Rescission Applies to Bus Jumpers

After Rescission an Insurer May be Required Only to Pay an Innocent Injured Person

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Insurers Should Carefully Avoid Suing Another Insurer

On rare occasions bus accidents create a temptation to passengers to claim injuries as soon as it looks like insurance may apply. When the passengers on a bus insured by West Bend Mutual Insurance Company (West Bend) crashed their injuries appeared like magic. As a result of its attempted investigation of a bus accident, West Bend moved for summary judgment and defendant Citizens Insurance Company of the Midwest’s (Citizens) responded and filed a counter motion 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, E.D. Michigan, Southern Division (February 21, 2023) the USDC weighed the equities and resolved the dispute between two insurers.


West Bend’s amended complaint states that multiple individuals (“claimants”) allege that 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 solely against risks associated with the childcare business. At the time of the accident, West Bend alleged that the vehicle was not being used for the childcare business but was instead being used by a separate business entity, DLB Transportation LLC, which had held the vehicle out for hire to the claimants. West Bend determined that Kristy’s had made material misrepresentations or concealed material facts when the policy was issued in so far as DLB would be using the vehicle in connection with its business.

West Bend sought rescission of the policy and a declaration that the policy was void ab initio. Only one defendant appeared in this matter and now remains: Citizens is the assigned claims plan insurer for the claims arising out of the underlying accident. In its motion for summary judgment, West Bend seeks to extend rescission of the policy as to 16 natural person defendants and certain medical providers who allegedly provided services to natural person defendants.


Rescission Of An Insurance Policy As To Innocent Third Parties Under Michigan Law Requires A Balancing Of The Equities

Rescission as to innocent third parties is not an absolute right. When two equally innocent parties are affected, the court is required, in the exercise of its equitable powers, to determine which blameless party should assume the loss.

West Bend demonstrated that it did not have any notice or opportunity to discover the true use of the vehicle. Citizens’ argued that with some additional investigation West Bend could have figured out that the bus was not being used by Kristy’s in the manner indicated in the insurance policy. Citizens offered no indication of some previous malfeasance, irregularity 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 was going to be used by the childcare center for transporting children. An insurer has a reasonable right to expect honesty in the application for insurance.


West Bend offers two additional arguments in support of rescission. As Citizens acknowledges:

  1. West Bend urged that natural person defendants have repeatedly stonewalled and thwarted West Bend’s efforts to investigate their claims and alleged injuries and that their failure to participate in this litigation has resulted in a substantial increase in time and cost for West Bend to prosecute this case. Because there was no evidence that West Bend engaged in any wrongdoing in connection with Natural Person Defendants’ claims, West Bend urged that Natural Person Defendants’ conduct in pursuing their claims also weighs in favor of rescission. In particular, the natural person defendants refused to appear for examination under oath and that six individuals refused to appear for depositions in a related state-court lawsuit.
  2. West Bend urged that although natural person defendants did not directly cause the accident, testimony was offered that the Natural Person Defendants acted as though they were injured only after a police officer entered the bus.

The bus passengers’ refusal to participate in litigation regarding rescission of the policy as against them suggests either ambivalence or acquiescence in the relief sought by West Bend. The Court assumed that both West Bend and the bus passengers were innocent with regard to the perpetration of the fraud. But the passengers’ conduct immediately following the accident and during the course of the litigation is not entirely blameless and tips the scales in favor of rescission.

The Court was persuaded that the two additional considerations offered by West Bend regarding the bus passengers’ conduct following the accident shed further light onto the true innocence of the parties. The defrauded insurer bears the burden of establishing that rescission is warranted.

Given the availability of benefits through the assigned claims program and the bus passengers’ conduct after the accident which has had the effect of obscuring and complicating the litigation related to processing of their claims, the Court found that the equities favor rescission of the policy as to the natural person and provider defendants.

West Bend’s motion for summary judgment was granted.


It was clear that the insured lied on the application and rescission was appropriate. Whether the injured and the insurer who paid their no-fault benefits – innocent of the misrepresentation – were entitled to recover was a decision requiring the court to weigh the equities between the insurer and the defendants. Their default and refusal to submit to an examination under oath placed the equities 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 jumping case that protected West Bend.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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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 and

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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