Accused of Fraud Failed to Promptly File Dispositive Motion

Plaintiffs Hartford Accident and Indemnity Company, Property & Casualty Ins. Company of Hartford, Trumbull Insurance Company, and Twin City Fire Insurance Company (together, “Hartford”) claim that Defendant Greater Lakes Ambulatory Surgical Center LLC submitted fraudulent claims for no-fault benefits for treatment of individuals who were in auto accidents. Hartford asserts claims of fraud, silent fraud, and unjust enrichment.

In Hartford Accident And Indemnity Company, et al. v. Greater Lakes Ambulatory Surgical Center LLC, No. 18-cv-13579, United States District Court, E.D. Michigan, Southern Division (May 26, 2022) Greater Lakes moved for leave to file a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Hartford’s tort claims must be dismissed because the parties’ relationship is governed by contract.

Analysis

The scheduling order, entered in July 2019, set a dispositive motion deadline of March 20, 2020. Hartford moved for summary judgment the day before that deadline, and a hearing on that motion was scheduled for September 24, 2020. But a week before the hearing-six months after the dispositive motion deadline-Greater Lakes moved for leave to file a motion for judgment on the pleadings.

The Court has the ability to modify the schedule to allow Greater Lakes to file a dispositive motion, but only for good cause. Fed.R.Civ.P. 16(b)(4). Although district courts enjoy wide discretion under Rule 16(b)(4), leave to amend a schedule should be denied when evidence of diligence is lacking. [In re Nat’l Prescription Opiate Litig., 956 F.3d 838, 843 (6th Cir. 2020).]

Greater Lakes showed neither that it could not have filed its dispositive motion despite its diligence nor that the delay was because of excusable neglect. Instead, it alleges that it retained new counsel in September 2020 who concluded that Hartford failed to state a claim. Attorney Shereef Akeel did first appear here in September 2020. But attorney Lukasz Wietrzynski represented Greater Lakes from the beginning of this litigation until October 2021.

Wietrzynski either made an intentional decision not file a dispositive motion by the deadline or he made an error in failing to do so. Either way, Wietrzynski’s failure to timely file a dispositive motion does not provide Greater Lakes with good cause or excusable neglect.

The Court rejected Greater Lakes manifest injustice argument because its proposed motion for judgment on the pleadings lacks merit. In deciding whether a plaintiff has set forth a “plausible” claim, the Court must construe the complaint in the light most favorable to the plaintiff and accept as true all well-pleaded factual allegations.

Greater Lakes contends that Hartford’s tort claims must be dismissed because the parties’ relationship is governed by the no-fault policies. Greater Lakes maintains that those policies required it to provide proof of loss before Hartford became obligated to pay the insurance claims. Thus, Greater Lakes argues that the allegation that it submitted fraudulent proof of loss relates to its performance under the policies and “sound[s] in contract” rather than tort law.

Under Michigan law, nonperformance of a contractual obligation gives rise to a breach of contract claim but generally not to tort liability. An exception to this “contract-only” rule is that tort liability may exist if the complaint alleges breach of a legal duty separate and distinct from a defendant’s contractual obligations. For example, claims of fraud in the inducement and “fraud ‘extraneous to the contract’ are permissible, whereas ‘fraud interwoven with the breach of contract’ cannot support an independent claim.”

Here, the complaint does not allege the existence of a contract between Hartford and Greater Lakes. Although Greater Lakes argues that the no-fault policies govern this dispute, it was not a party to those policies.

The contract-only rule does not bar tort claims when no contract exists. Greater Lakes insists, without supporting precedent, that the no-fault policies govern because healthcare providers can “step into the shoes” of insureds to obtain payment under the policies-meaning there is a contractual relationship between providers and insurers.

Even if there were a contract between Hartford and Greater Lakes, the Michigan Supreme Court has held that insureds may bring separate claims for fraud and recovery of no-fault benefits.

Unlike a no-fault claim, a fraud claim does not arise from an insurer’s mere omission to perform a contractual or statutory obligation, such as its failure to pay all the PIP benefits to which its insureds are entitled. Rather, it arises from the insurer’s breach of its separate and independent duty not to deceive the insureds, which duty is imposed by law as a function of the relationship of the parties.

The court also rejected the theory that the no-fault act preempted the fraud claim. The court acknowledged the contract-only rule, noting that “where, as here, the breach of separate and independent duties [is] alleged, [the insureds] should be allowed an opportunity to prove” their tort claims. Since “misrepresenting material facts and deceiving their insureds” involved the breach of an independent duty, the fraud claim survived.

Greater Lakes argued that whether the no-fault act preempted the tort claims but not whether the plaintiffs could assert concurrent breach-of-contract and fraud claims. Greater Lakes is wrong on both counts. Since actions for payment of no-fault benefits are often asserted as breach-of-contract claims,

Conclusion

Greater Lakes showed neither good cause nor excusable neglect for its motion for leave to file a dispositive motion six months after the deadline, and its claim of manifest injustice lacked merit. The Court denied Greater Lakes’ motion for leave to file a motion for judgment on the pleadings.

Hartford, probably frustrated by the failure of the state to prosecute fraud perpetrators, acted proactively sued the providers of health care for insureds that it claimed were fraudulent. Greater Lakes, faced with a motion for summary judgment it thought it would lose, filed a belated motion for a Judgment on the Pleadings and lost its request to file a late dispositive motion that the USDC’s Magistrate Judge found was impotent. It is an act of “chutzpah” or unmitigated gall to bring this motion but it did succeed in slowing the opportunity of Hartford to obtain a summary judgment.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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