Must I pay back my insurance company after receiving a settlement (Compromise and Release of Claims) from the responsible party?

Asked over 4 years ago - Kalispell, MT

In January my condo was damaged due to flooding from a neighboring unit (owned by HUD). My insurance covered the damages minus my $1000 deductible. Six months passed and I received a Compromise and Release of All Claims form from the legal management team representing HUD. They have agreed to pay the sum of the damages if I release them from any and all wrongdoing, fault, or liability. My question is...when I receive the settlement, do I have to pay back my insurance company? The letter suggests that the settlement is solely to "avoid litigation and buy their peace" and they "deny liability for the claims".

Attorney answers (2)

  1. Brian Bennett Pastor

    Pro

    Contributor Level 8

    Answered . Reading your insurance contract is the starting place to determine the answer to whether you are obligated to pay back your insurance company. Most insurance contracts address this issue head on in a clause labeled "subrogation" though not all contracts may carry this label. Most home owner's insurance policies contain a subrogation clause or one that has the same effect. These clauses vary in their length and complexity, but they all have in common that if the insurance pays out a claim, which the insured later recovers from a third party, the insurance company is contractually entitled to recover from its insured the amount that the insurance company paid out. As you might expect, this can raise a number of questions. First, is the insured obligated to notify its insurance company that it received money from a third party? Depends on the language of your policy - many policies have this obligation, and some do not. Another common question is what exactly was the insured compensated for by the third party - this can be an area of argument between the insurance company and the insured - the insured might claim that the 3rd party paid for things that were not paid for by their insurance company (such as lost wages for time taken off work, child care expenses, and other tangible losses that were a direct result of the problem that gave rise to the insurance claim but which were not paid for by the insurance company. Another common question I get in my practice is whether, as a practical matter, will the insurance company find out about the settlement. This is an interesting question, because it implies that the insured doesn't want to pay the insurance company back unless and until they demand it. In my 18 years of practice, I have seen many times where the insurance company never followed up to see whether the insured recovered from a third party. While the insured got to keep the money in these instances, in essence getting a double recovery, this was not legal advice since the insured in many instances was obligated to notify and pay the insurance company back. The insured simply got a windfall. Now, the issue of paying back the insurance company on property damage claims versus claims of personal injury are markedly different. Personal injury claims and whether the victim has to pay back the insurance company is an area that is so incredibly complex, that most personal injury attorneys don't really understand the answer. Some federal circuits and states such as Georgia have what is called a "Made Whole doctrine which stabds for the proposition that the insurance company cannot get subrogation from its insured unless and until the third party tort-feasor has made the victim "Whole". But even this exception to payign back the insurance company is dependent on an analysis of U.S. Supreme Court Law, whether the plan is a "self-insurance" plan, the federal circuit the injury occurred in, the language of the policy in issue and other complex factors. Suffice to say that I and hundreds of lawyers have spend hundreds of hours trying to work out each individual client's situation as it arises.

    As to property damage alone, I would recommend you read you insurance policy and look for a clause called "subrogation" and then consult with a lawyer in your state who has significant experience in "insurance" contracts.

    **Legal Disclaimer** This response has been prepared for informational purposes only and is not legal advice. The information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel. You should consult an attorney for individual advice regarding your own situation. Do not share confidential information until you speak with an attorney one on one and get authorization to convey any confidential information.

  2. Brian Bennett Pastor

    Pro

    Contributor Level 8

    Answered . (spelling corrected) -

    Reading your insurance contract is the starting place to determine the answer to whether you are obligated to pay back your insurance company. Most insurance contracts address this issue head on in a clause labeled "subrogation" though not all contracts may carry this label. Most home owner's insurance policies contain a subrogation clause or one that has the same effect. These clauses vary in their length and complexity, but they all have in common that if the insurance pays out a claim, which the insured later recovers from a third party, the insurance company is contractually entitled to recover from its insured the amount that the insurance company paid out. As you might expect, this can raise a number of questions. First, is the insured obligated to notify its insurance company that it received money from a third party? Depends on the language of your policy - many policies have this obligation, and some do not. Another common question is what exactly was the insured compensated for by the third party - this can be an area of argument between the insurance company and the insured - the insured might claim that the 3rd party paid for things that were not paid for by their insurance company (such as lost wages for time taken off work, child care expenses, and other tangible losses that were a direct result of the problem that gave rise to the insurance claim but which were not paid for by the insurance company. Another common question I get in my practice is whether, as a practical matter, will the insurance company find out about the settlement. This is an interesting question, because it implies that the insured doesn't want to pay the insurance company back unless and until they demand it. In my 18 years of practice, I have seen many times where the insurance company never followed up to see whether the insured recovered from a third party. While the insured got to keep the money in these instances, in essence getting a double recovery, this was not legal advice since the insured in many instances was obligated to notify and pay the insurance company back. The insured simply got a windfall. Now, the issue of paying back the insurance company on property damage claims versus claims of personal injury are markedly different. Personal injury claims and whether the victim has to pay back the insurance company is an area that is so incredibly complex, that most personal injury attorneys don't really understand the answer. Some federal circuits and states such as Georgia have what is called a "Made Whole doctrine which stands for the proposition that the insurance company cannot get subrogation from its insured unless and until the third party tortfeasor has made the victim "Whole". But even this exception to paying back the insurance company is dependent on an analysis of U.S. Supreme Court Law, whether the plan is a "self-insurance" plan, the federal circuit the injury occurred in, the language of the policy in issue and other complex factors. Suffice to say that I and hundreds of lawyers have spend hundreds of hours trying to work out each individual client's situation as it arises.

    As to property damage alone, I would recommend you read you insurance policy and look for a clause called "subrogation" and then consult with a lawyer in your state who has significant experience in "insurance" contracts.
    **Legal Disclaimer** This response has been prepared for informational purposes only and is not legal advice. The information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel. You should consult an attorney for individual advice regarding your own situation. Do not share confidential information until you speak with an attorney one on one and get authorization to convey any confidential information.

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