FIFTH CIRCUIT UPHOLDS SUMMARY JUDGMENT THAT INSURER IS ENTITLED TO RETURN OF EXCESS SETTLEMENT FUNDS PAID TO INSURED IN ERROR

December 5, 2012

The U.S. Court of Appeals for the Fifth Circuit recently upheld a district court judgment that an insurer that mistakenly paid more than $500,000 in excess of an agreed settlement of a Hurricane Ike case was entitled to have the extra money returned unconditionally.  In National Casualty Co. v. Kiva Construction & Engineering, Inc., No. 12-20217, 2012 WL 5473563 (5th Cir. Nov. 12, 2012), the underlying dispute involved a settlement agreement between Kiva and National Casualty concerning hurricane damage to a number of marine vessels owned by Kiva.  National Casualty accidentally paid more than the agreed amount.  Kiva would not immediately return the overpayment, and instead offered various repayment terms that were not satisfactory; National Union then brought suit for breach of contract and “money had and received.”

During the adjustment of Kiva’s insurance claim, several disputes arose between the parties.  National Casualty agreed to pay $710,000 to settle the entire claim, both disputed and undisputed, and sent several checks to its attorneys to fund the settlement.  The largest of those checks for $610,000 was received and cashed by Kiva’s owner.  A clerical error resulted in the issuance of a second check for $610,000, which Kiva also cashed.  When National Casualty asked for the excess payment back, Kiva refused to tender the entire amount, instead offering various partial repayments or unsecured repayment terms.  National Casualty refused and brought suit.  Kiva counterclaimed, alleging breach of contract and certain first-party bad faith causes of action.

Kiva’s defenses and affirmative claims alleged that National Casualty breached the settlement agreement first by not paying the full agreed settlement amount.  Kiva also argued that National Casualty should have mitigated its damages by accepting Kiva’s partial reimbursement offers.  The district court and the Fifth Circuit rejected these arguments.  To the courts, all that mattered was that National Casualty had paid more than the settlement amount, and Kiva refused to remit the overpayment.  Since Kiva had no legal right to the money, National Casualty was not required to accept any terms other than full repayment of the entire excess amount.   The Fifth  Circuit  held  that the district  court  properly granted  summary judgment  on National Casualty’s claims for relief.  The court also rejected Kiva’s argument on procedural grounds that judgment against it on its own claims should not have been granted.