No fault issues arising out of purported fraud in the application
In the recent case of Manier v. MIC General Insurance, the Court of Appeals was forced to address a number of issues that arise when insurance has been procured without full disclosure of relevant underwriting circumstances. Over the past 30 years, we have observed that there are often flaws in communication between insured families and their insurance agent. Sometimes these problems arise out of misrepresentations by someone in the insured household who is deliberately trying to hold down costs. This is particularly true where someone is attempting to insure an "uninsureable" driver with a poor record. It also arises innocently, however, when a local agent doesn't pay attention to detail, and fails to insist upon a full and careful examination of the household.
In Manier, the plaintiff's mother had insured the vehicle operated by his girlfriend along with several other vehicles owned jointly with her husband. She did not disclose to MIC that Manier lived miles away in Ypsilanti, nor that the girlfriend would be a regular and frequent driver. When Manier's children were injured in a car wreck, the insurer was allowed to limit its pay out for the kids' liability claims based upon MIC's "household liability" coverage limit of $20,000.00 per person.
In cases like this one, the insurer remains obligated to cover statutorily-required insurance benefits owed to innocent third parties, since of all the potential insurers who might be assigned to pay statutorily-mandated claims, the insurer who underwrote the household was in the best position to identify misrepresentations and insist upon proper underwriting premiums. On this basis, the innocent children were entitled to recover their Personal Injury Protection (PIP) benefits (i.e., medical, wages, and replacement services) and the statutorily-mandated $20,000.00 dollars of liability coverage. The Insurer was allowed to limit its liability coverage to $20,000.00 per injury/$40,000.00 per accident, however, rather than paying the contracted-for $100,000.00 of liability coverage, because state law does not require the latter, higher level of liability coverage.
The Court also held that MIC's general limitation on family member liability claims to the lower limit (despite collecting premiums based upon a higher limit) was not against public policy. The Court refused to require the insurer to search public records in order to "discover" the deficiencies in Manier's family's underwriting application, despite Manier's claim that the problems were apparent on the face of the application and not intentional. Prior rulings have declared that an insurer cannot limit claims after a collision, if it could "easily" have identified alleged fraud or misrepresentations by its insured.
We don't know if the Manier family was deliberately attempting to scam MIC, but we have seen numerous instances of unsophisticated insureds failing to intensively examine their insurance needs and then being surprised, after a loss, to learn that they have no insurance or less insurance than they had purchased. Since the Michigan Supreme Court will not honor the "reasonable expectation of the insured" and has held that an insurance agent is normally not accountable to the insured, Michigan families act with a great deal of risk in this expensive marketplace.