Cruz v. State Farm Mutual Automobile Insurance

Michigan Supreme Court
Lansing, Michigan 48909
_____________________________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh

Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman

____________________________________________________________________________________________________________________________

FILED JULY 17, 2002

PETER CRUZ, JR.,

Plaintiff-Appellee,

v No. 117505

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Defendant-Appellant.

___________________________________

BEFORE THE ENTIRE BENCH

TAYLOR, J.

We granted leave to appeal to consider whether the

inclusion of an examination under oath (EUO) provision in an

automobile no-fault insurance policy is permitted under the

Michigan no-fault insurance act. MCL 500.3101 et seq. We

hold that EUO provisions may be included in no-fault policies,

but are only enforceable to the extent that they do not

conflict with the statutory requirements of the no-fault act.

Because the insurer in this matter, State Farm Mutual

Automobile Insurance Company, impermissibly sought to enforce

the EUO as a condition precedent to its duty to pay no-fault

benefits, this brought the EUO provision into conflict with

the requirements of the no-fault statute. The EUO provision

must yield to the statute. Accordingly, the Court of Appeals

judgment in favor of plaintiff is affirmed, albeit for

different reasons.

Plaintiff was injured in an automobile accident while

driving a car insured by State Farm. The State Farm no-fault

policy provided coverage for no-fault benefits as required by

the no-fault act, as well as coverage for bodily injury that

was caused by an uninsured motorist and assorted other

standard coverages such as comprehensive and collision

coverages. After the accident, plaintiff submitted a claim

under the policy for both no-fault personal injury protection

(PIP) benefits and for uninsured motorist bodily injury

benefits. He provided State Farm with what has been

acknowledged by State Farm1 to be reasonable proof of the fact

and of the amount of the loss sustained (the statutory

requirement of what an insured must give to the insurer to

make benefits payable pursuant to MCL 500.3142[2] of the no

fault act). Notwithstanding this compliance by the insured

1
State Farm conceded at oral argument that it was

“provided with the information that the statute requires.

[State Farm was] given I was injured on such and such a date,

this is what happened, these are my injuries, here are my

medical providers, here is the authorization for my wage loss.

That’s enough to allow a carrier in most cases within thirty

days to investigate that and start cutting checks.”

with the statutory requirement, because State Farm had in its

policy a provision that conditioned payment of benefits on the

submission by the insured to an EUO as often as reasonably

asked,2 it declined to pay until the EUO was given. It was

State Farm’s position that the parties could agree in their

contract of insurance, notwithstanding the requirements of the

statute regarding prompt payment of benefits, to condition the

payment of benefits on the submission by plaintiff to an EUO.

Plaintiff refused repeated requests to submit to the EUO, and,

because of this, State Farm denied plaintiff’s claims for both

no-fault PIP benefits and uninsured motorist benefits.

Plaintiff then requested arbitration of his claim for

uninsured motorist benefits pursuant to an arbitration

provision in the uninsured motorist section of the policy.3

State Farm refused to arbitrate on the basis, again, that

plaintiff had, by refusing to submit to an EUO, breached a

2
The policy provided:

2. REPORTING A CLAIM—INSURED'S DUTIES

a. The following provision is added to item 5:

The person making the claim also shall answer

questions under oath when asked by anyone we name,

as often as we reasonably ask, and sign copies of

the answers.

3
The policy provided for arbitration of disputes that

arose between State Farm and its insured with regard to

uninsured motorist benefits. Arbitration was permitted, at

the request of either party, where the parties could not agree

if the insured was legally entitled to collect damages from

the owner or driver of an uninsured motor vehicle, and, if so,

the amount of the damage. No such arbitration provision was

contained in the no-fault benefits section of the policy.

material condition of the policy and thus could not enforce

his right under the policy to arbitration of his claim for

these benefits. Moreover, State Farm argued that if plaintiff

received an award from the arbitration panel, State Farm did

not have to pay it because the condition precedent to any

payment—the EUO—had not been met. Despite defendant's refusal

to participate, the arbitration proceeded with the arbitrators

finding that plaintiff had not breached the policy by refusing

to submit to the EUO, that the other driver was not only at

fault, but also uninsured, and that defendant accordingly

should compensate plaintiff for uninsured motorist damages in

the amount of $150,000.

Plaintiff filed suit, seeking in the first count of the

complaint to enforce the arbitration decision regarding the

uninsured motorist benefits, and seeking in the second count

of the complaint an award of no-fault PIP benefits under the

policy. Defendant moved for summary disposition arguing that

plaintiff’s failure to submit to the EUO was a breach of a

condition precedent to his right to obtain either arbitration

of his uninsured motorist claim or payment of no-fault PIP

benefits. The trial court granted defendant’s motion with

respect to the uninsured motorist claim and vacated the

arbitration award concerning that claim. The trial judge also

ordered plaintiff to comply with the EUO provision regarding

both the uninsured motorist benefits claim and the no-fault

PIP benefits claim.

Declining to proceed in the fashion the trial court had

established for perfecting his claims, plaintiff refused to

submit to the EUO. Because of this, defendant sought, and

secured from the trial court, a summary disposition order

dismissing plaintiff’s case.

On appeal, the Court of Appeals reversed the trial court

in part and affirmed in part.4 It concluded that summary

disposition was not proper with regard to plaintiff's claim

for no-fault PIP benefits because the no-fault act “sets forth

the insured’s duties of cooperation, and because it does not

provide for an EUO provision, the provision is contrary to the

no-fault act.” Id. at 164. The Court further concluded that

the trial court did not err in granting summary disposition to

State Farm on plaintiff’s uninsured motorist benefits claim.

The reason was that uninsured motorist benefits were not a

statutorily mandated coverage, and thus an EUO and the rules

concerning its use were matters the parties could agree to by

contract. As a result, the EUO could be enforced by having it

stand as a condition precedent to the insurer’s duty to pay

uninsured motorist benefits.5 Id. at 167-169.

Leave to appeal was granted by this Court to determine

4
241 Mich App 159; 614 NW2d 698 (2000).

5
Plaintiff has not cross-appealed the decision of the

Court of Appeals regarding uninsured motorist benefits.

Therefore, plaintiff’s failure to submit to the EUO precluded

him from invoking the arbitration provision related to the

uninsured motorist benefits section of the policy or from

enforcing the arbitration award.

whether, by enacting the no-fault act, the Legislature’s

silence regarding what the parties could agree to with regard

to claim discovery should be held to have precluded all

methods not mentioned, including EUOs.6 Further, if EUOs were

not precluded, could the policy provision that conditioned

payment of benefits on submission to an EUO take priority over

the no-fault statute’s requirement that the insurer pay

benefits within thirty days after receipt of proof of the fact

and of the amount of loss sustained?

This case presents issues regarding statutory

interpretation of the Michigan no-fault insurance act.

Statutory interpretation is an issue of law that is reviewed

de novo. Cardinal Mooney High Sch v Michigan High Sch

Athletic Ass’n, 437 Mich 75, 80; 467 NW2d 21 (1991); Farm

Bureau Mut Ins Co v Nikkel, 460 Mich 558, 563-564; 596 NW2d

915 (1999). The primary rule of statutory construction is

that, where the statutory language is clear and unambiguous,

the statute must be applied as written. Putkamer v

Transamerica Ins Corp, 454 Mich 626, 631; 563 NW2d 683 (1997).

Similarly, where contract language is neither ambiguous, nor

contrary to the no-fault statute, the will of the parties, as

reflected in their agreement, is to be carried out, and thus

the contract is enforced as written. Farm Bureau, supra at

566-567.

6
464 Mich 873 (2001).

III

As mentioned above, the no-fault act contains no

reference either allowing or prohibiting examinations under

oath. In order to resolve this appeal, we must first

determine whether, given this silence, the inclusion of

examination under oath provisions in no-fault automobile

insurance policies is allowed. Further, if EUOs are

permissible in automobile no-fault policies, we must determine

if there are any limits regarding when an insurer can refuse

to pay benefits by invoking the insured’s failure to comply

with an insurer’s request to submit to an EUO. That is, can

the parties contract out of the statutory duty imposed on the

insurer to pay benefits within thirty days of receipt of the

fact and of the amount of the loss sustained by agreeing that

no benefits are due until an EUO is given by the insured?

It is by now well understood that the Michigan no-fault

insurance act is a comprehensive legislative enactment

designed to regulate the insurance of motor vehicles in this

state and the payment of benefits resulting from accidents

involving those motor vehicles. As we explained in Shavers v

Attorney General, 402 Mich 554, 578-579; 267 NW2d 72 (1978):

The Michigan No-Fault Insurance Act, which

became law on October 1, 1973, was offered as an

innovative social and legal response to the long

delays, inequitable payment structure, and high

legal costs inherent in the tort (or “fault”)

liability system. The goal of the no-fault

insurance system was to provide victims of motor

vehicle accidents with assured, adequate, and

prompt reparation for certain economic losses. The

Legislature believed this goal could be most

effectively achieved through a system of compulsory

insurance, whereby every Michigan motorist would be

required to purchase no-fault insurance or be

unable to operate a vehicle legally in this state.

Under this system, victims of motor vehicle

accidents would receive insurance benefits for

their injuries as a substitute for their common-law

remedy in tort.

The Legislature realized that, with every motorist

required to have this insurance, there were many types of

injuries and property damage that such insurance would have to

cover. These included, for example, medical, hospital, and

death benefits7, work loss8, dependent benefits9, and property

losses10. To establish the methods for payment of these

benefits, the Legislature, in MCL 500.3141, provided that the

insurer “may require written notice to be given as soon as

practicable after an accident involving a motor vehicle

. . . .” Further, § 3142(1) provided that “[p]ersonal

protection insurance benefits are payable as loss accrues,”

and, of particular significance to this case, § 3142(2)

provided that payment is overdue “if not paid within 30 days

after an insurer receives reasonable proof of the fact and of

the amount of loss sustained.” (Emphasis supplied.)

Incentives to promptly pay were provided by § 3142(3), which

said that overdue payments bear simple interest at a rate of

7
MCL 500.3105 and 500.3107(1)(a).

8
MCL 500.3107(1)(b).

9
MCL 500.3108(1) and 500.3112.

10
MCL 500.3121.

twelve percent a year.

Thus, even though reasonable proof of loss to cause the

payment of different benefits would require varying

information depending on the benefit sought, once there was

“reasonable proof of the fact and of the amount of loss

sustained,” the statute was clear that the benefit must be

paid in a prompt manner or the insurer was subject to the

interest penalty because payment was overdue.

Insurers, aware of this requirement of prompt payment,

but also aware of their fiduciary duty to others in the

insurance pool to not dissipate the pool’s insurance fund

reserves by paying unwarranted benefits, developed systems for

processing these matters that included, as in this case, a

contractual right to demand an EUO.

Examination under oath provisions, which require the

insured to answer questions about the accident and damages

claimed, existed in many types of insurance policies long

before the advent of no-fault automobile insurance. See

Gordon v St Paul Fire & Marine Ins Co, 197 Mich 226, 230; 163

NW 956 (1917). Their purpose, in part, was to enable insurers

to gather facts so as to discover and eliminate fraudulent

insurance claims. Id. The general difficulty of determining

when a claim was not valid has been described in scholarly

writings in the insurance field as being of “staggering

proportions.”11 Given this problem, and the potential ability

of EUOs and other discovery vehicles to address it, EUOs in

policies have been viewed favorably by courts. Gordon, supra

at 230; Knop v Nat’l Fire Ins Co, 107 Mich 323, 327-328; 65 NW

228 (1895); Claflin v Commonwealth Ins Co, 110 US 81, 94-95;

3 S Ct 507; 28 L Ed 76 (1884).12 Furthermore, as beneficial

as EUOs and similar discovery vehicles have been when employed

in policies that may be purchased at the insured’s discretion,

their potential value is even greater when the coverage is, as

in this case, mandated by law. Tevo v Havlik, 418 Mich 350,

366-367; 343 NW2d 181 (1984).13

The Court of Appeals, however, while recognizing the

utility of EUOs in general, found that EUOs were precluded in

the automobile no-fault insurance context because they were

not mentioned in the act. In our judgment, the Court was in

error. EUOs, or other discovery methods that the parties have

contracted to use, are only precluded when they clash with the

11
Cf. Comment, Property insurance: A call for increased

use of examinations under oath for the detection and

deterrence of fraudulent insurance claims, 97 Dickinson L R

329 (1993).

12
The Court of Appeals itself recognized this when it

discussed the validity of the EUO in this case in the context

of nonstatutorily required uninsured motorist insurance.

Cruz, supra at 168-169.

13
Concern about the affordability of no-fault insurance

has caused the Legislature over the years to amend the no
fault act in order to reduce the scope of mandatory coverages.

See, e.g., MCL 500.2101 et seq. The goal was to make such

insurance more affordable. State Farm Fire & Casualty Co v

Old Republic Ins Co, 466 Mich 142, 150, n 6; 644 NW2d 715

(2002).

rules the Legislature has established for such mandatory

insurance policies. However, when used to facilitate the

goals of the act and when they are harmonious with the

Legislature’s no-fault insurance regime, EUOs in the no-fault

context should be viewed no differently than in other types of

policies. In light of this reasoning, we conclude that an EUO

that contravenes the requirements of the no-fault act by

imposing some greater obligation upon one or another of the

parties is, to that extent, invalid. Thus, a no-fault policy

that would allow the insurer to avoid its obligation to make

prompt payment upon the mere failure to comply with an EUO

would run afoul of the statute and accordingly be invalid.

However, an EUO provision designed only to ensure that the

insurer is provided with information relating to proof of the

fact and of the amount of the loss sustained—i.e., the

statutorily required information on the part of the

insured—would not run afoul of the statute.14

14
The dissent asserts that the discovery devices

specifically enumerated in the statute constitute the complete

panoply of discovery tools that the Legislature intended to

provide in connection with mandatory no-fault insurance

coverage. How the dissent intuits this, for it must be

intuition since the statute nowhere imposes such limitations

on the contracting parties, is unclear. Militating against

the dissent’s intuition is the fact that the discovery methods

provided by the act are quite limited. Thus, should the

dissent’s view be adopted, not only with regard to EUOs, but

with regard generally to discovery, insurance carriers would

lack important tools with which to root out fraud, as well as

the means to responsibly investigate claims. There is no

evidence that such a goal was within the contemplation of the

Legislature in enacting mandatory no-fault insurance coverage.

The discovery tools provided in the statute are not

Our approach is premised on the doctrine that contracting

parties are assumed to want their contract to be valid and

enforceable. Accordingly, we are obligated to construe

contracts that are potentially in conflict with a statute, and

thus void as against public policy, where reasonably possible,

to harmonize them with the statute. It was this approach that

we utilized in our recent decision in Universal Underwriters

Ins Co v Kneeland, 464 Mich 491, 498; 628 NW2d 491 (2001), in

which we emphasized that, in interpreting contracts, we

presume that the parties “intended to enter a valid,

enforceable agreement . . . .” We further observed that we

give force to this presumption by preferring constructions of

contracts “that render[] them legal and enforceable.” Id.

Thus, in this case, as we did in Universal Underwriters, we

construe this contract in a manner that renders it compatible

with the existing public policy as reflected in the no-fault

act.15

comprehensive. We simply cannot agree with the dissent that

the provision of some discovery tools by the act—tools that

address limited aspects of the insurer’s postclaim information

needs—precludes the parties from contracting for the use of

other discovery tools including those such as EUOs that enable

insurers to directly gather information from the insured. We

see no basis for drawing such an implication from the language

of the act, and the dissent offers no such basis.

15
Presumably, it was this approach to harmonizing agreed
upon contract terms with statutory requirements when

reasonably possible that caused the Commissioner of Insurance,

pursuant to his duties under MCL 500.2236(1), to approve this

policy with its EUO provision. The commissioner has the duty

to determine that all the statutory requirements of the no
fault act are complied with in insurance policies under MCL

500.2236(1), which forbids the issuance of any insurance

Finally, to apply these rules to this case, State Farm

and its insured could not contract to vitiate State Farm’s

policy or indorsement “until a copy of the form is filed with

the insurance bureau and approved by the commissioner as

conforming with the requirements of this act and not

inconsistent with the law.” (Emphasis supplied.)

Moreover, we are reinforced in our approach to this issue

by the holdings in other jurisdictions with similar statutes.

The Hawaii Supreme Court, for example, dealing with a

similar statutory provision that was silent regarding EUOs,

but that provided that “[p]ayment of no-fault benefits shall

be made within thirty days after the insurer has received

reasonable proof of the fact and amount of benefits accrued,

and demand for payment thereof [Hawaii Rev Stat 431:10C
304(3)(A)]” held that an EUO provision in a no-fault

automobile insurance policy was permissible. Barabin v AIG

Hawaii Ins Co, Inc, 82 Hawaii 258, 264; 921 P2d 732 (1996).

In New Jersey, in interpreting an analogous statute

(“Personal injury protection coverage benefits shall be

overdue if not paid within 60 days after the insurer is

furnished written notice of the fact of a covered loss and of

the amount of same,” NJ Stat Ann 39:6A-5[g]) that was also

silent on EUOs, the appellate court reached results similar to

that of Hawaii, i.e., that the EUOs were allowed. New Jersey

Automobile Full Ins Underwriting Ass’n v Jallah, 256 NJ Super

134; 606 A2d 839 (1992).

To the same effect, although involving an insurance

policy provision requiring a no-fault policy holder to submit

to an independent medical examination rather than an EUO, the

Georgia Court of Appeals in Morris v Aetna Life Ins Co, 160 Ga

App 484, 485; 287 SE2d 388 (1981), used reasoning in upholding

the provision that is equally applicable to this case:

It hardly can be argued that an insurer cannot

investigate what reasonably appears to be a

questionable claim simply because the underlying

statute authorizing coverage does not mention such

investigative rights. . . . [The insurer’s] right

to investigate the claim was reasonable and as such

did not constitute a limitation by an insured to

collect a valid claim under PIP protection; neither

was it a violation of public policy or of the

Georgia No-Fault Act. [Citation omitted.]

duty to pay benefits in a timely fashion as required by the

statute. Once “reasonable proof of the fact and of the amount

of loss sustained” was received by State Farm, it had to pay

benefits or be subject to the penalties. Because it is

acknowledged that such proof was received, State Farm’s duty

to pay benefits to its insured began thirty days thereafter.

To the degree that the contract is in conflict with the

statute, it is contrary to public policy and, therefore,

invalid.

Accordingly, on the facts here presented, defendant’s

attempt to require plaintiff to submit to an EUO as a

condition precedent to payment of no-fault PIP benefits was

impermissible and, on remand, defendant must pay the PIP no

fault benefits—as determined by the trial court—including

arrearages and statutorily allowed penalties. MCL

500.3142(3).

The dissent characterizes our interpretation of the no

fault act as one that “tilts the scale” in favor of the

insurer. More accurately, however, this decision affords

insurers access to one potentially valuable tool to prevent

fraud.16 Further, it does so only under circumstances that are

16
EUOs are well suited to this task because, as the

dissent concedes: “The primary use of an EUO is to detect

fraud.” Slip op at 3. Moreover, the dissent’s assertion that

EUOs are somehow not allowed because MCL 500.3159 allows

court-ordered discovery concerning earnings and treatment is

off target. Rather, EUOs are merely a prelitigation,

complementary process to that allowed by § 3159 during

litigation.

consistent with the requirements of the no-fault statute. To

characterize this as any kind of “tilting” is to misunderstand

the importance of eliminating fraud, not just to insurers, but

also to those other insureds who pay higher insurance premiums

when fraud goes undetected. In light of these considerations,

we do not share the dissent’s solicitude for those who refuse

to provide insurers the information necessary to process no

fault insurance claims knowledgeably and fairly.

Next, the dissent, hurling the claim that this insurance

policy is unconscionable, asserts that this opinion raises the

quantum of proof necessary to establish a no-fault claim,

provides a means for insurers to exploit the reasonable proof

of loss standard, nullifies the effect of the penalty

provision in § 3142(2), and enables insurers to avoid the

statutory mandates by claiming an insured who has refused to

submit to an EUO has not supplied reasonable proof. This

policy is not unconscionable, eloquent proof of which comes

from the failure of plaintiff to even make such a claim. Nor

does this opinion provide insurers with the opportunity to

ride roughshod over their insureds’ rights under the no-fault

act. Indeed, the majority, and the concurrence of Justice

Weaver, have gone to great pains to make that clear.

The charges leveled by the dissent to the effect that

this ruling will (1) facilitate insurers avoiding their

obligations to pay benefits, (2) circumvent the act’s penalty

provision for slow payment, and (3) undermine the purpose of

the act, are irresponsible. We have unequivocally declared

that EUOs may not be used to avoid the prompt payment

requirement or to avoid penalties, and have specifically

rejected defendant’s attempt to use their EUO in such a

manner. The dissent’s cavalier distortion of our opinion,

when our holding is as clear as it is, is dismaying.

We affirm, on different reasoning, the Court of Appeals

decision reversing summary disposition in favor of defendant

on plaintiff's count seeking no-fault PIP benefits and remand

to the trial court for further proceedings consistent with

this opinion.

CORRIGAN , C.J., and YOUNG and MARKMAN , JJ., concurred with

TAYLOR, J.

S T A T E O F M I C H I G A N

SUPREME COURT

PETER CRUZ, JR.,

Plaintiff-Appellee,

v No. 117505

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Defendant-Appellant.

____________________________________

WEAVER, J. (concurring).

I agree with the majority’s conclusion that EUO

provisions may be included in no-fault policies, but are only

enforceable to the extent that they do not conflict with the

statutory requirements of the no-fault act, and that in the

present case, the insurer impermissibly sought to enforce the

provisions as a condition precedent to the insurer’s duty to

pay no-fault benefits.

I write separately to emphasize that this Court’s holding

should not be construed as one that would permit insurers to

avoid their duty to pay no-fault benefits by merely claiming

in every case that an insured who refused an examination under

oath has failed to supply reasonable proof.

S T A T E O F M I C H I G A N

SUPREME COURT

PETER CRUZ, JR.,

Plaintiff-Appellee,

v No. 117505

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Defendant-Appellant.

___________________________________

KELLY, J. (concurring in part and dissenting in part).

I agree with the majority's holding that defendant cannot

make payment of personal injury protection (PIP) insurance

benefits contingent on plaintiff submitting to an examination

under oath (EUO). However, I respectfully disagree with its

conclusion that an EUO provision that complied with the

requirements of the no-fault act1 would be permissible.

No example has been suggested of an EUO that would not

conflict with the goals and purposes of the act. Therefore,

I conclude that an EUO provision could not comply with the

1
MCL 500.3101 et seq.

requirements of the no-fault act. I would affirm the Court of

Appeals decision that all EUO provisions are unenforceable

under the act.

I. Applicable Standards of Review

This case involves questions of law and issues of

statutory interpretation. They are reviewed de novo, the

primary rule of statutory construction being to effectuate the

intent of the Legislature. Where the statutory language is

clear and unambiguous, it is generally applied as written.

Putkamer v Transamerica Ins Corp, 454 Mich 626, 631; 563 NW2d

683 (1997). Also, because the no-fault act is remedial in

nature, it must be liberally construed in favor of the persons

intended to benefit from it. Turner v Auto Club Ins Ass'n,

448 Mich 22, 28; 528 NW2d 681 (1995).

II. Current Uses of EUO Provisions

The parties agree that the no-fault act makes no

reference to EUO provisions. One of the questions before us

is whether this absence indicates a legislative intent not to

allow EUOs in the context of no-fault insurance policies. In

deciding this, it is important to consider the nature and

purpose of EUOs.

Examination under oath provisions have been held

generally enforceable in fire insurance and homeowner's

insurance policies. See, e.g., Yeo v State Farm Ins Co, 219

Mich App 254; 555 NW2d 893 (1996); Dellar v Frankenmuth Mut

Ins Co, 173 Mich App 138; 433 NW2d 380 (1988). Their purpose

is to enable an insurer to gather facts in determining whether

to deny or to honor a claim. Gordon v St Paul Fire & Marine

Ins Co, 197 Mich 226, 230; 163 NW 956 (1917).

The EUO questioning takes place before a lawsuit is

initiated. Comment, Property insurance: A call for increased

use of examinations under oath for the detection and

deterrence of fraudulent insurance claims, 97 Dickinson L R

329, 334 (1993). An insurer may use it to discourage

litigation or to promote settlement. Id. It can be used to

obtain information on any matter concerning the insurance

policy and the loss. Questions asked during an EUO are not

deemed improper merely because they are controversial or evoke

answers that might be used for impeachment. Id. at 338. The

primary use of an EUO is to detect fraud.

The insured's compliance with an EUO provision contained

in a property insurance policy is generally considered a

condition precedent to recovery.2 Id. 339. Thus, refusal to

submit to an EUO constitutes a breach of the insurance

contract and precludes the payment of benefits, unless the

refusal is for cause. Gordon, supra.

2
A "condition precedent" is a fact or event that must

take place before there is a right to performance. Knox v

Knox, 337 Mich 109, 118; 59 NW2d 108 (1953).

III. The Inapplicability of EUOs in No-Fault Insurance

Automobile no-fault insurance is distinguishable from

property insurance in which EUOs have been found acceptable.

First, motor vehicle owners in Michigan are mandated by

statute to purchase no-fault insurance. The no-fault act is

an expression of legislative intent to provide automobile

accident victims with assured, adequate, and prompt

reparation. Celina Mut Ins Co v Lake States Ins Co, 452 Mich

84, 89; 549 NW2d 834 (1996). To that end, the act mandates

that every owner or registrant of a motor vehicle purchase

personal injury protection insurance as long as the vehicle is

driven. MCL 500.3101(1).

When accidental bodily injury results from the use of a

vehicle, an insurer is liable to pay benefits under this

insurance without regard to fault. MCL 500.3105(1). The act

provides that PIP benefits are payable for reasonable charges

incurred in the care, recovery, or rehabilitation of the

injured person. MCL 500.3107(1)(a). Benefits are also

payable for loss of income for the first three years following

the date of an accident. MCL 500.3107(1)(b).

Of course, the insurer's liability is not without limit.

The act expressly addresses the duties of the insured. It

provides numerous means by which insurers may gather

information about the fact and the amount of a claimed loss.

A claimant has the burden of establishing the

reasonableness and necessity of medical expenses and the

amount that would have been earned had the injury not

occurred. See Nasser v Auto Club Ins Ass'n, 435 Mich 33; 457

NW2d 637 (1990); Anton v State Farm Mut Auto Ins Co, 238 Mich

App 673, 684; 607 NW2d 123 (1999). The no-fault act also

mandates that a claimant submit to a mental or physical

examination when his mental or physical condition is material

to a claim. MCL 500.3151. It requires a treating physician

or medical institution to submit a written report of the

history, condition, treatment, and dates and costs of

treatment of the injured person. MCL 500.3158(2).

With regard to proof of loss of income, MCL 500.3158(1)

mandates that the employer of a claimant furnish a sworn

statement of the claimant's earnings. The insurer can seek a

discovery order under MCL 500.3159 when there is a dispute

regarding its right to discover facts concerning earnings or

the claimant's "history, condition, treatment and dates and

costs of treatment."

The act is considered the "rule book" for deciding issues

regarding the payment of PIP benefits. Rohlman v Hawkeye-

Security Ins Co, 442 Mich 520, 524-525; 502 NW2d 310 (1993).

Despite the fact that it provides numerous and specific means

to obtain information about a claim, it is silent regarding

the validity of EUO provisions. It is difficult to conclude

from that silence a legislative intent to allow EUO

provisions.

Even more significant is the language used in MCL

500.3142(2):

Personal protection insurance benefits are

overdue if not paid within 30 days after an insurer

receives reasonable proof of the fact and of the

amount of loss sustained. If reasonable proof is

not supplied as to the entire claim, the amount

supported by reasonable proof is overdue if not

paid within 30 days after the proof is received by

the insurer. Any part of the remainder of the

claim that is later supported by reasonable proof

is overdue if not paid within 30 days after the

proof is received by the insurer. [Emphasis

added.]

This section is intended to penalize insurers that refuse to

comply with the act's goal of providing prompt reparation.

Wood v Detroit Automobile Inter-Ins Exch, 413 Mich 573, 589,

n 17; 321 NW2d 653 (1982).

Penalty interest begins to accrue when an insurer refuses

to pay benefits for which it is liable. MCL 500.3142(3). It

is assessed regardless of the insurer's good faith in

withholding benefits. Davis v Citizens Ins Co of America, 195

Mich App 323, 328; 489 NW2d 214 (1992). Thus, an insurer can

refuse to pay benefits with impunity only if the insured fails

to file a timely claim and provide reasonable proof of loss.

Johnston v Detroit Automobile Inter-Ins Exch, 124 Mich App

212, 216; 333 NW2d 517 (1983). Of course, the insurer could

escape the penalty clause if it correctly deemed the proof of

loss unreasonable, as in cases of fraud.

It is not apparent, nor does defendant argue, that an EUO

is needed in no-fault policies for gathering information. Nor

is an EUO essential to enable the insurer to detect fraud.

The statute provides express and ample means of gathering the

information needed to detect fraud and establish entitlement

to benefits. Hence, I conclude that the absence of a

statutory provision for EUOs indicates a legislative intent

not to allow their use.

IV. The Flaws in the Majority's Analysis

The majority concludes, notwithstanding the act's

detailed scheme for gathering information, that the

Legislature provided inadequate means for insurers to detect

fraud. It assumes that EUO provisions are needed but were

overlooked. However, it seems to me likely that the

Legislature considered the importance of an insurer's need to

detect fraudulent claims when it wrote and passed the no-fault

act.3

3
MCL 500.3159 of the no-fault act provides:

In a dispute regarding an insurer's right to

discovery of facts about an injured person's

earnings or about his history, condition, treatment

and dates and costs of treatment, a court may enter

an order for discovery. . . .

(continued...)

The majority's assumption tilts the scale in favor of the

insurer. It allows the insurer to add to the contract a

provision that raises the quantum of proof necessary to

establish a no-fault claim. Not only must the insured provide

reasonable proof of loss, it must comply with an EUO, if

requested. The insured might provide reasonable proof of loss

but refuse an EUO. The refusal, alone, would justify an

insurer in refusing to pay claims, protect it from the act's

penalty provision, and shield it from suit by the insured for

breach of contract.

The majority's opinion sets the stage for this insurance

abuse. The insurer has only to assert that the claimant's

proof of loss is not reasonable, invoke its EUO clause, and

wait to see if the insured refuses to comply. This

interpretation of the no-fault act is unconscionable. It

flies in the face of the act's purpose: to provide prompt

reparation to insureds. The act requires payment of premiums

for mandated coverage. The majority permits the insurer to

disallow the insured's claims using a nonstatutory provision

unnecessary to establish reasonable proof of a claim. See

3
(...continued)

If the Legislature intended the use of EUOs in no-fault

automobile insurance policy sections, there would have been no

need to write into the act this specific provision for

discovery. This is because discovery includes depositions

which are examinations under oath supervised by the court.

Blakeslee v Farm Bureau Mut Ins Co of Mich, 388 Mich 464, 474;

201 NW2d 786 (1972). We should not leave open the door for

EUOs in no-fault policy provisions in reliance on speculation

that circumstances might arise where they would comply with

the statutory requirements of the act.

V. Conclusion

The no-fault act does not permit an insurer to disallow

claims by using an EUO, a procedural requirement that has not

been shown as necessary to uncover fraud or the fact or amount

of a no-fault loss. In fact, the Legislature ignored EUO

provisions when it wrote the no-fault act. An insurer's

addition of one to a policy allows it to avoid payment of

valid no-fault claims, circumvent the act's penalty provision,

and defeat suits for contract breach.

Presumably, in this case, if defendant had not admitted

that plaintiff provided adequate information for it to honor

the claim without an EUO, the majority would have ruled for

defendant. The majority has failed utterly to explain why its

ruling will not permit insurers to avoid paying no fault

benefits merely by claiming that an insured who refused an EUO

failed to supply reasonable proof. By leaving open this door,

the majority undermines the act's purpose of providing prompt

reparation to victims of automobile accidents.

For all these reasons, I would affirm the Court of

Appeals determination that EUOs in no-fault automobile

insurance policies are unenforceable.

CAVANAGH , J., concurred with KELLY , J.

Cruz v. State Farm Mutual Automobile Insurance

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