Can Insurer Avoid Bad Faith by First Settling Then Suing?

The 10th Circuit U.S. Court of Appeals recently affirmed the ruling of the lower court and held that an insurer can recover an underlying settlement that it made on behalf of its insured as fraud damages, effectively avoiding a bad faith claim. The case is Evanston Ins. Co. v. Aminokit Labs., Inc.  No. 19-1065, 2020 U.S. Ap. LEXIS 8571 (10th Cir. Mar. 18, 2020)

Aminokit Laboratories Inc., (Aminokit Labs) a Colorado Corporation, owned and operated an addiction-treatment center in the same state. In October 2014 Aminokit Labs obtained an insurance policy that covered “outpatient drug/alcohol rehab services” from Evanston Insurance Company (Evanston) for the treatment center. In securing the policy Aminokit Labs made several material misrepresentations to Evanston.