Watch the full video at https://rumble.com/v2g1440-rescission-applies-to-bus-jumpers.html and at https://youtu.be/awPJzKyfh3E
Insurers should carefully avoid suing another insurer
In rare cases, bus accidents create a temptation for passengers to claim for damages as soon as it looks like insurance may apply. When the passengers of a bus insured by West Bend Mutual Insurance Company (West Bend) crashed, their injuries seemed like magic. As a result of its attempt to investigate a bus accident, West Bend moved for summary judgment and defendant Citizens Insurance Company of the Midwest’s (Citizens) answered and filed a countermotion for summary judgment. IN West Bend Mutual Insurance Company v. Affiliated Diagnostic Of Oakland, LLC, et al., Civil Action No. 21-cv-11007, United States District Court, ED Michigan, Southern Division (Feb. 21, 2023), USDC weighed the shares and resolved the dispute between two insurance companies.
BACKGROUND
West Bend’s Amended Complaint states that several individuals (“claimants”) allege they were involved in an automobile accident on February 3, 2020. West Bend insured Kristy’s Early Childhood Development Center, Inc. (Kristy’s), pursuant to which West Bend undertook to insure Kristy’s only against risks associated with childcare activities. At the time of the accident, West Bend alleged that the vehicle was not being used for the child care business but was instead being used by a separate business entity, DLB Transportation LLC, which had held the vehicle out for rental to the plaintiffs. West Bend determined that Kristy’s had made material misrepresentations or concealed material facts when the policy was issued to the extent that DLB was to use the vehicle in connection with its business.
West Bend sought rescission of the policy and a declaration that the policy was invalid ab initio. Only one defendant appeared in this case and now remains: Citizens is the assigned casualty insurer for the claims arising out of the underlying accident. In its motion for summary judgment, West Bend seeks to extend the cancellation of the policy to 16 natural responders and certain medical providers who allegedly provided services to natural responders.
ANALYSIS
Termination of an innocent third party policy under Michigan law requires a balancing of the equities
Right of revocation regarding innocent third parties is not an absolute right. When two equally innocent parties suffer, the court, in the exercise of its equitable powers, is bound to determine which blameless party shall bear the loss.
West Bend demonstrated that they had no notice or opportunity to discover the true use of the vehicle. The citizens argued that with further investigation, West Bend could have determined that the bus was not being used by Kristy’s as stated in the policy. Citizen gave no indication of any prior abuse, irregularities in the application or other information that would have made it imprudent for West Bend to take Kristy’s at its word that the vehicle would be used by the child care facility to transport children. An insurer has a reasonable right to expect honesty in applying for insurance.
WEST BEND’S ADDITIONAL FACTORS WEIGH IN FAVOR OF RECALL
West Bend provides two additional arguments in support of erection. As citizens acknowledge:
- West Bend urged that individual defendants have repeatedly obstructed and resisted West Bend’s efforts to investigate their claims and alleged damages and that their failure to participate in this process has resulted in a substantial increase in the time and cost for West Bend to litigate in this case. Because there was no evidence that West Bend had committed any wrongdoing in connection with the individuals’ claims, West Bend urged that the individuals’ actions in pursuing their claims also weigh in favor of standing. In particular, the individual defendants refused to appear for examination under oath and that six individuals refused to appear for depositions in a related state court proceeding.
- West Bend urged that even if the defendant natural persons did not directly cause the accident, testimony was offered that the defendant natural persons acted as if injured only after a police officer entered the bus.
The bus passengers’ refusal to participate in litigation regarding the rescission of the policy against them indicates either ambivalence or acquiescence in the relief sought by West Bend. The court assumed that both West Bend and the bus passengers were innocent of the fraud. However, the behavior of the passengers immediately after the accident and during the course of the trial is not entirely blameless and tips the scales in favor of recovery.
The court was convinced that the two additional considerations West Bend offered regarding the post-accident conduct of the bus passengers shed further light on the actual innocence of the parties. The defrauded insurer bears the burden of establishing that rescission is justified.
Given the availability of benefits through the awarded tort program and the post-accident conduct of the bus passengers, which has had the effect of obscuring and complicating the litigation surrounding the processing of their claims, the court found that the equities favor cancellation of the policies of the individual and provider defendants.
West Bend’s motion for summary judgment is granted.
It was clear that the insured lied about the application and that rescission was appropriate. Whether the injured party and the insurer paying their no-fault benefits—innocent of the misrepresentation—were entitled to recover was a decision that required the court to weigh liquid assets between the insurer and the defendants. Their neglect and refusal to submit to an investigation under oath turned the stakes in favor of West Bend who had been defrauded and the 16 people on the bus who claimed injuries only after a police officer arrived were more than suspicious and made the case a classic bus jump case that protected West Bend.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, 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 attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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