How well do you Know Your Policyholders? Recent Appellate Case Encourages Full Discovery of Potential Rescission During Litigation

A recent No-Fault auto liability case decided by the Michigan Court of Appeals serves as a good reminder to insurance providers that investigating all aspects of an insured’s claim can provide a basis to rescind coverage during litigation. 

In Lamin Fatty v Farm Bureau Insurance Company of Michigan, a recent unpublished opinion, the Michigan appellate court held that an insurance policy issued to an individual driving for Uber was properly rescinded by the trial court because the claimant specifically stated he did not operate his vehicle for a fee in his application for insurance.

When he completed his application with Farm Bureau, the claimant answered: “no” to the question: “Are any vehicles to be insured used to carry persons for a fee?” He was then involved in a motor vehicle accident and, subsequently, made a claim for Personal Injury Protection (PIP) benefits. Farm Bureau paid $105,000 in benefits before it received a medical record that indicated the claimant was driving for Uber at the time of the accident.

After obtaining claimant’s Uber records, it was confirmed that, on the night of the accident, he was active on the Uber application. Farm Bureau then filed two dispositive motions: 1) asking that the court rescind the policy because the claimant committed fraud in the inducement when he stated no vehicle would be used to earn a fee and 2) asking that a judgment enter against claimant for approximately $117,000 in paid benefits, interest, and attorney fees as a result of claimant’s fraud. Claimant argued that there was a question of fact as to whether he was active on the Uber app at the time of the accident.

The appellate court upheld both rulings of the trial court. Importantly, it held that it made no difference to the result whether the claimant was operating on the Uber app at the time of the accident. Rather, because there was ample evidence that the claimant was working for Uber at the time of the insurance application, the policy could be rescinded.

It can certainly be difficult to determine when an individual is driving for Uber or other ride share programs prior to a claim going into litigation. However, this unreported case is a good reminder that all avenues of potential employment should be investigated during litigation to determine if the basis for rescission lurks within a claimant’s records. It is relatively inexpensive and efficient to subpoena records from all ride-share companies when an individual appears less than up front about their potential income.

Discovery should not just be a time to confirm the information that has already been gathered but to investigate defenses that could not be known prior to litigation.

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