Johnson v. Geico Indem. Co.

Decision Date12 May 2022
Docket Number351838
PartiesKIMBERLY JOHNSON, Plaintiff-Appellee, v. GEICO INDEMNITY COMPANY, Defendant-Appellant.
CourtCourt of Appeal of Michigan — District of US

UNPUBLISHED

Wayne Circuit Court LC No. 18-006423-NF

Before: Jansen, P.J., and Murray and Cameron, JJ.

ON REMAND

PER CURIAM.

This matter has been remanded to this Court for reconsideration in light of Meemic Ins Co v Fortson, 506 Mich. 287; 954 N.W.2d 115 (2020). Previously, this Court reversed the trial court order denying defendant summary disposition, and remanded for entry of an order granting summary disposition in favor of defendant because there was no factual dispute that plaintiff submitted fraudulent claims for attendant care and replacement services. Johnson v Geico Indemnity Co, unpublished per curiam opinion of the Court of Appeals, issued March 18, 2021 (Docket No. 351838), pp 5-6 vacated 967 N.W.2d 616 (2022). Plaintiff moved for reconsideration, which this Court denied, Johnson v Geico Indemnity Co, unpublished order of the Court of Appeals entered May 21, 2021 (Docket No. 351838), and then plaintiff sought leave to appeal in the Supreme Court. In lieu of granting leave to appeal, the Supreme Court vacated our prior judgment, and remanded to this Court for reconsideration under Fortson, 506 Mich. 287. Johnson v Geico Indemnity Co, ___Mich ___; 967 N.W.2d 616 (2022) (Docket No. 163108).

In short, this case arises from a 2017 automobile accident in which plaintiff sustained injuries, after which she claimed that she could not perform household tasks and personal care. Her former boyfriend, William Stadler, and her son, Jacob Heminger, performed these duties. Plaintiff's minor daughter, KJ, assisted plaintiff with bathing and dressing. Plaintiff submitted a claim for personal injury protection (PIP) to defendant, her automobile insurer at the time of the accident, for replacement services and attendant care. Defendant refused to pay, and plaintiff filed suit. Defendant moved for summary disposition, arguing that plaintiff's insurance policy was void under the fraud provision because plaintiff made claims for replacement services and attendant care while plaintiff was in Ohio and Florida without Stadler or Heminger. The trial court denied defendant's motion. Relying primarily on Bahri v IDS Prop Cas Ins Co, 308 Mich.App. 420; 864 N.W.2d 609 (2014), this Court determined on appeal that there was no genuine issue of material fact that plaintiff misrepresented her need for replacement services while she was out of state, and submitted fraudulent claims under her insurance contract. Johnson, unpub op at 4-5. Thus defendant was entitled to summary disposition. Id. at 5. This Court reached the same conclusion regarding plaintiff's claims for attendant care while she was out of state without Stadler or Heminger. Id. at 5-6.

In reconsidering this case under Fortson as directed, we conclude that defendant cannot void the contract entirely, but it is not obligated to pay PIP benefits for claims that are clearly fraudulent. For the reasons discussed herein, the trial court order denying defendant's motion for summary disposition is vacated, and this matter is remanded to the trial court for reconsideration of defendant's motion consistent with this opinion.

In Fortson, the Supreme Court held that, with respect to coverage mandated by the no-fault act, a contractual antifraud provision is "only valid and enforceable to the extent it contains statutory defenses or common-law defenses that have not been abrogated." Fortson, 506 Mich. at 302-303. There is no statutory fraud defense in the no-fault act. Id. at 303-304. And, under the common law, a contract may be void because of fraud, but only if the contract is obtained by fraud. Id. at 304-305. However, Fortson also explains:

This is not to suggest that a contractual provision that rescinds a contract because of postprocurement fraud is invalid in all circumstances. At common law, a contract might also be rescinded because of a party's failure to" 'perform a substantial part of the contract or one of its essential items[.]'" Innovation Ventures v Liquid Mfg, 499 Mich. 491, 510; 885 N.W.2d 861 (2016), quoting Rosenthal v Triangle Dev Co, 261 Mich. 462, 463; 246 N.W. 182 (1933). Thus, a postprocurement fraud clause that rescinds a contract would be valid as applied to a party's failure to perform a substantial part of the contract or one of its essential terms. Generally, however, the mere breach of a contract would not entitle the injured party to avoid the contract at common law. See Abbate v Shelden Land Co, 303 Mich. 657, 666; 7 N.W.2d 97 (1942) ("It is not every partial failure to comply with the terms of a contract by one party which will entitle the other party to abandon the contract at once.") (quotation marks and citations omitted). Rather, "facts which will ordinarily warrant the rescission of a contract must have existed at the time the contract was made." 1 Black, Rescission of Contracts and Cancellation of Written Instruments (1916), § 5, p 8. [Fortson, 506 Mich. at 307-308 (footnotes omitted).]

And, in an earlier footnote, the Court wrote:

That is not to say that the no-fault act leaves insurers without recourse. An insurer can reject fraudulent claims without rescinding the entire policy. See generally Shelton v Auto-Owners Ins Co, 318 Mich.App. 648, 655; 899 N.W.2d 744 (2017). In addition, an insurer may receive attorney fees "in defending against a claim that was in some respect fraudulent or so excessive as to have no reasonable foundation." MCL 500.3148(2). And, in certain narrow circumstances, an insurer can seek to cancel the policy under MCL 500.3220. For the reasons discussed later in this opinion, however, neither of those statutes is relevant or applicable to this case. [Fortson, 506 Mich. at 304 n 10 (emphasis added).]

In Fortson, the misrepresentations at issue were fraudulent attendant care claims submitted by the claimant's parents, who were also the named insureds on the policy. Id. at 309.[1] The insurer sought to use those misrepresentations as a basis to rescind the policy entirely under an antifraud provision. Id. at 293-296. The Supreme Court explained that the insurer could not have relied on those misrepresentations when it agreed to insure the Fortsons, and there was "no argument or showing that the misrepresentations in this case constituted a failure to perform a substantial part of the contract or an essential term, such that Meemic could obtain rescission instead of bringing an action for damages. In short, Meemic's contract-based fraud defense fails because it is not the type of common-law fraud that would allow for rescission." Id. at 309-310 (footnotes omitted).

Notably, Fortson was a situation in which fraud was alleged to have been committed by the policyholders, but the claimant was not a policyholder or one alleged to have committed fraud himself. In a footnote, the Court explained that it was irrelevant that the claimant was a third party to the contract because the "case turns upon the nature of the common-law fraud defense- specifically, that it must relate to the contract's inception . . . ." Id. at 309 n 17. Yet in another footnote, the Court stated that "because this case involves fraud by someone other than the claim beneficiary, the Court need not address whether a clause voiding a policy for postprocurement fraud would be valid as applied to fraud by an individual who is both a policyholder and the claim beneficiary." Id. at 307 n 15.

This specific situation was addressed by this Court in Williams v Farm Bureau Mut Ins Co of Mich, 335 Mich.App. 574, 576-577; 967 N.W.2d 869 (2021). In Williams, the claimant, who was also the policyholder, was alleged to have made "false statements to defendant after the auto accident regarding her employment, the extent of her injuries, and her need for assistance." Id. The policy at issue in Williams contained an antifraud provision stating that the policy would be void if the insured intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct, or made false statements related to the insurance or to a loss. Id. at 577. The provision is distinguishable from the one at issue in the present case, in that the antifraud provision in Williams stated that such events would render the entire policy void, id., whereas in the present case, the antifraud provision states that defendant may "void this policy or deny coverage" because of fraud. Johnson, unpub op at 3.

In Williams, 335 Mich.App. at 579, this Court explained that under Fortson, the Supreme Court "forcefully reiterated its view that a no-fault policy may provide for nonstatutory policy-based exclusions and defenses only as to optional coverages, not mandatory ones such as PIP benefits . . . ." "The Legislature did not include postprocurement misrepresentations among the grounds in MCL 500.3113 on which a court may conclude that the claimant is not entitled to PIP benefits, though it could readily have been included." Id. (footnote omitted). And, according to Williams Fortson "concluded that under the common law, fraud constituted grounds to void a contract only as to preprocurement fraud[.]" Id. at 580. This Court then tackled how Bahri and Fortson could coexist, and concluded that, after Fortson, "Bahri remains good law only to the extent that it is consistent with the no-fault act and common law as explained in [Fortson]. In other words, it applies only in cases of fraud in the inducement." Williams, 335 Mich.App. at 585. This Court also held that Fortson "did not turn on the fact that the claimant was not a party to the contract, but on the holding that antifraud provisions may not be applied to PIP claims, other than...

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