Utah Supreme Court Advances Policyholder Rights

Utah's highest court rejects an insurance company's attempt to use the equitable doctrines of unjust enrichment and restitution to recoup an above-limits settlement payment made by the insurer in settlement of an underlying claim, holding that recoupment is only available if explicitly provided for in the insurance contract.

Weighing in on an issue that has split courts, the Utah Supreme Court recently held that a liability insurer that funds a settlement of an underlying claim against its policyholder for more than policy limits cannot later seek reimbursement of amounts paid in excess of policy limits under the "equitable principles" of unjust enrichment or restitution. Instead, the court held that recoupment is available only when the right is expressly provided in the insurance policy. U.S. Fid. & Guar. Co. v. U.S. Sports Specialty Ass'n, No. 20090657 (Utah Jan. 24, 2012) (USF&G). This decision underscores the need for policyholders to exercise caution before agreeing to any reserved right by an insurer handling the defense or indemnity of an underlying claim.

Background

A commercial liability policy typically provides that the insurer must defend and indemnify the policyholder for underlying lawsuits that do or may fall within the coverage of the policy. In some instances, an insurer may settle a claim against a policyholder even as the insurer contests coverage. When coverage is in dispute, the insurer will often defend and indemnify the policyholder subject to a "reservation of rights" to seek reimbursement from the policyholder if a court determines that the loss is not covered under the policy.

The USF&G decision places important limitations on an insurer's ability to recover payments that the insurer has made on behalf of a policyholder. USF&G arose when an injured party, seeking damages for personal injuries, sued the policyholder, the United States Sports Specialty Association (USSSA). United States Fidelity and Guaranty (USF&G) defended USSSA under a liability policy with policy limits of about $2 million. The case went to trial, and the jury found against USSSA and awarded the injured party approximately $6.1 million in damages.

USF&G filed various posttrial motions on USSSA's behalf, and the trial court agreed to stay execution of the judgment if USSSA posted a bond for the judgment amount of $6.1 million. USF&G initially posted only the $2 million provided for in the policy limits; USSSA demanded that USF&G post the entire...