If you were overpaid on an insurance payout and spent the money, what are your legal obligations?

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If you were overpaid on an insurance payout and spent the money, what are your legal obligations?

We experienced a house fire. The house was deemed a total loss and the insurance company. It had to pay us out full coverage for the rebuild and personal content. The insurer is now saying that we were overpaid on personal contents and it wants us to pay them back. It has been 3 months since the final check was cut. We have spent that money. What legal obligation do we have to repay them for their mistake?

Asked on August 9, 2011 Wisconsin

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

IF you were truly paid too much, due to some error--e.g. double-counting certain items; including items not actually destroyed; using demonstrably the wrong value for items; etc.--then you probably have to repay. A clerical, typographic, mathematical or other obvious "mistake" does not create a  right to the money, and the fact that you have spent it already does not, either. (Given that the insurer made a mistake, it would be reasonable to have some time to repay and work out a payment schedule.)

On the other hand, if it was not a mistake, but they simply offered you more, in retrospect, than they think they needed to, that is not an error and they should not be entitled to the money back. For example: my basement once flooded and my claim included a claim for around 200 paperback books. I received around $3.00 each for them, because they were used books. If the insurerer had initial chosen to pay whatever the face or cover value of the book was--which would have been higher--but then thought better of that, that does not entitle to them a return of the alleged overpayment.

So, actual, demonstrable error--you probably need to repay. The insurer made an error of judgment or changed its mind--you probably don't.


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