Kawthar Saad v. Westfield Insurance Company ( 2021 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
KAWTHAR SAAD UNPUBLISHED
Plaintiff-Appellant, April 22, 2021
and
ONE STEP REHAB LLC,
Intervening Plaintiff,
v No. 350557
Macomb Circuit Court
WESTFIELD INSURANCE COMPANY, LC No. 2018-002766-NI
Defendant-Appellee,
and
YOUSSEF LAKKIS,
Defendant.
Before: TUKEL, P.J., and JANSEN and CAMERON, JJ.
PER CURIAM.
In this no-fault action, plaintiff, Kawthar Saad, appeals as of right the trial court’s order
granting summary disposition to defendant, Westfield Insurance Company.1 The trial court
granted summary disposition to defendant because it concluded that plaintiff committed fraud that
invalidated her insurance contract with defendant. Since that time, however, the law has changed
significantly. Now, in instances of alleged fraud that occurred after the parties entered into the
insurance contract, such as here, the insurance contract is invalidated only if the fraud amounts to
a substantial breach of the insurance contract. Plaintiff’s alleged fraud occurred after the parties
1
Intervening plaintiff One Step Rehab and defendant Youssef Lakkis are not parties on appeal.
Consequently, all references to “plaintiff” and “defendant” in this opinion refer to Saad and
Westfield respectively.
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entered into the insurance contract and did not amount to a substantial breach of the insurance
contract. As such, plaintiff’s alleged fraud cannot be used to invalidate the insurance contract.
Consequently, we reverse the trial court’s order granting summary disposition to defendant and
remand for proceedings consistent with this opinion.
I. UNDERLYING FACTS
Plaintiff had a no-fault insurance policy with defendant when she was involved in a car
accident in August 2017. This policy contained a general anti-fraud clause, providing, in relevant
part:
c. We may void this policy or deny coverage for an accident or loss if you or an
insured have knowingly concealed or misrepresented any material fact or
circumstance, or engaged in fraudulent conduct, in connection with the presentation
of a settlement or claim.
***
f. No person who engages in fraudulent conduct shall be entitled to receive payment
under this policy.
Plaintiff required medical care as a result of the accident, but defendant denied plaintiff’s
claim for personal protection insurance (PIP) benefits. This, in turn, caused plaintiff to sue
defendant for those PIP benefits. Plaintiff was deposed during the course of litigation. During her
deposition, plaintiff testified that she was unable to drive from the time of her accident in August
2017 until about March 2018. After the deposition, defendant produced surveillance footage,
taken before litigation began, of plaintiff driving on two separate occasions in November 2017.
Citing this footage, defendant moved for summary disposition under MCR 2.116(10). Defendant
argued that, on the basis of the footage of plaintiff driving, there was no dispute of material fact
that plaintiff had lied when she testified that as of November 2017, she was unable to drive.
Accordingly, defendant argued that plaintiff’s claim for PIP benefits was barred by the insurance
policy’s antifraud clause. Plaintiff disagreed and argued that there was a dispute of material fact
as to whether, in her deposition, plaintiff had misrepresented her ability to drive.
Following a hearing on the matter, the trial court agreed with defendant and granted
summary disposition to it. Specifically, the trial court concluded that there was no genuine dispute
of material fact that plaintiff had misrepresented her ability to drive in the deposition:
All right. I’m going to have to say, I think the – whether or not seeing the
video, the video did seem to be pretty well-supported anyhow, but I think there’s
sufficient – I don’t think it’s a question of fact. She says she can’t drive. She’s
clearly driving. It appears there was no issue with it. She didn’t appear to be
hobbling, limping, falling over, needing support, needing a cane, needing a walker
or anything of the sort.
I’m granting summary disposition [to defendant].
This appeal followed.
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II. STANDARD OF REVIEW
A motion for summary disposition under MCR 2.116(C)(10) tests the factual sufficiency
of a complaint and is reviewed de novo. Joseph v Auto Club Ins Ass’n, 491 Mich 200, 205-206;
815 NW2d 412 (2012). This Court reviews a motion brought under MCR 2.116(C)(10) “by
considering the pleadings, admissions, and other evidence submitted by the parties in the light
most favorable to the nonmoving party.” Patrick v Turkelson, 322 Mich App 595, 605; 913 NW2d
369 (2018). Summary disposition “is appropriate if there is no genuine issue regarding any
material fact and the moving party is entitled to judgment as a matter of law.” Id. “There is a
genuine issue of material fact when reasonable minds could differ on an issue after viewing the
record in the light most favorable to the nonmoving party.” Allison v AEW Capital Mgt, LLP, 481
Mich 419, 425; 751 NW2d 8 (2008). “Only the substantively admissible evidence actually
proffered may be considered.” 1300 LaFayette East Coop, Inc v Savoy, 284 Mich App 522, 525;
773 NW2d 57 (2009) (quotation marks and citation omitted). “Circumstantial evidence can be
sufficient to establish a genuine issue of material fact, but mere conjecture or speculation is
insufficient.” McNeill-Marks v Midmichigan Med Ctr-Gratiot, 316 Mich App 1, 16; 891 NW2d
528 (2016). Additionally, “questions involving the proper interpretation of a contract or the legal
effect of a contractual clause are also reviewed de novo.” Rory v Continental Ins Co, 473 Mich
457, 464; 703 NW2d 23 (2005).
III. ANALYSIS
When the trial court granted summary disposition to defendant, it did so based on Bahri v
IDS Property Cas Ins Co, 308 Mich App 420; 864 NW2d 609 (2014). In Bahri, this Court stated
the requirements for proving fraud in an insurance claim as follows:
To void a policy because the insured has wilfully misrepresented a material
fact, an insurer must show that (1) the misrepresentation was material, (2) that it
was false, (3) that the insured knew that it was false at the time it was made or that
it was made recklessly, without any knowledge of its truth, and (4) that the insured
made the material misrepresentation with the intention that the insurer would act
upon it. A statement is material if it is reasonably relevant to the insurer’s
investigation of a claim. [Id. at 424-425 (citation omitted).]
But the circumstances under which an insurer may invalidate an insurance contract based on fraud
has significantly changed in recent months, starting with this Court’s opinion in Haydaw v Farm
Bureau Ins Co, ___ Mich App ___, ___; ___ NW2d ___ (2020) (Docket No. 345516). Haydaw,
and the line of cases that followed it, have provided greater clarity regarding the use of fraud as a
defense to an insurance claim. These cases addressed two issues: (1) whether fraud discovered
during the course of litigation can be used to void an insurance contract, and (2) the significance
of whether the fraud occurred before or after the parties entered into the insurance contract.
A. FRAUD DISCOVERED DURING THE COURSE OF LITIGATION
In Haydaw, ___ Mich App at ___; slip op at 5, this Court held that “[f]alse statements made
during discovery do not provide grounds to void [an insurance] policy because, by that time, the
claim has been denied and the parties are adversaries in litigation.” The Haydaw Court
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characterized an assertion of fraud discovered during the course of litigation as “essentially seeking
dismissal . . . on the basis of alleged discovery misconduct.” Id. at ___; slip op at 6. As explained
by the Haydaw Court,
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. [Id.]
Similarly,
[S]tatements made during litigation are by their nature incapable of satisfying the
elements for voiding a policy on the basis of post-loss fraud. In order to obtain that
relief under Bahri, 308 Mich App at 424-425, the material misrepresentation must
have been made with “the intention that the insurer would act upon it.” Yet an
insured’s statements during discovery are made with the intention that the trier of
fact, not the insurer, will act on them. To the extent that the insurer acts on those
statements, it is through counsel for purposes of litigation strategy rather than
processing the claim under the policy’s terms. [Id. (footnote omitted).]
Consequently, after Haydaw, statements made during the course of litigation, such as plaintiff’s
statements in her deposition, cannot constitute fraud that would void an insurance policy. See id.
About two months after Haydaw was decided, this Court examined Haydaw in Fashho v
Liberty Mutual Ins Co, ___ Mich App ___; ___ NW2d ___ (2020) (Docket No. 349519). In
Fashho, this court concluded that Haydaw
[S]tand[s] for the unremarkable proposition that an insurer cannot assert that it
denied a claim because of fraud that occurred after litigation began; the fraud must
have occurred before the legal proceedings. This recognizes the reality that a
plaintiff-insured only commences suit after the defendant-insurer denies the
plaintiff’s claim, and that denial cannot possibly be based on an event that has not
yet taken place. This does not mean that a defendant cannot rely on evidence of
fraud obtained after litigation commences. It simply means that the evidence must
relate to fraud that took place before the proceedings began. [Id. at ___; slip op at
4 (emphasis added).]
Consequently, Fashho clarified Haydaw and established that evidence of fraud obtained during
the course of litigation can still be used to void an insurance contract as long as it related to fraud
that occurred before litigation began. Id. On the other hand, however, if alleged fraud occurred
after litigation began then it cannot void an insurance contract. Id.
B. THE IMPORTANCE OF WHEN ALLEGED FRAUD OCCURRED
Less than a month after this Court’s decision in Haydaw—and before this Court’s opinion
in Fashho—our Supreme Court addressed whether fraud clauses in insurance contracts can ever
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be used to invalidate an insurance contract. In Meemic Ins Co v Fortson, 506 Mich 287; ___
NW2d ___ (2020) (Docket No. 158302), our Supreme Court concluded that antifraud provisions
in insurance contracts “are valid when based on a defense to mandatory coverage provided in the
no-fault act[, MCL 500.3101,] itself or on a common-law defense that has not been abrogated by
the act.” Id. at 293. Fraud defenses are not statutory and, therefore, they are only available to
insurers to the extent that they arise from the common law and are not abrogated by the no-fault
act. Id. at 303-305. “At common law, the defrauded party could only seek rescission, or avoidance
of the transaction, if the fraud related to the inducement to or inception of the contract.” Id. at 305.
Nevertheless, “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.” Id. at 308. Instead, in circumstances in which the misrepresentations
do not “constitute[] a failure to perform a substantial part of the contract or an essential term,” the
insurer may still bring a claim for damages.2 Id. at 310. Consequently, under Meemic, rescission
is available as a remedy for postprocurement no-fault insurance fraud only if the fraud amounted
to a substantial breach of the insurance contract.3 Id. at 307-308. Rescission, however, remains
available as a remedy for preprocurement fraud. Id.A few months later, this Court returned to the issue of postprocurement fraud in no-fault
cases in Williams v Farm Bureau Mutual Ins Co of Mich, ___ Mich App ___; ___ NW2d ___
(2021) (Docket No. 349903). The Williams Court examined Meemic and considered whether
Bahri remained good law in light of Meemic. The Williams Court held that Bahri’s fraud test
applies only to instances of fraud in the inducement, i.e. preprocurement fraud, not to
postprocurement fraud. Id. ___; slip op at 6-7 (“We conclude that Bahri remains good law only
to the extent that it is consistent with the no-fault act and common law as explained in Meemic. In
2
Indeed, as explained by this Court in Williams v Farm Bureau Mutual Ins Co of Mich, ___ Mich
App ___, ___; ___ NW2d ___ (2021) (Docket No. 349903); slip op at 5:
Contrary to defendant’s suggestion, limiting no-fault antifraud provisions
to fraud in the inducement—as required by Meemic—will not leave no-fault
insurers without recourse in the event of a fraudulent claim. An insurer maintains
the power to deny claims or parts of claims it believes fraudulent. The plaintiff
then bears the burden of filing suit and ultimately proving that she was injured in
an auto accident and that the injury resulted in reasonable and necessary medical
care and other covered expenses.
3
“To determine whether a substantial breach occurred, a trial court considers whether the
nonbreaching party obtained the benefit which he or she reasonably expected to receive.” Able
Demolition v Pontiac, 275 Mich App 577, 585; 739 NW2d 696 (2007). Defendant, as the supposed
nonbreaching party, expected to receive the benefit of plaintiff’s payments pursuant to the
insurance contract. No evidence before the trial court established that defendant did not receive
this benefit. Thus, plaintiff’s alleged fraud did not amount to a substantial breach of the insurance
contract. See id.-5-
other words, it applies only in cases of fraud in the inducement.”). In essence, Williams simply
clarified Meemic’s holding by specifically addressing its effect on Bahri. See id.4
C. APPLICATION TO THIS CASE
Together, Haydaw, Meemic, Fashho, and Williams have resulted in a significant change in
law since the time the trial court granted summary disposition to defendant. When taken together,
they establish that, unless an insured’s fraud results in a substantial breach of the insurance
contract, fraud provides a basis for the opposite party to a contract to rescind the contract only if
the fraud occurred before the contract was signed and before litigation commenced. See Meemic,
506 Mich at 307-308, 310 (addressing the issue of preprocurement fraud compared to
postprocurement fraud); Williams, ___ Mich App at ___; slip op at 6-7 (applying Meemic’s holding
to limit Bahri to instances of preprocurement fraud); Fashho, ___ Mich App at ___; slip op at 4
(“[A]n insurer cannot assert that it denied a claim because of fraud that occurred after litigation
began; the fraud must have occurred before the legal proceedings.”); Haydaw, ___ Mich App at
___; slip op at 6 (“[S]tatements made during litigation are by their nature incapable of satisfying
the elements for voiding a policy on the basis of post-loss fraud.”). Plaintiff’s alleged fraud—that
she falsely claimed she was unable to drive herself to medical appointments from August 2017
until about March 2018—occurred after the insurance contract was signed, but before litigation
commenced. As such, even if plaintiff’s claim was fraudulent, it was postprocurement fraud and
thus can only be used to invalidate the insurance contract if it amounted to a substantial breach of
the insurance contract, which is not the case here. Consequently, the trial court erred by granting
summary disposition to defendant.
4
The fact that the recent cases on which we rely had not been decided at the time the trial court
ruled on the motion for summary disposition does not present a significant retroactivity question,
given the circumstances. “Typically, our decisions are given retroactive effect, ‘applying to
pending cases in which a challenge . . . has been raised and preserved.’ Prospective application is
a departure from this usual rule and is appropriate only in ‘exigent circumstances.’ ” Devillers v
Auto Club Ins. Ass’n, 473 Mich 562, 586-587; 702 NW2d 539 (2005) (citation omitted). Thus,
“[P]rospective-only application of our decisions is generally ‘limited to decisions which
overrule clear and uncontradicted case law.’ ” Id. (citation omitted).
None of the recent cases we discussed overruled any previous decision; at most, they clarified and
limited the scope of earlier decisions. We thus have no occasion to deviate from our general rule
of full application of judicial decisions to pending cases, such as this one.
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IV. CONCLUSION
For the reasons stated in this opinion we reverse the trial court’s order granting summary
disposition to defendant and remand for further proceedings consistent with this opinion. We do
not retain jurisdiction. Plaintiff, as the prevailing party, may tax costs pursuant to MCR 7.219.
/s/ Jonathan Tukel
/s/ Kathleen Jansen
/s/ Thomas C. Cameron
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