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Insurer subrogates against policyholder in hazing incident

Fri May 6th, 2011 on     Bad Faith Insurance,    

If you search Miami and Florida news outlets for stories about fraternity hazing in any of the state’s colleges or universities, you won’t find many, or any, stories. A national search, unfortunately, will reveal multiple incidents, some at institutions with worldwide reputations for academic excellence. To warrant press coverage, of course, the incidents are most often tragic — and often tied to alcohol poisoning.

A hazing incident that occurred two years ago ended with a boy’s death. His parents filed a wrongful death lawsuit against the fraternity and four of its members. The defendants turned to the insurance company that covered the fraternity, its members and even pledges. After all, the insurer has two affirmative duties: the duty to defend and the duty to pay a judgment within policy limits.

The insurance company and the boy’s parents settled the wrongful death claim for an undisclosed amount. Then the company did something unusual.

It sued its policyholders.

The company filed a claim against the four boys, demanding that each pay his $50,000 share of the settlement. The boys and the company, the insurer argued, were jointly responsible for the accident. The company paid the full amount, and the boys needed to pony up their shares.

The insurer is claiming unjust enrichment. According to court documents, “The defendants accepted this benefit, and it would be inequitable for them to retain the benefit without payment to plaintiff of its value.”

It’s a puzzling claim for the defendants and their attorneys. And we’ll get into it in more detail in our next post.

Source: Associated Press, “Insurer settles suit with former USU frat members,” 05/02/11

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