Kossian v. American National Insurance Co.

Brief Fact Summary.

Kossian (Plaintiff) was hired by Reichert to clean up and remove debris from a fire-damaged building. When Reichert went bankrupt, he assigned his fire insurance policies to American National Insurance Co. (Defendant) which held a deed of trust on the property. Plaintiff sued Defendant alleging unjust enrichment because Defendant received both Plaintiff’s labor and materials and the insurance proceeds intended to cover clean up and debris removal costs.

Synopsis of Rule of Law.

When a party expends labor and materials and another party recovers the cost of such labor and materials through insurance proceeds, the equitable doctrine of unjust enrichment provides that the first party should be reimbursed, even where the second party had not contracted with or induced the first party to perform the work.

Facts.

Reichert owned the Bakersfield Inn and held four fire insurance policies on it. Each of the policies contained provisions for covering the costs of cleaning up fire damage and removal of debris. Defendant held a deed of trust on the property. A portion of the Inn was damaged by fire and Reichert hired Plaintiff to clean up the damage and remove any debris for $18,900. Defendant was unaware of this agreement between Reichert and Plaintiff. After the work was done, Reichert declared bankruptcy. The bankruptcy trustee abandoned the property as well as an interest in the four fire insurance policies. Reichert assigned the policies to Defendant, who submitted clams and obtained $135,620 from the policies. This payment included some portion of the cost of debris removal and clean up, but it is not clear how much. Plaintiff sued for the amount owed him for labor and materials under the theory of unjust enrichment, arguing that Defendant received both the actual labor and materials and the payment from the insurance policies for that labor and materials. The trial court granted summary judgment in favor of Defendant and Plaintiff appealed.

Issue.

Does the equitable doctrine of unjust enrichment require reimbursement to a party that expended labor and materials when another party recovers the costs of that labor and materials through insurance proceeds, even when the recovering party did not contract with, or induce, the first party to perform the work?

Held.

(Stone, J.) Yes. When a party expends labor and materials and another party recovers the cost of such labor and materials through insurance proceeds, the equitable doctrine of unjust enrichment provides that the first party should be reimbursed, even where the second party had not contracted with or induced the first party to perform the work. The work here was done based upon a contract between Reichert and Plaintiff, without any knowledge of Defendant. Defendant had no agreement with Plaintiff to reimburse him with the insurance proceeds and had not acted in any way to induce Plaintiff to perform the work. Had Defendant taken the property that Plaintiff had worked on through foreclosure, there would be no unjust enrichment, even though Defendant would have received the benefit of Plaintiff’s work. However, the insurance proceeds Defendant received for the very work that Plaintiff performed does give rise to a claim of unjust enrichment. Defendant argues that because there was no privity with Plaintiff and no fraud or deceit on its part, it should receive both the work done by Plaintiff and the insurance proceeds. That argument fails, however, because Plaintiff is not laying claim to the insurance proceeds. He is instead suing in equity, arguing that Defendant should not be allowed to receive Plaintiff’s work and the monetary value of that work. Unjust enrichment claims can be valid without privity of relationship when equity requires it. As a matter of equity, one party should not recover twice for the same loss, once in actual repair and then again in the proceeds to cover that repair, to the detriment of the party who did the repair. Accordingly, under the doctrine of unjust enrichment, Plaintiff is entitled to reimbursement for his work from the insurance proceeds paid to Defendant for clean up and debris removal. The trial court should clarify what portion of the insurance recovery was meant for this type of work and to the extent that Defendant received insurance for the debris removal done by Plaintiff, Plaintiff should recover.

Discussion.

Unjust enrichment cases usually are decided based upon the court’s sense of justice, not upon a certain rule governing restitution. As the court and the Restatement of Restitution note, the nature of equitable recovery makes definitive precedent unlikely and leaves “unjust enrichment” largely undefined. Instead of elements to a cause of action, the Restatement provides guiding principles. The Restatement says that “A person who is unjustly enriched at the expense of another is subject to liability in restitution,” but does not identify when an enrichment is unjust. This determination is left to the courts interpreting what precedent there is, as well as their own sense of justice.