FCE Benefit Administrators, Inc. v. Indian Harbor Insurance Company

Background

FCE Benefit Administrators, Inc. provides third-party administrator services for employee benefit plans governed by the federal Employee Retirement Income Security Act. Indian Harbor Insurance Company issued FCE an errors-and-omissions policy covering damages and defense expenses arising from FCE’s professional services.

FCE paid a $5.7 million arbitration judgment in an underlying matter. Indian Harbor paid FCE $3,281,672.16 in damages and defense expenses. In an earlier order, the court held that the policy’s liability limit for the underlying claim was $3 million and that defense expenses included all costs incurred under Indian Harbor’s duty to defend. Indian Harbor then filed a counterclaim seeking restitution—the return of money paid by mistake—for the $281,672.16 paid above the limit.

Choice of Law

The court applied California law. It stated that California law applied under the state’s contract-law rule because the policy was made in California and did not indicate that performance would occur elsewhere. The court also concluded that California law would apply under the governmental-interest approach because FCE is a California corporation, its corporate office is in California, and the policy was made there.

Restitution

The court held that Indian Harbor had an implied legal right to recover the overpayment. It reasoned that FCE received $281,672.16 in defense expenses or damages to which it was not entitled under the policy and therefore was unjustly enriched. The court relied on California restitution principles concerning mistaken payments and insurance payments made beyond an insurer’s obligations.

The court rejected FCE’s four arguments against restitution. First, it concluded that the policy concerns discussed in earlier California insurance cases did not prevent restitution here. Second, it rejected FCE’s argument that factual disputes existed about whether Indian Harbor believed it was required to make the payment when it did so. Because the court had determined that the $3 million limit applied, payments beyond that amount were mistaken absent an agreement to pay more.

Third, the court rejected FCE’s argument that it had relied on the payment when deciding to borrow money and pay the $5.7 million judgment. The court found no genuine factual dispute that FCE would have paid the judgment even without the $281,672.16 overpayment. Fourth, the court rejected FCE’s contention that the overpayment was part of a bona fide bargain because FCE provided no factual support for that assertion.

Prejudgment Interest and Disposition

The court concluded that the amount owed was certain and that Indian Harbor’s right to recover vested on September 9, 2021, when Indian Harbor advised FCE of the overpayment and its intent to seek reimbursement. It therefore awarded prejudgment interest from September 9, 2021, through the date of judgment.

The court granted summary judgment to Indian Harbor and awarded Indian Harbor $281,672.16 plus prejudgment interest to the date of judgment.