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If an insurer pays a loss, being induced so to do by fraud, or by mistake as to facts which, if it had had knowledge thereof, would have been a sufficient defense in an action by the insured upon the policy, the money so paid may be recovered. An insurer is not entitled to recover a payment made by it under a mistake of law. The insurer is not entitled to recover an improper payment unless it can show that it was not aware of the true facts at the time of paying the loss, and could not have learned of them by reasonable diligence. If an obligation procured by fraud is paid voluntarily with a full knowledge of the facts, the amount so paid cannot be recovered. Where one who makes a payment upon a controverted claim or demand is conscious of a want of knowledge of the material facts, or is uncertain, doubtful, or speculative concerning them, particularly where they have been in dispute and their status is specially brought to his attention, such payment is not made under a mistake of fact justifying recovery thereof.
The insured obtained an insurance policy covering his semi-truck. The insured reported to the insurers that the truck was stolen. Despite the fact that the insurers strongly suspected that the insured was involved in the theft, they paid the claim. The payment was made to the insured and the payee. The loss payee had acquired a security interest in the truck. Several years after the payment and after the insured was convicted of mail fraud, the insurers brought an action against defendants to recover the payment they had made. Until the payee received a letter from the insurers demanding a return of the payment, the payee had remained in the dark regarding the insured's fraudulent activities. The insurers filed a motion for summary judgment.
Could the insurers recover from the payee for what turned out to have been their mistake of fact in the factual but not legal sense?
The court denied the motion for summary judgment as to the payee. The court found that the payee was innocent. The insurers could not recover from the payee for what turned out to have been their mistake of fact in the factual but not legal sense. Restitution was inappropriate because the payee changed its position to its detriment. The court granted the insurers' motion for summary judgment as to the insured.