Policy Obtained by Fraud Requires Insured to Reimburse Insurer for Defense and Indemnity
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’s 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 “outpatient drug/alcohol rehab services[.]” 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’s Medical Director), and Tamea Rae Sisco (Aminokit’s 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’s defense “subject to a full reservation of rights—including 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.”
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