Court's Decision a Win for Consumers, Civil Justice System - MAJ Blog
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Posted by: Nate Pilon on Jul 15, 2020

The Court of Appeals has ruled that statements made during the course of litigation do not implicate an insurance policy's fraud or misrepresentation clause and that such a clause may not be relied upon by the insurer to justify a denial of benefits.

Each member of the three-judge panel signed the ruling in Haydaw, et al v. Farm Bureau Insurance Company  Judge Douglas Shapiro wrote the published opinion, adding that false statements during a case's discovery period do not provide grounds to void a policy because, by that time, an insurance claim has already been denied and the insured and insurer are now "adversaries in litigation."

"Once suit is brought, what is truth and what is false is a matter for a jury or a judge acting as factfinder," Judge Shapiro wrote. "And if it can be shown that a party intentionally testified falsely, it is up to the court to determine what, if any, sanction is proper. In any event, 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."

The case centers around a crash in which plaintiff Nael Haydaw claimed to have sustained injuries to his back, neck and shoulder. The defendant in this case was his auto no-fault insurer. Mr. Haydaw filed suit in 2016 alleging Farm Bureau Insurance withheld personal injury protection benefits. Following the release of his medical records during discovery and a subsequent deposition, Farm Bureau Insurance was granted summary disposition by the Wayne County Circuit Court on grounds that Mr. Haydaw made false statements regarding his medical history – namely due to the fact that he had complained about back and neck pain and had been prescribed pain killers prior to the crash.

Judge Shapiro wrote that the insurer was essentially seeking dismissal of Mr. Haydaw's claim based on alleged misconduct during discovery, which the court said had little to do with a policy's fraud or misrepresentation clause. For similar reasons, he continued, statements made during litigation are by nature incapable of satisfying the voiding of a policy due to post-loss fraud.

Additionally, Mr. Shapiro wrote that the court was mindful that by allowing insurers to void policies over false statements made during litigation would create what he called a "perverse incentive" during such litigation.

"For example, an insurer with full knowledge of the insured's medical history could seek to bait or lead the insured into making an inaccurate statement at deposition and then seek summary disposition on those grounds," he wrote. "Such tactics are directly at odds with the purpose of discovery. At the same time, our holding does not prevent defendant from presenting plaintiff's allegedly false statements to the jury for purposes of undermining plaintiff's credibility. Nor does it negate the other 'disincentives for untruthful deposition testimony.'"