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After Rescission an Insurer May be Required Only to Pay an Innocent \\nInjured Person\\n\\nOn rare occasions bus accidents create a temptation to passengers to \\nclaim injuries as soon as it looks like insurance may apply. When the \\npassengers on a bus insured by West Bend Mutual Insurance Company (West \\nBend), their injuries appeared like magic. As a result of its attempted \\ninvestigation of a bus accident, West Bend moved for summary judgment \\nand defendant Citizens Insurance Company of the Midwest\'s (Citizens) \\nresponded and filed a counter motion for summary judgment. In West Bend \\nMutual Insurance Company v. Affiliated Diagnostic Of Oakland, LLC, et \\nal., Civil Action No. 21-cv-11007, United States District Court, E.D. \\nMichigan, Southern Division (February 21, 2023) the USDC weighed the \\nequities and resolved the dispute between two insurers.\\n\\nBACKGROUND\\n\\nWest Bend\'s amended complaint states that multiple individuals \\n(\\u201cclaimants\\u201d) allege that they were involved in an automobile accident \\non February 3, 2020. West Bend insured Kristy\'s Early Childhood \\nDevelopment Center, Inc. (Kristy\'s), pursuant to which West Bend \\nundertook to insure Kristy\'s solely against risks associated with the \\nchildcare business. At the time of the accident, West Bend alleged that \\nthe vehicle was not being used for the childcare business but was \\ninstead being used by a separate business entity, DLB Transportation \\nLLC, which had held the vehicle out for hire to the claimants. West Bend\\n determined that Kristy\'s had made material misrepresentations or \\nconcealed material facts when the policy was issued in so far as DLB \\nwould be using the vehicle in connection with its business.\\n\\nWest Bend sought rescission of the policy and a declaration that the \\npolicy was void ab initio. Only one defendant appeared in this matter \\nand now remains: Citizens is the assigned claims plan insurer for the \\nclaims arising out of the underlying accident. In its motion for summary\\n judgment, West Bend seeks to extend rescission of the policy as to 16 \\nnatural person defendants and certain medical providers who allegedly \\nprovided services to natural person defendants.\\n\\nANALYSIS\\n\\nRescission Of An Insurance Policy As To Innocent Third Parties Under \\nMichigan Law Requires A Balancing Of The Equities\\n\\nRescission as to innocent third parties is not an absolute right. When \\ntwo equally innocent parties are affected, the court is required, in the\\n exercise of its equitable powers, to determine which blameless party \\nshould assume the loss.

West Bend demonstrated that it did not have any notice or opportunity to\\n discover the true use of the vehicle. An insurer has a reasonable right\\n to expect honesty in the application for insurance.\\n\\nWEST BEND\'S ADDITIONAL FACTORS WEIGH IN FAVOR OF RESCISSION\\n\\nWest Bend offers two additional arguments in support of rescission. As \\nCitizens acknowledges:\\n\\nWest Bend urged that natural person defendants have repeatedly \\nstonewalled and thwarted West Bend\'s efforts to investigate their claims\\n and alleged injuries and that their failure to participate in this \\nlitigation has resulted in a substantial increase in time and cost for \\nWest Bend to prosecute this case.\\n\\nThe bus passengers\' refusal to participate in litigation regarding \\nrescission of the policy as against them suggests either ambivalence or \\nacquiescence in the relief sought by West Bend. \\n\\n\\nZALMA OPINION\\n\\nIt was clear that the insured lied on the application and rescission was\\n appropriate. Whether the injured and the insurer who paid their \\nno-fault benefits - innocent of the misrepresentation - were entitled to\\n recover. Their default and refusal to submit to an examination under \\noath placed the equities in favor of West Bend who had been defrauded \\nand the 14 people on the bus who claimed injuries only after a police \\nofficer arrived made the case a classic bus jumping case that protected \\nWest Bend.\\n\\n