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Insurance Company Tries to Sue Its Own Insured to Recover Settlement Pay-Out

May 19, 2011
Colson Hicks Eidson

Is it bad faith for an insurance company to sue its insured in an attempt to recover what it paid out in a settlement on behalf of the insured? Attorneys for the insured think so in one particular federal court case, which the insurance company is now backing away from without comment.

In November 2008, a Utah State University fraternity freshman died from over-drinking during a fraternity event. The victim’s parents sued four members of the fraternity after their son’s death. RSUI, Inc., (RSUI) insured the fraternity and its members and settled the wrongful death suit on behalf of its insured. RSUI then sued the four fraternity members for reimbursement on what it paid in the settlement. The insurance company wanted $50,000 from each defendant.

Defense attorneys argued that RSUI breached its good faith agreement by suing its own policyholder. One Florida lawyer said that an insurance company cannot subrogate against its own insured. It is practically the definition of bad faith, according to the attorney. One of the defendant’s attorneys said it is like an auto insurer suing a policyholder for causing an accident.

Attorneys for the defendants say that their clients paid nothing to RSUI and it was a “mutual walk-away.” RSUI declined to comment.

Contact an experienced Florida attorney if you believe your insurance company is operating in bad faith. A bad faith insurance attorney is happy to answer your questions.