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No Fault insurance fraud rule doesn’t work on employee

January 23, 2018 by Steven M. Gursten

No Fault law doesn’t provide loophole for employer’s insurer to argue that policy’s auto No Fault insurance fraud clause precludes benefits for employee

No Fault insurance fraud: Employer can't use policy's fraud exclusion against non-policy-holding employee

The Michigan Court of Appeals has placed a limitation on auto insurance companies’ overzealous misuse, overuse and outright abuse of the now infamous Bahri No Fault insurance fraud rule.

In Marbly v. American Country Insurance Company, the Court of Appeals ruled that the No Fault insurance fraud rule from its decision in Bahri v. IDS Property Casualty Insurance Company doesn’t apply to employees when the “fraud exclusion” clause that’s trying to be enforced is contained in the employer’s – not their own, personal – commercial auto insurance policy.

This is an important ruling for Michigan car accident lawyers for two reasons:

  • First, it reinforces the Shelton v. Auto-Owners rule which says that the Bahri No Fault insurance fraud rule does not apply to non-policy holders, i.e., if you’re not the policy holder, then you cannot be bound by the “fraud exclusion” contained in the policy.
  • Second, it shuts down a sneaky defense legal argument to try to get around the reasoning and logic of Shelton.

The Bahri decision (and the No Fault insurance fraud rule that has developed from Bahri) has been a nightmare for innocent auto accident injury victims. As I previously wrote about Bahri:

“As a result of Bahri, insurance companies – and their adjusters – have been on the hunt for any mistakes they can use to claim ‘fraud’ in any car crash victim’s replacement services or attendant care form submissions and wage loss claims. When they find such a ‘mistake,’ the insurers and their lawyers cry ‘fraud’ — trotting out Bahri as their rationale for immediately denying and/or cutting off any and all of the car accident victim’s present and future No Fault auto insurance benefits.”

But with decisions like Marbly, the overreaching madness of the Bahri case that now allows insurance company adjusters and defense lawyers to recklessly accuse anyone of fraud on the public record is, at least, slowly being limited and, perhaps, even contained.

What’s the sneaky No Fault insurance fraud argument that the court rejected in Marbly?

To get around the fact that the plaintiff in Marbly – who was a driver for a company whose business it was to transport patients to and from doctors’ appointments – was not a policy-holder on the policy with the “fraud exclusion,” her employer’s insurer sought a loophole in the No Fault law.

Seizing on language in MCL 500.3114(2) and (3) that a car accident victim can collect No Fault benefits “to which the person [or “the employee”] is entitled,” the employer’s insurer argued the victim in Marbly was not entitled to benefits under the “fraud exclusion” in her employer’s policy.

Without actually ruling on the insurer’s “entitled” argument, the court concluded that “Marbly can … seek benefits under subsection (4),” which provides No Fault benefits to vehicle occupants without any additional entitlement requirement.

The court provided the following explanation for its conclusion:

  • The insurer’s “argument is self-defeating in light of Shelton. Either Marbly is ‘entitled’ to PIP benefits under the no-fault policy pursuant to subsection (2) or (3), or she ‘shall claim’ PIP benefits under subsection (4), and in either event, [the employer’s insurer] is the insurer with priority to pay her claim. Put differently, if the policy’s fraud-exclusion clause is enforceable against Marbly and she is not entitled to benefits under subsections (2) or (3), [the insurer] is nevertheless the insurer with priority to pay Marbly’s claims under subdivision (4)(a) because she was injured while an occupant of a motor vehicle the owner of which was insured by [the insurer].”
  • “Moreover, as explained in Shelton, because entitlement to benefits under subsection (4) is governed solely by statute, any fraud-exclusion clause in the no-fault policy does not apply to Marbly if her entitlement to benefits arises under subsection (4).”

Notably, the Court of Appeals in Marbly didn’t address whether the “entitled” language in MCL 500.3114(2) and (3) was referring to the No Fault Law’s “Person not entitled to personal protection benefits” statute (MCL 500.3113).

What is the Bahri No Fault insurance fraud rule in Michigan?

Originating with the Court of Appeals ruling in Bahri v. IDS Property Casualty Insurance Company, the Bahri No Fault fraud rule provides the following:

A car accident victim can be disqualified from receiving all present and future No Fault benefits if – through mistakes or so-called “fraudulent misrepresentations” – he or she has been shown to have violated a “fraud exclusion” clause in his or her auto insurance policy.

How does Shelton limit insurers’ claims of No Fault insurance fraud under Bahri?

In Shelton v. Auto-Owners Insurance Company, the Michigan Court of Appeals ruled that Bahri’s No Fault fraud rule can only be applied to car accident victims who are policyholders on the No Fault policy containing the “fraud exclusion” clause that the auto insurer seeks to enforce to avoid having to pay No Fault benefits.

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