How Insurance Fraud Could Cut You Off from No-Fault Benefits

When it comes time to apply for or renew your auto insurance policy you may be tempted to cut corners or keep secrets to save money on your premiums. But this kind of insurance fraud could cut you and your family off from the no-fault benefits you need after an accident.

It is certainly true that Michigan's no-fault insurance can be expensive. Your auto insurance rate is calculated based on a number of factors including where you live, your driving record, and who else may be using your vehicle. If money is tight, it may be tempting to provide false answers to auto insurance application questions in an effort to bring your insurance premium down. But doing so could result in serious consequences for you, and your family, if you are ever in an accident.

What Is Insurance Fraud?

Insurance fraud is a crime in Michigan. If you are caught filing a false application or claim you could face fines, probation, and even jail time. But the financial consequences of filing a false auto insurance application could be even more serious.

At the application stage, insurance fraud usually involves a lie or omission on the application itself. Some common forms of insurance fraud include:

• Claiming a vehicle is kept in a lower cost geographic area
• Failing to disclose an additional driver who would result in high premiums
• Omitting prior vehicle-related convictions like drunk driving or driving on a suspended license

For example, Desmond is a husband and father of two children, ages 10 and 16. He lives in Detroit, but has a brother who lives in Southfield. Five years ago, he was convicted of drunk driving, but because of a plea agreement, that conviction was made "non-public" four years ago.

Desmond buys a new car and must apply for auto insurance on the vehicle. He knows Detroit auto insurance premiums are the highest in the state, so he claims the vehicle is used and stored at his brother's home in Southfield. He also lists his wife as an occasional driver, but not his teenage son, thinking his son would only drive his wife's older vehicle. Since he misunderstood the questions regarding prior convictions, he did not disclose the drunk driving conviction, though he did list 4 points in speeding tickets.

Intentional Misrepresentations

Desmond's statement about where the vehicle will be used is an example of an intentional misrepresentation. He knew this statement was false when he made it, and he did so to deceive the insurance company into charging him a lower premium. This is the most blatant form of insurance fraud, and the one most likely to involve criminal charges.

Unintentional Omissions

When Desmond left his son off the policy and failed to disclose his drunk driving conviction, he wasn't trying to deceive anyone. In the first instance he honestly believed his son would not be using his vehicle. In the latter, he misunderstood the effect of the law on his drunk driving conviction. However, these unintentional omissions may sometimes still be considered fraudulent misrepresentations by a civil court (as opposed to criminal) if it seems the insurance company would not have offered the same policy at the same price had it known about the undisclosed facts.

The Effect of Insurance Fraud on Your No-Fault Benefits

Insurance fraud can have a drastic effect on your access to no-fault benefits after an auto accident. Under Michigan law, Desmond's false statements allow an insurance company to declare the policy "void at inception." This means even if Desmond loyally pays insurance premiums for years, when he gets into an auto accident and files a claim for no-fault benefits, the auto insurance company can investigate his application, discover the insurance fraud, cancel the policy, and deny all benefits.

Because Michigan requires drivers to maintain valid insurance on any vehicle operated on a highway, a voided policy may cut the policy holder off from all no-fault benefits. That means Desmond will be personally responsible to pay all of his accident-related medical expenses and won't be able to recover any of his lost wages or related expenses.

The Effect of Insurance Fraud on Innocent Third Parties

Desmond may be willing to take his chances when it comes to insurance fraud and his own injuries, but what about his son or daughter? Ordinarily, after an accident, Desmond's children would be entitled to no-fault benefits under his policy because they reside in his home and are related to him.

However, a recent Court of Appeals decision held that a policy holder's insurance fraud allows the insurance company to void the policy entirely, cutting off innocent third parties' claims to no-fault benefits, including his children. This could mean that Desmond's choice will leave his family liable for, not just his own expenses, but his children's as well.

Filling out false information on an auto insurance policy application may not seem like a big deal. But what starts as a little white lie could cost you and your family thousands of dollars if the insurance company voids the policy. Don't take the risk. Make sure you disclose everything on your insurance application. You may pay more now, but at least you will know that after an auto accident you and your loved ones will be covered.

If you have been the victim of an auto accident you need an personal injury attorney who understands how misstatements and omissions can affect your claim for benefits. At Sachs Waldman, we have extensive experience helping innocent third parties recover benefits from no-fault insurance providers. We can help you understand your rights after a car crash. Contact our Detroit personal injury law office at 1-800-638-6722.