Some subrogation claims do not fall neatly under a tort or contract claim, but the carrier nonetheless has a right to recover a loss. This can make the process of subrogating the claim more difficult, but there is an alternate cause of action that may apply: unjust enrichment. A court’s focus in deciding subrogation outcomes is fairness, and situations do arise where a party is owed money but there is no legal fault or contract to act on.

For unjust enrichment to apply to the subrogated matter, 5 factors must be present:

  1. One party has been impoverished.
  2. One party has been enriched.
  3. There is a connection between 1 and 2.
  4. There is no justification for 1 or 2.
  5. There is no other legal remedy available.

Applications of Unjust Enrichment in Medical & Automotive Subrogation

In subrogation law, unjust enrichment arguments are most often seen in cases of automotive and medical overpayments. Jason poses two hypotheticals to illustrate the application of unjust enrichment:

A. A medical insurance carrier receives a reasonable and justified claim from a medical provider for personal injury in an automotive incident. That money is appropriately allocated and paid to the medical provider. Later, the medical carrier finds out that their insured’s auto insurance company had already covered the bill. Now, the medical provider has been paid twice:

  1. The medical carrier has been impoverished.
  2. The medical provider has been enriched.
  3. 1 and 2 are directly related.
  4. There is no justification for the medical provider to have been paid twice.
  5. There is no contract or fault cause of action.

B. An auto body shop gives an insurance carrier an estimate for repairs to a damaged vehicle claim. The carrier pays out that money to the body shop. The carrier then changes their mind and decides the car is a total loss; they will not do repairs. Now, the auto body shop has been paid for services they never had to provide:

  1. The insurance carrier has been impoverished.
  2. The auto body shop has been enriched.
  3. 1 and 2 are directly related.
  4. There is no justification the shop be paid for work they did not do.
  5. Tort and contract actions don’t apply.

Not Every Case of Unjust Enrichment is Cut & Dry

Unjust enrichment is not always a black or white situation. Jason poses a hypothetical aspiring subrogation attorneys universally encounter in law school:

Your neighbor hires house painters; they all sign a contract. When the house painters show up to do the job, they accidentally begin painting your house instead of your neighbor’s. You are not home at the time that they start, but come home for your lunch break to find a bunch of people painting your house for free. You decline to say anything and return to work, allowing them to carry on painting your house. Later, they return and demand payment. You argue that you never had a contract with them. They argue unjust enrichment, and they’re right to do so:

  1. The painters have been impoverished by providing services without compensation.
  2. You have been enriched by getting your house painted at no cost to you.
  3. 1 and 2 are directly related.
  4. There is no justification for you to have had your house painted for free.
  5. There is no contract for them to use to pursue payment.

Jason then discusses a situation of duplicate payment to illustrate why tortious behavior is not necessarily present in cases of duplicate payment:

Your insured receives double payments from multiple parties for a single loss. Importantly, this is different from fraud or SIU situations, which we have a separate informative video about, because there is no fault required from unjust enrichment. In SIU cases, the party is acting in bad faith and making false claims to receive benefits they are not entitled to. In unjust enrichment, maybe your insured didn’t do anything wrong to receive the double payment, but it would be bad faith to keep both checks when they are only entitled to one. The insurer who paid the duplicate payment has a right to recover those funds via subrogation using the unjust enrichment cause of action.

Complicated Subrogation Cases & the Court’s Focus on Fairness

The reason that unjust enrichment can become complicated is because it is based on equity, and what is fair is not always all or nothing. Jason revisits the case of the auto body shop that was paid for work they ended up not having to do:

To recap: The auto shop prepares the estimate of repair, the insurance carrier pays it, but later decides the vehicle is a total loss. At face value, the body shop should not receive money for repairs they did not do, right?

Not exactly. The did inspect the vehicle, took pictures, did a teardown, ordered parts, and might have even started the repairs before the carrier told them they had decided the car was a total. Because of that, the court will probably rule that, while the auto body shop is not entitled to the entire payment, they are still entitled to an amount that is proper compensation for the work they did do.

Another interesting case of how insurance coverage policies can complicate subrogation matters:

There is a medical provider for an auto case. There are likely 3 parties responsible for the costs: the auto insurer, the health insurer, and the injured person from the accident. The total medical bill the provider invoices is for $5000. As the health insurer, you agree to pay $2500 after coverage and deductions, and the provider agrees to that $2500 amount. The auto insurer then does the same thing for that reduced agreed-upon amount. Now, the medical provider has been paid twice. 

In the argument for unjust enrichment, the issue again arises with item 4. In the body shop case, there was partial justification for the enrichment; they had done work. In this case, the courts may find there is justification for the enrichment here as well. The sum of both reduced payments is equal to the original bill; the insurance carriers essentially split the cost by each paying $2500.

Deciding if Unjust Enrichment Applies to a Subrogated Matter

As with all subrogation claims, determining the viability to unjust enrichment as an alternate route to recovery requires thorough investigation into the circumstance of the claim. When the enriched party claims they have a right to everything they received, ask them why. Maybe they will offer information, evidence or an argument that allows you to better evaluate a subrogation claim and make a decision before you incur litigation costs.

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