The Superior Court of New Jersey recently addressed the issue of whether an insured is required to reimburse its insurer where the damaged property is ultimately repaired at no cost to the insured.   Likely impacting the outcome was the fact that the property at issue was a yacht – and that the insured inaccurrately denied that such repairs had been made.

In AIG Casualty Company of New York, Inc. v. Donna Walsh,  the Walshes insured a yacht under an all risk policy, and in August of 2009, discovered that the port engine was damaged and would require repairs of $23,975.  AIG issued a check for $15,975 for the amount of repairs minus the policy deductible. In September of 2009, however, Hinckley, the yacht company, informed the Walshes that the engine manufacturer would replace the engine free of charge, and the company eventually did.

When AIG learned that the Walshes had not sustained any loss with respect to the engine repair it demanded the return of the $15,975, and the Walshes continuously refused. In December of 2010, AIG sued for reimbursement and was later awarded summary judgment.

The decision was affirmed on appeal, and the Court also held that AIG was entitled to summary judgment for its claim under the Fraud Prevention Act. The Court rejected the Walshes’ argument that they did not receive another payment for their loss so they were entitled to keep the payment received from AIG. The court held that the free repair by the engine manufacturer was, in essence, a payment and therefore AIG was entitled to reimbursement.  Further, the fact that the Walshes concealed the fact that the engined had later been repaired entitled AIG to the award under the Fraud Prevention Act.

Thanks to Thalia Staikos for her contribution to this post.  Please write to Mike Bono for more information.