Haydaw v. Farm Bureau Ins. Co.

• Decision Date: 09 July 2020
• Docket Number: No. 345516,345516
• Citation: 957 N.W.2d 858,332 Mich.App. 719
• Parties: Nael HAYDAW, Plaintiff-Appellant, and Priority Physical Therapy and Rehabilitation, LLC, and Michigan Pain Management, PLLC, Intervening Plaintiffs, v. FARM BUREAU INSURANCE COMPANY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

332 Mich.App. 719

957 N.W.2d 858

Nael HAYDAW, Plaintiff-Appellant,andPriority Physical Therapy and Rehabilitation, LLC, and Michigan Pain Management, PLLC, Intervening Plaintiffs,

v.FARM BUREAU INSURANCE COMPANY, Defendant-Appellee.

No. 345516

Court of Appeals of Michigan.

Submitted December 4, 2019, at Detroit.

Decided July 9, 2020, 9:10 a.m.

Yatooma & Associates, PC (by Danielle S. Yatooma, Southfield, Paul J. Wayner, and Guilliana J. Yatooma) for Nael Haydaw.

Kopka Pinkus Dolin PC, Farmington Hills (by Steven M. Couch and Mark L. Dolin ) for Farm Bureau Insurance Company.

Before: Ronayne Krause, P.J., and Cavanagh and Shapiro, JJ.

Shapiro, J.

After finding that plaintiff made false statements at his deposition, the trial court granted defendant summary disposition pursuant to the fraud provision in the insurance policy issued to plaintiff by defendant. We hold that fraud provisions in no-fault insurance policies do not provide grounds for rescission based upon false statements made by the insured during first-party litigation. Accordingly, we reverse and remand for further proceedings.

I

This case arises out of a motor vehicle accident in which plaintiff claims to have sustained injuries to his back, neck, and shoulders. Defendant is plaintiff's no-fault insurer. In October 2016, plaintiff filed the instant lawsuit alleging that defendant wrongfully withheld personal protection insurance (PIP) benefits that plaintiff was entitled to under his insurance policy and the no-fault act, MCL 500.3101 et seq. In February 2017, plaintiff signed litigation authorizations to release all of his medical records, and he was deposed in April 2017. English is not plaintiff's first language, and he testified through an interpreter. Plaintiff also underwent two insurance medical examinations in April 2017 and May 2017, respectively. Plaintiff communicated with the physicians via an interpreter.

After discovery was completed, defendant moved for summary disposition on the ground that plaintiff made false statements during discovery regarding his medical history. Plaintiff's medical records showed intermittent complaints of back, neck, and shoulder pain and that, at times, he had been prescribed pain medication in the years preceding the accident. Given that history, defendant asserted that plaintiff testified falsely at his deposition when he said that he saw his primary-care physician for "[f]lu, that's it," before the accident and that he was prescribed flu medication.¹ Defendant also maintained that plaintiff falsely represented in the medical examinations that he did not have problems with his back, neck, or shoulders before the accident. Defendant argued that it was entitled to summary disposition under the policy's fraud provision² and Bahri v. IDS Prop. Cas. Ins. Co. , 308 Mich. App. 420, 864 N.W.2d 609 (2014).

In response, plaintiff argued that he testified truthfully at the deposition because his last two doctor visits before the accident were to address the flu and his understanding of the question was that it referred to the doctor visits immediately before the accident. Plaintiff further argued that he had disclosed his medical records before the deposition and therefore defendant was aware of his medical history. Plaintiff also argued that if he did make inaccurate statements at his deposition, this went to his credibility, which should be determined by the trier of fact. Plaintiff also questioned the accuracy of the medical-examination reports, considering that he was communicating through an interpreter.

After hearing oral argument, the trial court found that plaintiff made false statements at his deposition and granted summary disposition on the basis of the policy's fraud provision.

II

This case requires us to confront a question not previously addressed in a published opinion from this Court. That is, whether statements made during litigation after the insured's claim is denied constitute grounds to void the policy under a fraud provision. Consistent with the vast majority of courts that have addressed this issue, we hold that such provisions do not apply to statements made during the course of litigation.³

Our research indicates that this issue was first addressed in Ins. Cos. v. Weides , 81 U.S. (14 Wall.) 375, 382-383, 20 L. Ed. 894 (1871), in which the United States Supreme Court held that testimony at trial does not implicate an insurance policy's fraud or false-swearing clause:

Nor was there error in denying the defendants’ third and fourth prayers. It is true the policies stipulated that fraud or false swearing on the part of the assured should work a forfeiture of all claim under them. The false swearing referred to is such as may be in the submission of preliminary proofs of loss, or in the examination to which the assured agreed to submit. But it does not inevitably follow from the fact that there was a material discrepancy between the statements made by the plaintiffs under oath in their proofs of loss, and their statements when testifying at the trial that the former were false, so as to justify the court in assuming it, and directing verdicts for the defendants. It may have been the testimony last given that was not true, or the statements made in the proofs of loss may have been honestly made, though subsequently discovered to be mistaken. It is only fraudulent false swearing in furnishing the preliminary proofs, or in the examinations which the insurers have a right to require, that avoids the policies, and it was for the jury to determine whether that swearing was false and fraudulent. [Emphasis added.]

In what has become a leading authority on this issue, in American Paint Serv., Inc. v. Home Ins. Co. of New York , 246 F.2d 91 (C.A. 3, 1957), the Third Circuit Court of Appeals followed the Supreme Court in holding that trial testimony could not be relied upon by the insurer to show that fraud had occurred. The Third Circuit provided the following rationale for its holding:

Trial testimony in a case where fraud and false swearing is in issue serves to establish the truth or falsity of the preliminary proofs and the materiality and wilfulness of any false proofs. The fraud and false swearing clause is one beneficial to the insurer and it reasonably extends to protect the insurer during the period of settlement or adjustment of the claim. When settlement fails and suit is filed, the parties no longer deal on the non-adversary level required by the fraud and false swearing clause. If the insurer denies liability and compels the insured to bring suit, the rights of the parties are fixed as of that time for it is assumed that the insurer, in good faith, then has sound reasons based upon the terms of the policy for denying the claim of the insured. To permit the insurer to await the testimony at trial to create a further ground for escape from its contractual obligation is inconsistent with the function the trial normally serves. It is at the trial that the insurer must display, not manufacture, its case. Certainly the courts do not condone perjury by an insured, and appropriate criminal action against such a perjurer is always available. [ Id. at 94 (emphasis added).]

The vast majority of the courts that have addressed this issue have followed suit,⁴ and it is now considered a general rule that statements made during litigation do not implicate a fraud or false-swearing clause. See, e.g., Dodson Aviation, Inc. v. Rollins, Burdick, Hunter of Kansas, Inc. , 15 Kan. App. 2d 314, 325, 807 P.2d 1319 (1991) ("The overwhelming majority of jurisdictions hold that only false statements made before legal proceedings have begun can serve to void an insurance policy."); Ocean-Clear, Inc. v. Continental Cas. Co. , 94 App. Div. 2d 717, 718, 462 N.Y.S.2d 251 (1983) ("[I]t is generally accepted that fraud arising after the commencement of an action on a policy does not void the policy.") (citations omitted). That rule has been applied to preclude an insurer from asserting fraud or false swearing on the basis of the insured's deposition testimony. See Mercantile Trust Co. v. New York Underwriters Ins. Co. , 376 F.2d 502, 504 n. 2 (C.A. 7, 1967) ; Third Nat'l Bank v. Yorkshire Ins. Co. , 218 Mo. App. 660, 669-670, 267 S.W. 445 (1924).

We find these authorities persuasive and adopt their reasoning.⁵ False statements made during discovery do not provide grounds to void the policy because, by that time, the claim has been denied and the parties are adversaries in litigation. Once suit is brought, what is truth and what is false are matters for a jury or a judge acting as fact-finder. And if it can be shown that a party intentionally testified falsely, it is up to the court to determine what, if any, sanction is proper. Indeed, defendant is essentially seeking dismissal of plaintiff's claim on the basis of alleged discovery misconduct. Given that questions of credibility and intent are generally left to the trier of fact, "[i]t is ... doubtful whether dismissal for intentionally false deposition testimony is ever appropriate." Swain v. Morse , 332 Mich. App. 510, 524, 957N.W.2d 396 (2020) (Docket No. 346850). In any event, it is up to the trial court to determine whether a drastic sanction such as dismissal is warranted for discovery misconduct, including untruthful deposition testimony. To be clear, once an insurer fails to timely pay a claim and suit is filed, the parties’ duties of disclosure are governed by the rules of civil procedure, not the insurance policy.⁶

For similar reasons, statements made during litigation are by their nature incapable of satisfying the elements for voiding a policy on the basis of postloss fraud. In order to obtain that relief, the material misrepresentation must have been made with "the intention that the insurer would act upon it." Bahri , 308 Mich. App. at 424-425, 864 N.W.2d 609,⁷ Yet an insured's statements during discovery are made with the intention that the trier of fact, not the...