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Michigan Car Insurance Fraud And Excess Coverage

Tell The Truth Or Face Consequences

An insurance agent’s duty to the client does not end when the policy is signed. On the contrary, it is an ongoing responsibility with serious legal implications.

For an auto agent, this duty includes assuring that a client injured in an auto accident is able to recover under the policy.

Often, this means educating clients about their policies and Michigan car insurance fraud provisions that may be included within the policy. An educated client is much less likely to do something to jeopardize coverage.

One important aspect of client education includes advising clients as to the importance of being completely forthcoming both when applying for insurance, and when making a claim. When a client is not forthcoming, i.e., when the client misrepresents a material fact (commits car insurance fraud), the insurance company may have the right to void the policy, leaving an injured client without coverage, and potentially stripping the client of the right to sue an at-fault driver. Committing car insurance fraud can also open the client up to criminal charges if the anti-fraud unit* discovers true criminal or fraudulent activity.

*As of June 11, 2019, the new Michigan No-Fault law established an “Anti-Fraud Unit.” This criminal justice agency is dedicated to preventing Michigan car insurance fraud and investigating criminal fraudulent activities in the insurance market. If the anti-fraud unit discovers true criminal or fraudulent activity, the responsible party could be charged with criminal charges under Michigan or Federal law.

This is particularly important when it comes to uninsured and underinsured motorist coverage (UM/UIM) because many insurance companies will include car insurance fraud provisions in their policies and recent law has held that such car insurance fraud provisions are valid.

As such, a client who misrepresents a material fact (commit car insurance fraud) when filing a UM/UIM claim risks having their No-Fault policy voided “ab initio,” i.e., as if it never existed. Not only would this leave the insured without coverage, but it could also preclude the victim from suing the other driver. This is because, under Michigan law, a driver who is injured while driving his own vehicle cannot sue for damages if that driver was uninsured at the time of the accident.


In the past, a No-Fault policy could only be rescinded for misrepresentation when the inaccuracy existed in the application for coverage. However, this changed in 2001 when the Michigan Supreme Court decided Cohen v. Auto Club Ins. Ass’n.

In a nutshell, this Michigan car insurance fraud case stands for the proposition that an insurer may void the entire policy when an insured misrepresents a material fact in a claim for excess coverage — in this case, UM benefits.

Although such a provision may conflict with the No-Fault Act regarding insurance benefits required by law, e.g., statutorily required coverage, it is enforceable when a claim for UM benefits is involved because these benefits are optional and not required by law.

Coverage Dispute

In Cohen, an insured was seriously injured in a car accident. Although the driver of the other vehicle was uninsured, the insured appeared to be covered because she had UM benefits under her auto policy. The policy also contained a provision allowing such claims to be submitted to arbitration.

However, the insurance company refused to arbitrate the claim, citing a clause allowing it to void the entire policy if the insured misrepresented facts or circumstances about the accident. The policy-voiding provision provided:

“This entire Policy is void if an insured person has intentionally concealed or misrepresented any material fact or circumstance relating to a) this insurance; b) the Application for it; or c) any claim made under it.”

According to the insurance company, the insured committed Michigan car insurance fraud by overstating her wage loss.

The insured denied the allegation and sued for benefits under the policy. She claimed the alleged misrepresentation was irrelevant because no part of her UM claim sought wage loss benefits. She also argued that a No-Fault policy could only be rescinded by misrepresentation in the application for coverage.

Both the trial court and the Michigan Court of Appeals agreed with the insured. However, the Michigan Supreme Court reversed, siding with the insurance company.

Important Michigan Car Insurance Fraud Ruling

In its ruling, the Supreme Court explained that the Court of Appeals erroneously lumped UM coverage in with other coverages required by law.

In finding for the insured, the Court of Appeals relied on MCL 257.520(f) (1), which provides that “no statement made by an insured or on his behalf and no violation of said policy shall defeat or void said policy.”

According to the Supreme Court, however, the appeals court should have looked instead at MCL 257.520(g), which renders the former statute inapplicable when UM coverage is involved.

Unlike those other coverages, UM coverage is not required by law and, therefore, the clause in the insured’s policy voiding it for misrepresentation was valid.

In other words, such a clause can in fact be used to void a No-Fault policy, the Supreme Court explained.

‘Material’ Misrepresentation

Since Cohen, no case has challenged the notion that policy voiding Michigan car insurance fraud provisions can be used to void No-Fault policies.

However, some Michigan car insurance fraud cases have distinguished Cohen based on specific facts.

For example, in Auto Club Ins. Ass’n v. Juncaj, an auto policy could not be rescinded where an insured failed to notify his insurance company that his address had changed and that his daughter was the principal driver of one of his vehicles because he did not make a “material misrepresentation.”

However, since the Supreme Court’s decision, the ruling in Cohen has stood strong, and some predict it could even be extended to cover Michigan car insurance fraud in any motor vehicle liability policy.

‘Fibbers’ Beware

Finally, it is well known that some agents routinely advise their clients to “fib” when it comes to their home address, other drivers, and so forth.

These agents must understand that if their client is later seriously injured by an uninsured or underinsured driver, their entire No-Fault policy could be rescinded due to insurance fraud provisions.

This would leave the client without the ability to collect UM/UIM coverage, and could expose the agent and the agency to significant legal liability.

As such, agents must carefully advise clients not only in the application process, but in the claims process as well.

A quick review of the applicable law every now and then will help those in the insurance industry better serve their clients and themselves.

Auto Law ‘Snapshot’ of Michigan Car Insurance Fraud & Excess Coverage

Important statutes and cases regarding Michigan car insurance fraud:

Statute: MCL 257.520(f)(1)

Language: “Every motor vehicle liability policy shall be subject to the following provisions: ‘The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute whenever injury or damage covered by said motor vehicle liability policy occurs; said policy may not be cancelled or annulled as to such liability by any agreement between the insurance carrier and the insured after the occurrence of the injury or damage; no statement made by the insured or on his behalf and no violation of said policy shall defeat or void said policy, and except as hereinafter provided, no fraud, misrepresentation, assumption of liability or other act of the insured in obtaining or retaining such policy, or in adjusting a claim under such policy, and no failure of the insured to give any notice, forward any paper or otherwise cooperate with the insurance carrier, shall constitute a defense as against such judgment creditor.'”

Court Interpretation: Courts have focused on the language “no statement made by the insured or on his behalf and no violation of said policy shall defeat or void said policy” to preclude insurance companies from rescinding No-Fault policies based on misrepresentations made after the application process is complete. However, this section does not apply to excess coverage, such as UM/UIM.

Impact On Agents: When additional, optional coverages such as UM/UIM are involved, the statutory mandate above does not apply (see below).

Statute: MCL 257.520(g)

Language: “Any policy which grants the coverage required for a motor vehicle liability policy may also grant any lawful coverage in excess of or in addition to the coverage specified for a motor vehicle liability policy and such excess or additional coverage shall not be subject to the provisions of this chapter. With respect to a policy which grants such excess or additional coverage the term ‘motor vehicle liability policy’ shall apply only to that part of the coverage which is required by this section.”

Court Interpretation: The Michigan Supreme Court has ruled that this statute renders MCL 257.520(f) (1) inapplicable to excess coverage.

Impact On Agents: An insurance company may void a No-Fault policy when an insured makes a material misrepresentation in a claim for UM/UIM coverage. This extends the general rule that an insurance company can declare a policy void ab initio if the insured obtained the policy through intentional misrepresentation of a material fact in the application process.

Michigan Car Insurance Fraud Case: Cohen v. Auto Club Ins. Ass’n.

Facts: An insured was seriously injured in a car accident. Although the other driver did not have insurance, the insured had an uninsured motorist policy with Auto Club. Auto Club denied coverage, however, pointing to a clause in the policy allowing it to void the entire policy where the insured misrepresented a material fact. According to Auto Club, the insured misrepresented her wage loss. The insured denied the allegation, and sued Auto Club.

Ruling: The Michigan Supreme Court found in favor of the insurance company, holding that because uninsured motorist coverage is not required under the No-Fault Act, the provision allowing the insurance company to void the policy was appropriate.

Impact On Agents: This ruling instructs that insurance companies can include provisions in No-Fault policies allowing them to void the entire policy when an insured misrepresents a material fact concerning excess coverage. In addition to leaving an insured without coverage, this would preclude the insured from filing suit against an at-fault driver. Some experts predict this Michigan car insurance fraud provision may ultimately be extended and allow insurance companies to void any motor vehicle liability policy.

Michigan Car Insurance Fraud Case: Auto Club Ins. Ass’n v. Juncaj, et al.

Facts: An insured’s daughter was involved in an auto accident with the insured’s van. Her passengers later sued the insured and his family for injuries they sustained in the accident. During the investigation, the insurance company rescinded the insured’s policy on the ground that he had failed to notify them that his address had changed and that his daughter had become the principal driver of van. The insurance company relied on a provision in the contract stating that the policy was void if the insured intentionally concealed or misrepresented a material fact relating to the policy, the application, or any claim made under the policy.

Ruling: The Michigan Court of Appeals rejected the insurance company’s argument, ruling that, once an innocent third party is injured in an accident that is subject to coverage, the insurer cannot assert fraud to rescind the policy with respect to required coverage. In so ruling, the court distinguished the case from Cohen, noting that, although the fraud provision was valid, the insured did not make a “material misrepresentation.”

Impact On Agents: A Michigan car insurance fraud provision will be found valid as it relates to excess coverage, and enforced when the insured makes a material misrepresentation. Agents must be sure to advise their clients to be forthcoming when applying for coverage, and when making claims.