Christopher French, ‘The Insurability of Claims for Restitution’

Abstract:
In essence, a claim for restitution is a claim by one party to recover something from another party who obtained it unlawfully (eg, the defendant stole something). The guiding principle underlying claims for restitution is unjust enrichment. The party that unlawfully has taken something from the other party should be required to return it or pay for it as a matter of law or equity. A claim seeking the disgorgement of profits or ill-gotten gains is an example of a claim for restitution.

Does and should a wrongdoer’s liability insurance cover an aggrieved party’s claim for restitution? This is the first article to answer those questions. To do so, one must first determine whether claims for restitution are covered under the terms of liability insurance policies. If they are, then one must determine whether claims for restitution are and should be insurable as a matter of public policy and insurance law theory. On the one hand, there are long-standing legal and equitable principles that dictate that a wrongdoer should not be allowed to benefit from its wrongdoing, which the wrongdoer would if insurance were allowed to cover claims for restitution. On the other hand, there are competing public policies that favor enforcing contracts and compensating innocent victims. If a claim for restitution is covered by the terms of an insurance policy but such claims are viewed as uninsurable as a matter of public policy, then insurers would receive windfalls in the form of millions of dollars of unearned premiums for policies that provide illusory coverage and thousands of innocent victims with claims totaling billions of dollars annually would go uncompensated. To analyze these issues and ultimately argue that claims for restitution are and should be covered by liability policies, this Article does so by using two common examples where the insurability of claims for restitution are regularly implicated – intellectual property infringement claims under Commercial General Liability insurance policies (CGL policies) and shareholder fraud claims under Directors and Officers liability insurance policies (D&O policies).

French, Christopher C, The Insurability of Claims for Restitution (September 10, 2015). 18 University of Pennsylvania Journal of Business Law (forthcoming).

First posted 2015-09-12 10:06:10

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