Utah Supreme Court Rejects Insurance Company's Claim of 'Unjust Enrichment' Against Policyholder In Above-Policy-Limits Judgment

In a decision rebuking an attempted "perverse manipulation of risk" by an insurance company, the Supreme Court of Utah ruled that an insurance company does not have a right to reimbursement against an insured unless that right is expressively provided in an insurance policy.

The Supreme Court delivered its opinion in United States Fidelity and Guarantee Co. v. United States Sports Specialty Association (January 13, 2012) in answer to a certified question posed to it by the U.S. District Court for the District of Utah. Although three questions were certified, the Court responded only to the first, since its answer rendered the other questions moot. The question was, “Does an insurer have the right to reimbursement or restitution against an insured?”

The insurance company in the case, USF&G, argued that it was entitled to recovery using an unjust enrichment theory of its overpayments under an insurance policy.

In rejecting this argument, Justice Ronald E. Nehring, writing the opinion of the Utah Supreme Court, found that 1) "a claim of unjust enrichment cannot arise where there is an express contract governing the 'subject matter' of a dispute"; 2) an insurance policy is a form of contract; and 3) "If reimbursement is the type of right that should be expressly provided for in a policy had the parties intended it, there cannot also be an extracontractual right to restitution through a claim of unjust enrichment."

With regard to practical effects, Justice Nehring asserted:

The right of an insurer to recover reimbursement from its insured distorts the allocation of risk unless it has been specifically bargained for. This altered relationship may affect the motives, interests, and incentives that arise between the insurer and the insured under a claim for coverage. An insurer's claim to an unbargained-for right to reimbursement from its insured presents a perverse manipulation of risk that has no place in our law.

The dispute arose when USSSA was sued after a child suffered serious injury when struck in the head with a bat during an adult softball game. USSSA was insured by a USF&G liability policy with a limit of approximately $2 million. After USF&G refused to accept settlement offers within policy limits, a jury awarded a verdict of roughly $6.1 million against USSSA. USF&G moved to stay execution proceedings and block attempts to collect the judgment. The court stayed execution pending the outcome of the other post-trial motions on the condition that a bond for the entire amount of the judgment be posted within five business days of the hearing. USF&G initially posted a bond up to policy limits. When USSSA demanded that USF&G post the entire amount, USF&G did so under "a unilateral reservation of rights." USSSA contended that it never agreed to any reservation. Ultimately, USF&G settled the judgment for $4.825 million "under a 'unilateral reservation of rights' that purported to allow USF&G to seek reimbursement from USSSA for the approximately $2.8 million of the settlement that exceeded policy limits.

William G. Passannante, co-chair of the Insurance Recovery Group at Anderson Kill & Olick, P.C., was part of a legal team that filed an amicus brief in the case on behalf of United Policyholders, a nonprofit organization that protects the rights of insurance policyholders.

Mr. Passannante commented, "The Supreme Court of Utah has made it crystal clear that an insurance company cannot ignore the terms of the policy it sells to its policyholders, and cannot invent convenient new extracontractual rights for itself to avoid its above-policy-limits exposure."

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