Don't keep checks with clerical errors

The Counselor:

Fred and Wilma Flintstone are living the high life. Fred has a one million life insurance policy from “The Rock Insurance Company.” One day, because of a clerical error involving a death certificate for a “Frederick Flagstone,” Wilma — the named beneficiary — receives a check for a cool million. Before long, Fred and Wilma buy a new Mercedes, a huge mansion and all the “bubbly” the wine cellar will hold. Barney, Fred’s best friend, warns Fred that if the insurance company discovers its mistake, it will want its money back. Is Barney right?

Louisiana law recognizes a simple principle; if someone pays you money by mistake that you were never legally entitled to receive, the person who made the payment can generally recover it. Lawyers call this the payment of a thing not due. In this situation, life insurance proceeds paid because the insurance company mistaking believed the insured had died constitute the payment of a thing not due. The insurance company can require a return of the money from the person who unduly received it. If Wilma promptly notifies the insurance company and returns the money, she is acting in good faith. But if Fred and Wilma know the payment was a mistake and spend the money anyway, Louisiana law may require them to repay not only the one million dollars but also legal interest and any profits or benefits they received from the money.

The closing argument

Fred and Wilma may have yelled out “Yabba Dabba Doo” when the check arrived, but will be saying “Uh-oh” when The Rock Insurance Company comes calling. Sometimes, the most expensive money you’ll ever spend is money that never belonged to you. When a payment arrives that you know isn’t your, the smartest investment is returning it before it costs you even more.

David Doughty is an attorney with the law firm of Cotton, Bolton, Hoychick & Doughty.

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