Daughter Does Not Have to Pay for the Sins of Her Mother: Insurer Entitled to Restitution from Insureds but Appellate Court Remands Damage Award

The 2015 holiday season might be a bit tense for a mother-daughter team ordered to pay restitution to their insurer for fraud and misrepresentation. Secura Ins. v. Thomas, 2015 Mich. App. LEXIS 2230 (Mich. App. December 1, 2015). While restitution was owed for the wrongful acts, the court held joint and several liability did not apply to frauds in which a party (the daughter) was not directly involved. This case presents an example an insurer performing excellent due diligence in discovering fraud, and a reminder that one cannot let this diligence slide in pursuing restitution. The insurer provided the mother and her husband, Michigan residents, auto liability, personal injury protection (PIP) and optional underinsured motorist (UIM) coverage. After the policy incepted, the mother added another vehicle – a 2001 Chevrolet Impala – and stated she owned the vehicle. In February 2010, the Impala was involved in an accident in Georgia. The daughter was driving. She filed a claim for PIP benefits (which were paid) and a claim with for UIM benefits. The insurer filed this declaratory action seeking to rescind the policy based on its contention that mother was not the owner, and that both mother and daughter had made material misrepresentations about the car’s ownership. In that action, both women testified that the car was in Georgia in February 2010 because the mother had driven it there to visit. The plan was foolproof, except…there was a slight problem with this story: while that case was pending, the mother filed a separate action against the insurer regarding benefits for two other automobile accidents which occurred in October and December 2009. During that litigation, the mother testified that she had not driven at all between December 2009 and April 2010, had not left Michigan during February 2010, and medical records showed she was receiving treatment in Michigan on the date of the Georgia accident. After this discovery, the insurer added counts of fraud and conspiracy to commit fraud. The insurer moved the trial court for summary disposition, arguing that it could void the policy due to the “concealment, misrepresentation or fraud” provision in the policy. It also sought damages in the amount of benefits paid and attorneys’s fees, including for the accidents involving only the mother. The trial court agreed, concluding that the evidence clearly showed that the mother and daughter misrepresented the circumstances surrounding the February 2010 accident. The trial court granted the motion and awarded nearly $69,000 in joint and several restitution, including amounts paid for all accidents and attorneys’s fees. The daughter appealed but the mother did not. The appellate court held the policy terms justified rescission based on the fraud relating to the February 2010 accident. Further, because UIM coverage is optional, Michigan law did not bar the insurer from seeking rescission, despite statutes prohibiting rescission of auto policies. What the court did take issue with was the award of damages, vacating the awards even with regard to the mother who did not appeal. While the general rule is that attorneys’s fees are not recoverable, a party can get these if expenses were incurred as a result of another party’s fraudulent conduct. The trial court, however, did not address the fraud exception in its decision. The appellate court remanded on the issue regarding the basis for the award. The court also agreed that the daughter should not be held liable for mother’s conduct with regard to the October and December 2009 accidents. The daughter, who was not a party to the insurance contract but could, at best, be a third-party beneficiary, could not be be jointly and severally liable for restitution on a contract for conduct she had nothing to do with. The appellate court vacated all damages awarded except those concerning benefits previously paid in connection with the daughter’s PIP claim. At the end of the day, the daughter may avoid paying for the sins of her mother, but still had to pay for her own. The court made clear that an insurer could recover amounts paid a result of a party’s own fraudulent conduct, and that amount could justifiably include attorneys’s fees.

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