Most Michigan drivers carry auto insurance. The law requires it. Occasionally, drivers will make false statements in an effort to get coverage for less. When that happens, some recent Michigan court decisions say the injured passenger could be the one who pays.
Michigan law requires every vehicle to be covered by a no-fault auto insurance policy. That policy covers the driver in the event of an accident. It is also available to the policy holder's spouse, relatives in the same household, and in some cases passengers and others involved in the accident. But the policy may be broken upon discovery of insurance fraud after a car crash. When a policy holder provides false information to an insurance company, it can create problems for everyone involved after an accident. These misrepresentations allow an insurance company to void the policy and refuse to pay benefits to anyone injured in the car crash.
Until recently, Michigan law made an exception to that void policy: the Innocent Third Party Rule. This rule said that if a person had no part in the creation of an insurance policy containing fraud, the insurance company could not use the fraud to cut off that person's benefits. Here's an example:
Julia is a passenger in her father David's car. David gets into a crash and Julia is seriously hurt. Julia is only 14 years old, so she doesn't drive or have an insurance policy of her own. Her attorneys file a claim under David's plan because he is a relative in her household and the owner of the vehicle where she was hurt. During the investigation of Julia's claim for no-fault benefits, the insurance company discovers that David did not disclose a drunk driving conviction that happened 10 years earlier. The policy application asks for all auto-related convictions. The auto insurance company is allowed to void David's policy and refuse to pay him any benefits because he lied on the application. But under the Innocent Third Party Rule, the insurance company couldn't use David's lie against Julia. It would still have to pay for her injuries.
On June 14, 2016, a Michigan Court of Appeals decision, Bazzi v Sentinel Ins Co, changed the rules for innocent passengers and pedestrians. It struck down the Innocent Third Party Rule. The judges in Bazzi ruled that the Michigan No-Fault Act did not limit an auto insurance company's power to rescind a policy based on fraud. Even if it harms an innocent third party, the insurance company has the power to void the policy and deny all benefits.
The Bazzi decision created a lot of discussion among auto accident attorneys and judges. Within a few short months, two more cases had come out addressing the Innocent Third Party rule. In Southeast Michigan Surgical Hopsital LLC v Allstate Insurance Company, the Court of Appeals judges disagreed with the Bazzi decision. Those judges believed that part of the Michigan No-Fault Act required any investigation or rescission of the policy to happen before the innocent third party was injured. After that, the insurance company could only cut off any benefits that went above and beyond the mandatory no-fault auto insurance covered by the statute.
Other judges agreed with the Bazzi court. In State Farm Mutual Automobile Insurance Company v Michigan Mutual Risk Management Authority, published within weeks of the Southeast decision, two of the three judges who heard the case struck down the innocent third party's claim. They said they were acting under Bazzi and that they agreed with its reasoning. The last judge agreed with the Southeast decision and would have upheld the innocent party's benefits.
The attorneys for Ms. Bazzi have now filed an application for leave to appeal with the Michigan Supreme Court. With so many cases referencing the issue in such short order, it is likely the state's high court will agree to take the case.
What do all these court decisions mean for passengers and pedestrians on Michigan streets today? For now, it appears an innocent third party can become the victim of another person's insurance fraud if that party is injured and files a claim under the fraudulent policy. But that doesn't mean he or she will have to pay the medical expenses and other no-fault benefits out of pocket. Even if the Innocent Third Party Rule is unavailable, an injured pedestrian or passenger could still file a claim with the Michigan Assigned Claims Plan to make sure his or her no-fault benefits are received.
If you have been an innocent third party in a car crash, time is of the essence. It is important to talk to an experienced personal injury attorney who is up to date on how Michigan law works. At Sachs Waldman, we have extensive experience helping innocent third parties recover benefits from no-fault insurance providers and the Assigned Claims Plan. We know what to do to make sure you are covered after a car crash. Contact our Detroit personal injury law office at 1-800-638-6722.
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