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Reimbursement of Advance Benefits
Insurance companies are often required to decide whether to pay benefits under the policy before sufficient information is known about the claim to determine whether there will ultimately be coverage. So, what happens if it is later discovered that payments were made for non-covered claims? Can an insurer seek reimbursement? Although a plethora of case law exists on an insurer's right to seek reimbursement of defense costs and settlement payments on non-covered claims, rendering mixed results on these issues nationwide, there is a dearth of decisions on reimbursement of advance benefits. Two recent decisions suggest that an insurer can seek reimbursement, albeit under differing theories of law, leaving open the conundrum of how an insurer can preserve its rights. A review of the differing theories allowing recovery and suggestions on how an insurer can protect its rights to reimbursement follows.
Equitable Remedies
In Bridger Lak', a federal court in Louisiana held that an insurer was allowed to seek reimbursement of advanced funds under a theory of unjust enrichment if it later determined there was no coverage under the policy. Bridger Lake, LLC v. Seneca Ins. Co. Inc., 11-0342, (W.D. La. 3/4/14); 2014 WL 849893. After receiving notice of a claim, Seneca made an advance under the policy to assist with immediate remediation costs following a ruptured pipeline. When the money was forwarded to Bridger Lake, Seneca included a reservation of rights letter stating, “[t]his advance is not to be construed as a[n] admission of coverage, and [Seneca] expressly reserves its right to seek reimbursement of the $100,000 from [Bridger Lake] in the event that ' there is no coverage for this loss.” The letter further stated that if coverage did exist, the advance would be taken out of the $1 million coverage limit. Seneca then refused to make any further payments under the policy.
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