Restitution to Insurers and the Insured

Suppose my home is broken into and many things are stolen. My insurance company compensates me for the damage to the house and the items that were taken. Two related questions arise if the person who broke in is charged and convicted. Can the defendant be ordered to pay restitution to my insurance company? And can the defendant be ordered to pay restitution to me even though I have already been made whole by my insurer?

In North Carolina, both questions are answered by G.S. 15A-1340.37(d). Under that law, “[n]o third party shall benefit by way of restitution as a result of the liability of that third party to pay indemnity to an aggrieved party for the damage or loss caused by the defendant . . . .” In other words, restitution may not be ordered directly to the insurer. Our appellate courts have long recognized this rule, which was previously codified in G.S. 15A-1343(d). See State v. Maynard, 79 N.C. App. 451, 453 (1986) (“The court thus cannot order defendant to pay restitution to the insurer.”); State v. Stanley, 79 N.C. App. 379 (1986) (vacating the trial judge’s order of restitution to the victim’s insurer). Cf. State v. Ray, 125 N.C. App. 721 (1997) (upholding a trial court’s recommendation that a defendant pay $82,000 to Medicaid, which had paid the victim’s medical bills, as a condition of the defendant’s post-release supervision).

G.S. 15A-1340.37(d) goes on to say that “the liability of a third party to pay indemnity to an aggrieved party or any payment of indemnity actually made by a third party to an aggrieved party does not prohibit or limit in any way the power of the court to require the defendant to make complete and full restitution to the aggrieved party for the total amount of the damage or loss caused by the defendant.” So, the court can order the defendant to make full restitution to me even though my insurer has already covered the loss—which means I can recover twice as far as the restitution laws are concerned. There is no statutory requirement that the court limit restitution to the amount unrecovered through insurance. However, given the practical reality that many defendants will not have the wherewithal to make full restitution, it is a common practice (and within the discretion of the court) to limit restitution to the victim’s deductible or copay.

Not every state takes the same approach to these issues. For instance, some states expressly allow restitution to insurance companies, on the theory they, too, are “victims” or “aggrieved parties” within the language of the applicable state law. See, e.g., State v. Merrill, 665 P.2d 1022 (Ariz. Ct. App. 1983) (concluding that Arizona’s restitution statute was best fulfilled by interpreting “victim” to include any entity suffering economic loss resulting from a defendant’s criminal activity, including the principal victim’s insurance company). As explained by our court of appeals, our legislature has taken a different path, focusing the restitution law on those “who directly suffered damage or loss as a consequence of criminal misconduct,” and expressly excluding insurers, who are, after all, “in the business of insuring against anticipated risks,” and who “derive profit by assuming [them].” Stanley, 79 N.C. App. at 383.

Regarding the possibility of a double recovery by the victim, that too is a justifiable policy choice by the legislature. Better to allow the victim to recover twice than to let the defendant off the hook merely because his or her victim had the good sense to carry insurance. Moreover, restitution is not just about making the victim whole. It is also viewed as promoting the defendant’s rehabilitation and restoration, and as a deterrent to future crimes.

Though the prohibition on restitution to directly to insurers is clear, an insurer sometimes winds up with the money in any event. Many insurance policies include a clause subrogating the insurer to any collateral recovery made by the insured. In N.C. Farm Bureau Mutual Ins. Co., Inc. v. Greer, 54 N.C. App. 170 (1981), for example, an insurer sought to recover $2,500 paid to an insured under a policy covering loss of a cow by theft. The victim of the crime had also received $7,500 in restitution from the man convicted of stealing his cow. The insurance policy included a clause stating that “no loss shall be paid hereunder if the insured has collected the same from others.” Id. In light of that clause—and the fact that the victim reported the value of the cow as $5,000 in his insurance claim—the court of appeals affirmed the trial court’s award of $2,500 to the insurance company.