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.
I
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.”
2
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.
3
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.
4
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.
5
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?
II
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).
6
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
7
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.
8
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
9
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).
10
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
11
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
12
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.]
13
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.
14
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
15
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.
IV
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.
16
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
2
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).
3
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.
4
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
5
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
6
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...)
7
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.
8
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
9
Appeals determination that EUOs in no-fault automobile
insurance policies are unenforceable.
CAVANAGH , J., concurred with KELLY , J.
10