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Policy Obtained by Fraud Requires Insured to Reimburse Insurer for  Defense and Indemnity  

https://zalma.com/blog

See the full video at  and at  Diverting from stories where I was personally involved this story comes  from the U.S. Tenth Circuit Court of Appeal.  An insurer asserted claims against its insured for fraud and unjust  enrichment. The Tenth Circuit was asked to determine if Colorado law  permits an insurer to recover a settlement payment made on behalf of its  insured for fraud.  

The insured fraudulently obtained an insurance policy for its  inpatient-drug-treatment center, and when the insured was sued by a  former patient, the insurer assumed the insured\\u2019s defense, subject to a  reservation of rights. Even after learning that the insured had  fraudulently obtained the policy, the insurer settled with the former  patient under pressure from the insured and threats of bad faith  litigation. The insurer sought to recover from its insured the  settlement payment.  In Evanston Insurance Company v. Aminokit Laboratories, Inc., No.  19-1065, D.C. No. 1:15-CV-02665-RM-NYW, United States Court of Appeals  for The Tenth Circuit (decided March 18, 2020). 

Aminokit Laboratories,  Inc., a Colorado Corporation, owned and operated an addiction-treatment  center in Lone Tree, Colorado. On October 19, 2014, Aminokit procured an  insurance policy for this treatment center from Evanston Insurance  Company. The policy covered \\u201coutpatient drug/alcohol rehab services[.]\\u201d  To secure the policy, Aminokit made several material misrepresentations  and omissions.\\\\

For example, Aminokit failed to disclose that it maintained overnight  beds for its patients, instead claiming that it operated its business  solely between 10:00 a.m. and 5:00 p.m. Aminokit also falsely denied  that any of its employees had ever been evaluated or treated for  alcoholism or drug addiction and misrepresented the circumstances by  which its CEO had lost her chiropractic license.  Brandon Lassley, a former Aminokit patient, sued Aminokit, Dr. Jonathan  Lee (Aminokit\\u2019s Medical Director), and Tamea Rae Sisco (Aminokit\\u2019s CEO)  in the District of Colorado.

Evanston initially declined to provide a  defense to Aminokit, concluding that the claims were outside the scope  of coverage, because they alleged intentional and fraudulent conduct.  Lassley amended his complaint, adding state claims against Aminokit and  Dr. Lee for negligence and breach of fiduciary duty. Evanston, which  again concluded that no coverage was afforded for the Lassley suit but,  because of the amendment, Evanston accepted Aminokit\\u2019s defense \\u201csubject  to a full reservation of rights\\u2014including the right to withdraw the  defense and the right to pursue reimbursement from Aminokit . . . while  it s[ought] a declaration of its rights and duties under the policy.\\u201d

(c) 2022 Barry Zalma & ClaimSchool, Inc.  Barry Zalma, Esq., CFE,  is available at http://www.zalma.com and zalma@zalma.com.  Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.  Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.