Monies Paid on a Claim Before Rescission Ordered Must be Returned to the Insurer
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Liberty Mutual Personal Insurance Company (“Liberty Mutual”) moves for summary judgment on its counterclaim for unjust enrichment and return of funds paid on a policy that was, after the payments were made, declared rescinded from its inception. In Tanesha Taybron v. Liberty Mutual Personal Insurance Company, No. 20-10925, United States District Court, E.D. Michigan, Southern Division (May 19, 2022) the USDC resolved claims by the Plaintiff that she need not return payments made by Liberty to her before the policy was effectively rescinded.
LAW AND ANALYSIS
The parties do not dispute the existence of an express contract: the insurance policy issued by Liberty Mutual. When there is no dispute regarding the existence of an express contract covering the subject matter at issue, courts regularly dismiss unjust enrichment claims as a matter of law. Liberty Mutual may not recover on an unjust enrichment theory.
This does not end the inquiry, however, as the relief Liberty Mutual seeks – restitution – is inherent in the equitable remedy of rescission.
“Rescission is the common, shorthand name for a composite remedy (more fully, ‘rescission and restitution’) that combines the avoidance of a transaction and the mutual restoration of performance thereunder.” [Restatement (Third) Of Restitution And Unjust Enrichment § 54 cmt. a (2011)].
Liberty Mutual was entitled to rescind the insurance policy based upon Taybron’s material misrepresentation in her application. An insurance policy procured by fraud may be declared void ab initio at the option of the insurer. Rescission abrogates a contract and restores the parties to the relative positions that they would have occupied if the contract had never been made. To rescind a contract is not merely to terminate it, but to undo it from the beginning, and the effect of rescission is not merely to release the parties from further obligation to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made.
Rescission Involves a Restoration of the Status Quo.
In this case, the status quo has been partially restored, in that Liberty Mutual returned the premium paid by Taybron for the policy. Unlike cancellation of a policy, which permits the insurer to keep that portion of the premiums corresponding to the period of coverage preceding cancellation, rescission requires a full refund of the premiums paid.
In order to restore the status quo, as if the contract had never been made, so too must Taybron return the amounts paid to her or on her behalf under the policy. An insurer entitled to rescind an insurance policy because of fraud is not obligated to pay benefits under that policy. Requiring Liberty Mutual to return the premium without considering the benefits already paid restores Taybron to her precontract position, but not Liberty Mutual.
An insurer who has an “arguable duty to pay” under a policy is protecting its own interests and not acting as a volunteer and Liberty had the arguable duty until the court affirmed its claim for rescission. Assuming that Liberty Mutual knew the basis for rescission early in its investigation of the claim, it nonetheless had a strong incentive for paying Taybron’s claim promptly and sorting out its liability later.
Taybron obtained benefits as a result of a misrepresentation in her insurance application. In this regard, she is primarily responsible for her own unjust enrichment.
The measure of unjust enrichment or restitution may be calculated in different ways, depending on the circumstances. In this case, Taybron received a direct money payment and Liberty Mutual paid housing costs on her behalf. Enrichment from a money payment is measured by the amount of the payment or the resulting increase in the defendant’s net assets, whichever is less. Enrichment from the receipt of nonreturnable benefits may be measured in various ways, including the value to the defendant, the market value, or the cost to the claimant of conferring the benefit.
In light of the circumstances, which involve rescission and a return to the status quo, the cost to Liberty Mutual of conferring the benefits is the appropriate measure of value. Restoring the parties to the status quo, as if no contract had been made, must involve restitution of the amount Liberty Mutual paid under the policy, rather than calculation of the subjective benefit experienced by Taybron. Enrichment from benefits wrongfully obtained is not discounted to reflect some lesser value actually realized in advancing the purposes of the defendant.
Liberty Mutual paid $21,921.05 to or on behalf Taybron under a policy that was properly rescinded. Restitution in that amount to Liberty Mutual returns the parties to the status quo and avoids the retention of a benefit that was wrongfully obtained.
Liberty Mutual’s motion for summary judgment was granted in part.
ZALMA OPINION
Liberty Mutual determined, after a claim was presented, that it appeared its insured had lied on the application for insurance about material facts that entitled Liberty Mutual to rescind. While obtaining a judgment confirming rescission Liberty Mutual protected itself by paying the claim under a reservation of rights. It rightfully required return of the money paid since the policy – by law – never existed and the court agreed it was entitled to restitution.
(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 [email protected].
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...