’ stated a falsehood, that the falsehood was material, and that plaintiff did so ‘with the intent to defraud.’”
Finally, the Hatcher judges clarified that this “required” an insurer “show more than simply that plaintiff made a factual mistake, or an honest misstatement.”