Opinion ID: 839245
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: The Michigan no-fault act, MCL 500.3145(1), provides, in relevant part: An action for recovery of personal protection insurance benefits payable under this chapter for accidental bodily injury may not be commenced later than 1 year after the date of the accident causing the injury unless written notice of injury as provided herein has been given to the insurer within 1 year after the accident or unless the insurer has previously made a payment of personal protection insurance benefits for the injury. If the notice has been given or a payment has been made, the action may be commenced at any time within 1 year after the most recent allowable expense, work loss or survivor's loss has been incurred. However, the claimant may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced. [Emphasis added.] The one-year-back rule of this provision limits recovery of PIP benefits to those incurred within one year before the date on which the no-fault action was commenced. PIP benefits include all reasonable charges incurred for reasonably necessary products, services and accommodations for an injured person's care, recovery, or rehabilitation. MCL 500.3107( l )(a). Plaintiffs argue that by alleging in their amended complaint that defendant fraudulently induced Strozewski to accept an unreasonably low compensation rate for her in-home attendant-care services, plaintiffs brought a common-law fraud claim that is distinct from a no-fault claim for benefits, and that such claim therefore is not subject to the one-year-back rule of MCL 500.3145(1). A fraud action is not subject to the one-year-back rule of MCL 500.3145(1) because the one-year-back rule applies only to actions brought under the no-fault act, and a fraud action is a distinct and independent action brought under the common law. A fraud action is not an action for recovery of [PIP] benefits payable under [the no-fault act] for accidental bodily injury. Rather, in the context of an insurance contract, a fraud action is an action for recovery of damages payable under the common law for losses incurred as a result of the insurer's fraudulent conduct. There is a distinction between claiming that an insurer has refused to pay no-fault benefits to its insureds and claiming that the insurer has defrauded its insureds. A fraud action is conceptually distinct from a no-fault action because: (1) a fraud action requires an insured to prove several elements that are different from those required in a no-fault action; (2) a fraud action accrues at a different time than a no-fault action; and (3) a fraud action permits an insured to recover a wide range of damages that are not available in a no-fault action. To assert a no-fault claim, an insured must demonstrate that the insured is entitled to benefits for accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor vehicle as a motor vehicle without regard to fault, and that the insurer is obligated under an insurance contract to pay those benefits, but failed to do so timely. MCL 500.3105. [2] To assert an actionable fraud claim, on the other hand, an insured must demonstrate: (1) That [the insurer] made a material representation; (2) that it was false; (3) that when [the insurer] made it [the insurer] knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that [the insurer] made it with the intention that it should be acted upon by [the] plaintiff; (5) that [the] plaintiff acted in reliance upon it; and (6) that [the plaintiff] thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery. [ Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813 (1976), quoting Candler v. Heigho, 208 Mich. 115, 121, 175 N.W. 141(1919).] A fraud claim is clearly distinct from a no-fault claim. First, a fraud claim requires proof of additional elements, such as deceit, misrepresentation, or concealment of material facts, and the substance of such claim is the insurer's wrongful conduct. Unlike a no-fault claim, a fraud claim does not arise from an insurer's mere omission to perform a contractual or statutory obligation, such as its failure to pay all the PIP benefits to which its insureds are entitled. Rather, it arises from the insurer's breach of its separate and independent duty not to deceive the insureds, which duty is imposed by law as a function of the relationship of the parties. [3] Second, unlike an action for no-fault benefits, which arises when the insurer fails to pay benefits, an action for fraud arises when the fraud is perpetrated. Hearn v. Rickenbacker, 428 Mich. 32, 39, 400 N.W.2d 90 (1987). Finally, under a no-fault cause of action, the insureds can only recover no-fault benefits, whereas under a fraud cause of action, the insureds may recover damages for any loss sustained as a result of the fraudulent conduct, [4] which may include the equivalent of no-fault benefits, reasonable attorney fees, damages for emotional distress, and even exemplary damages. See Phillips v. Butterball Farms Co., Inc. (After Second Remand), 448 Mich. 239, 250-251, 531 N.W.2d 144 (1995); Veselenak v. Smith, 414 Mich. 567, 574, 327 N.W.2d 261 (1982); Phinney v. Perlmutter, 222 Mich.App. 513, 527, 564 N.W.2d 532 (1997); Clemens v. Lesnek, 200 Mich.App. 456, 463-464, 505 N.W.2d 283 (1993). Therefore, [a]lthough mere allegations of failure to discharge obligations under [an] insurance contract would not be actionable in tort, where, as here, the breach of separate and independent duties are alleged, [the insureds] should be allowed an opportunity to prove [their] causes of action. Hearn, 428 Mich. at 40, 400 N.W.2d 90 (citation omitted); see also Roberts v. Auto-Owners Ins. Co., 422 Mich. 594, 603-604, 374 N.W.2d 905 (1985) (tort actions survive in a contractual setting as long as the tort action is based on a breach of duty that is distinct from the contract); Kewin v. Massachusetts Mut. Life Ins. Co., 409 Mich. 401, 422, 295 N.W.2d 50 (1980) (tort actions may survive when an insurer breaches a duty that existed independent of and apart from the contractual undertaking). [T]ort liability abolished by the no-fault act is only such liability as arises out of the defendant's ownership, maintenance or use of a motor vehicle, not liability which arises out of other conduct. . . . Citizens Ins. Co. of America v. Tuttle, 411 Mich. 536, 542, 309 N.W.2d 174 (1981); see also Shavers v. Attorney General, 402 Mich. 554, 623, 267 N.W.2d 72 (1978) (the no-fault act only  partially abolish[ed] the common-law remedy in tort for persons injured by negligent motor vehicle tortfeasors . . . . [emphasis added]); Bak v. Citizens Ins. Co. of America, 199 Mich.App. 730, 737-738, 503 N.W.2d 94 (1993) (The enactment of the no-fault act did not extinguish common-law doctrines predating that legislation.). That common-law fraud claims survive even where a self-contained system, such as the no-fault system, exists is further suggested by this Court's decisions in the context of the dramshop act. The dramshop act, MCL 436.1801 et seq., states that it provides the exclusive remedy for money damages against a licensee arising out of the selling, giving, or furnishing of alcoholic liquor. MCL 436.1801(10). In Manuel v. Weitzman, 386 Mich. 157, 164-165, 191 N.W.2d 474 (1971), overruled in part on other grounds by Brewer v. Payless Stations, Inc., 412 Mich. 673, 316 N.W.2d 702 (1982), this Court held that the dramshop act does not abrogate actions arising out of other unlawful conduct, and that tavern owners remain liable for injuries arising out of breach of other common-law duties. [5] Similarly, the no-fault act, which provides the remedy for injuries arising out of the ownership, maintenance or use of a motor vehicle, [6] MCL 500.3105(1), does not abrogate actions arising out of the breach of other common-law duties. Nothing in the no-fault act or other relevant law suggests that insurers are exempt from liability for breaching other common-law duties by, for example, misrepresenting material facts and deceiving their insureds. The fact that the dispute would not have arisen in the absence of the no-fault insurance contract does not mean that the action brought by the insureds is a no-fault action. Defendant argues, and the Court of Appeals appears to assert, that where the damages sought by the insureds are defined in terms of additional PIP benefits, the insureds' cause of action must necessarily be considered a no-fault action couched in fraud terms. Cooper v. Auto Club Ins. Ass'n, unpublished opinion per curiam of the Court of Appeals, 2006 WL 3373078, issued November 21, 2006 (Docket No. 261736), at 2. We respectfully disagree. Although the nature of the damages sought may constitute a useful indicator of the precise nature of the claim, this factor alone cannot be viewed as dispositive. The fact that a lawsuit seeks to recover a loss that was covered by an insurance policy, alone, should not dictate the nature of a plaintiff's claims . . . Although the contract of insurance may be one source of the insurer's obligation to pay the loss, the insurer may also be held liable for tortious conduct that is wholly separable from its purely contractual duties. [ Hearn, 428 Mich. at 40-41, 400 N.W.2d 90.] Where fraudulent conduct results in the loss, or reduced payment, of PIP benefits, plaintiffs are entitled to seek damages for their entire loss, including the equivalent of the no-fault benefits. See Phinney, 222 Mich.App. at 532, 564 N.W.2d 532. It should not be seen as unusual that damages for fraud in a statutory context would be more than randomly related to lost statutory benefits. Simply because the insureds choose to measure their loss from the fraudulent conduct, in whole or in part, on the basis of lost PIP benefits does not transform their claim into a no-fault claim. Therefore, where an insured's claim arises not out of the insurer's mere failure to pay no-fault benefits, but out of the insurer's fraudulent misrepresentations, which might have ultimately led to payment of reduced no-fault benefits to the insureds, the courts are faced with a fraud claim, as opposed to a no-fault claim. Because fraud claims are independent of and distinct from no-fault claims, the one-year-back rule of the no-fault act simply does not apply. Consequently, where the insureds state a fraud cause of action, this Court need not resort to its equitable power to prevent the one-year-back rule's application. In Devillers, 473 Mich. at 590-591, 702 N.W.2d 539, this Court stated that, in the context of a no-fault claim, this Court may exercise its equitable power to avoid the application of the one-year-back rule if there are allegations of fraud, mutual mistake, or other unusual circumstances. [7] Because Devillers concerns those statutory claims brought pursuant to the no-fault act, i.e., no-fault actions, Devillers is not pertinent in cases involving independent fraud actions. West v. Farm Bureau Gen. Ins. Co. of Michigan (On Remand), 272 Mich.App. 58, 65, 723 N.W.2d 589 (2006). Thus, where the insureds state a common-law fraud claim, wholly separate from a no-fault claim, this Court need not consider an equitable exception to the application of the one-year-back rule because the no-fault rules simply do not apply. [8]
While insureds are entitled to pursue common-law fraud claims against insurers and their remedies are not limited by the one-year-back rule of the no-fault act, we are not oblivious to the fact that, in the initial stages of litigation, some insureds may attempt to circumvent the application of the one-year-back rule to defeat insurers' motions for summary disposition. In order to limit such practices, to prevent wasteful or frivolous litigation, and to maintain the integrity of both the no-fault law and the common-law fraud cause of action, trial courts should exercise special care in assessing these types of fraud claims, and we offer the following guidance. Because fraud must be pleaded with particularity, MCR 2.112(B)(1), and is not to be lightly presumed, but must be clearly proved, Palmer v. Palmer, 194 Mich. 79, 81, 160 N.W. 404 (1916), by clear, satisfactory and convincing evidence, Youngs v. Tuttle Hill Corp., 373 Mich. 145, 147, 128 N.W.2d 472 (1964), trial courts should ensure that these standards are clearly satisfied with regard to all of the elements of a fraud claim. As stated above, the elements of fraud in the insurance context are: (1) that the insurer made a material representation; (2) that it was false; (3) that when the statement was made, the insurer knew that it was false, or the insurer made it recklessly without any knowledge of its truth and as a positive assertion; (4) that the insurer made the statement with the intention that it would be acted upon by the insureds; (5) that the insureds acted in reliance upon the statement; and (6) that the insureds consequently suffered injury. See Hi-Way Motor Co., 398 Mich. at 336, 247 N.W.2d 813. In particular, courts should carefully consider in this context whether insureds can satisfy the reliance factor. Insureds must show that any reliance on [the insurer's] representations was reasonable. Foreman v. Foreman, 266 Mich. App. 132, 141-142, 701 N.W.2d 167 (2005). Because fraud cannot be perpetrated upon one who has full knowledge to the contrary of a representation, Montgomery Ward & Co. v. Williams, 330 Mich. 275, 284, 47 N.W.2d 607 (1951), insureds' claims that they have reasonably relied on misrepresentations that clearly contradict the terms of their insurance policies must fail. One is presumed to have read the terms of his or her insurance policy, see Van Buren v. St. Joseph Co. Village Fire Ins. Co., 28 Mich. 398, 408 (1874); therefore, when the insurer has made a statement that clearly conflicts with the terms of the insurance policy, an insured cannot argue that he or she reasonably relied on that statement without questioning it in light of the provisions of the policy. See also McIntyre v. Lyon, 325 Mich. 167, 174, 37 N.W.2d 903 (1949); Phillips v. Smeekens, 50 Mich.App. 693, 697, 213 N.W.2d 862 (1973). In addition, insureds will ordinarily be unable to establish the reliance element with regard to misrepresentations made during the claims handling and negotiation process, because during these processes the parties are in an obvious adversarial position and generally deal with each other at arm's length. See Mayhew v. Phoenix Ins. Co., 23 Mich. 105 (1871) (Where the insured has the same knowledge or means of knowledge as the insurer, the insurer cannot be regarded as occupying any fiduciary relationship that would entitle the insured to rely on the insurer's representations, and a settlement hastily made with the insurer under such circumstances will not be set aside for fraud. Insureds are bound to inform themselves of their rights before acting, and, if they fail to do so, they themselves are responsible for the loss.); Nieves v. Bell Industries, Inc., 204 Mich.App. 459, 464, 517 N.W.2d 235 (1994) (There can be no fraud when a person has the means to determine that a representation is not true.). However, when the process involves information and facts that are exclusively or primarily within the insurers' perceived `expertise' in insurance matters, or facts obtained by the insurer[s] in the course of [their] investigation, and unknown to the insureds, the insureds can more reasonably argue that they relied on the insurers' misrepresentations. 14 Couch on Insurance 3d § 208:19, p. 208-26; see also Crook v. Ford, 249 Mich. 500, 504-505, 229 N.W. 587 (1930); French v. Ryan, 104 Mich. 625, 630, 62 N.W. 1016 (1895); Tabor v. Michigan Mut. Life Ins. Co., 44 Mich. 324, 331, 6 N.W. 830 (1880). [9] The courts should also carefully examine whether the insureds have established both that the statements are statements of past or existing fact, rather than future promises or good-faith opinions, Hi-Way Motor Co., 398 Mich. at 337, 247 N.W.2d 813; Danto v. Charles C. Robbins, Inc., 250 Mich. 419, 425, 230 N.W. 188 (1930); Foreman, 266 Mich.App. at 143, 701 N.W.2d 167, and that they are objectively false or misleading, Hord v. Environmental Research Institute of Michigan, 463 Mich. 399, 411, 617 N.W.2d 543 (2000). Further, the insureds must demonstrate that the misrepresentations were made with the intent to defraud, Foreman, 266 Mich.App. at 143, 701 N.W.2d 167, and that the insureds were injured as a consequence. Hi-Way Motor Co., 398 Mich. at 336, 247 N.W.2d 813. The courts must distinguish between misrepresentations of fact, i.e., false statements of past or existing facts, and mere negotiation of benefits, i.e., the mutual discussion and bargaining preceding an agreement to pay PIP benefits. Finally, as with any other action, if the courts conclude that the fraud claims were frivolous or interposed without an adequate basis or for improper purposes, appropriate sanctions should be considered. See MCR 2.114.