Fraud in Inception Allows Insurer to Rescind
Barry Zalma
Nov 29, 2023
Read the full article at https://lnkd.in/g4X8H3m7 and see the full video at https://lnkd.in/g2x4Cg2V and at https://lnkd.in/gTq_tAiJ and at https://zalma.com/blog plus more than 4650 posts.
Post 4678
Lamin Fatty appealed the trial court’s order granting summary disposition to Farm Bureau on the basis of finding Fatty’s fraud was grounds for contract rescission and reimbursement of benefits paid. In Lamin Fatty v. Farm Bureau Insurance Company Of Michigan, No. 363888, Court of Appeals of Michigan (November 21, 2023) the Court of Appeals resolved the dispute.
FACTS
After a motor vehicle accident where Fatty sustained bodily injuries the issue of rescission was raised when it was discovered that at the time of the accident, Fatty was insured by Farm Bureau under the no-fault act. Fatty obtained insurance with Farm Bureau on July 17, 2019. On the application for insurance, Fatty answered the following question in the negative: “Are any vehicles to be insured used to carry persons for a fee?”
Fatty received treatment for his injuries at Columbia Clinic among other medical facilities, and indicated to providers that he was “rear-ended as an Uber driver.”
Uber records indicated that Fatty began working as an Uber driver in early May 2019 (before he applied for the insurance) and drove for Uber on the day of the accident. Fatty’s drive log shows he picked up a rider at 6:05 p.m. and dropped them off at 6:30 p.m. Fatty picked up another rider at 6:38 p.m. and dropped them off at their destination at 6:50 p.m. Fatty continued picking up riders and completing trips that night until 8:17 p.m.
After this discovery, Farm Bureau filed a counterclaim on the basis of fraud, requesting reimbursement of benefits paid to or on behalf of Fatty with regard to the accident.
The trial court granted Farm Bureau’s motion for summary disposition of the counterclaim, including its request for reimbursement of $104,730.82 for benefits paid, because the policy was rescinded under the doctrine of fraud in the procurement. The trial court also found Fatty’s fraud entitled Farm Bureau to attorney fees under the no-fault act, and costs. Specifically, the trial court found the requested costs of $2,599.50 were reasonable and awarded $10,000 in attorney fees. Fatty appealed.
SUMMARY DISPOSITION OF THE CLAIM
The trial court properly rescinded the insurance policy because Fatty committed fraud in the procurement of the contract by explicitly denying using his vehicle to carry passengers for a fee. Because of this rescission, summary disposition of Fatty’s claims was appropriate, without regard to whether Fatty was driving for Uber at the time of the accident.
Fraud in the inducement to enter a contract renders the contract voidable at the option of the party deceived. An insurer has a reasonable right to expect honesty in the application for insurance. Rescission abrogates the contract and restores the parties to their relative positions had the contract never been made. A court must not hold an insurance company liable for a risk that it did not assume.
Farm Bureau’s evidence in the form of the litigation representative’s affidavit that he told the truth the policy would have been refused was unrefuted and it establishes the materiality of the misrepresentation. Fatty’s denial of carrying passengers for a fee was determined to be a material representation.
SUMMARY DISPOSITION OF THE COUNTERCLAIM
Reimbursement of the PIP benefits paid to Fatty was an appropriate remedy following rescission. Because the claim was fraudulent and Farm Bureau was the prevailing party, the award of attorney fees and costs was also proper.
The trial court properly awarded attorney fees to Farm Bureau. Farm Bureau was forced to defend against a claim pursued under a policy that was procured by fraud. Therefore, the award is within the range of reasonable and principled outcomes and was not an abuse of discretion. Accordingly, the award of attorney fees and costs to Farm Bureau was proper.
The trial court properly rescinded the contract because Fatty committed fraud in the procurement by explicitly denying he used his vehicle to carry passengers for a fee. Because the claim was fraudulent and Farm Bureau was the prevailing party, the award of attorney fees and costs was also proper.
ZALMA OPINION
Rescission is an equitable remedy that allows a contract to be voided from its inception as a result of fraud in the inception of the policy of insurance. Farm Bureau was deceived by Fatty who lied about a material fact, that he was carrying passengers as an Uber driver. He received no fault benefits as a result of this fraud and the court properly ordered the policy rescinded, ordered Fatty to repay the benefits he received plus attorneys fees it took to defeat the claim. Fatty learned that fraud does not pay and that he should never lie to a prospective insurer.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to Excellence in Claims Handling at locals.com at https://zalmaoninsurance.locals.com/subscribe or at substack at https://barryzalma.substack.com/publish/post/107007808
Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01
Follow me on LinkedIn: http://www.linkedin.com/comm/mynetwork/discovery-see-all...
Daily articles are published at https://zalma.substack.com.
Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to substack at https://lnkd.in/gcZKhG6g
Go to Newsbreak.com https://lnkd.in/g8azKc34; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gV9QJYH; Go to the Insurance Claims Library – https://lnkd.in/gwEYkxD.
Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
Read the full article at https://lnkd.in/gziRzFV8, see the full video at https://lnkd.in/gF4aYrQ2 and at https://lnkd.in/gqShuGs9, and at https://zalma.com/blog plus more than 5050 posts.
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
See the full video at https://lnkd.in/gw-Hgww9 and at https://lnkd.in/gF8QAq4d, and at https://zalma.com/blog plus more than 5050 posts.
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
See the full video at https://lnkd.in/gbWPjHub and at https://lnkd.in/gZ9ztA-P, and at https://zalma.com/blog plus more than 5050 posts.
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
See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.
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...
