Revised Law Green-Lights Restitution to Insurers

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For many years North Carolina law has prohibited insurers from receiving restitution directly from criminal defendants. That prohibition will end on December 1, 2016.

Tucked away in S.L. 2016-78, a bill amending various insurance laws, is a provision repealing G.S. 15A-1340.37(d). That subsection, described in this prior post, said that “[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.” It has long been interpreted as a rule against ordering a defendant to pay restitution directly to an insurer that was obliged to cover a victim’s losses. (The prohibition didn’t limit restitution to an insurance company that was itself the victim of a crime, like a fraudulent insurance claim.)

What was the purpose of the former rule? As discussed by the court of appeals in State v. Stanley, 79 N.C. App. 379 (1986), the idea was to focus restitution on actual victims.

The legislature could rationally conclude that third-party indemnitors should be precluded from receiving restitution or reparation from criminal defendants. . . . They are in the business of insuring against anticipated risks, and they derive profit by assuming such risks. Insurers, unlike victims of crime, have voluntarily contracted to assume liability for damage or loss arising out of criminal misconduct.

Id. at 383.

Be that as it may, the prohibition comes to an end on December 1. (The legislation does not qualify the effective date, but I think it probably applies to sentences imposed on or after that date.) After that, it will be permissible for a court to order restitution directly to an insurer.

Sometimes the new rule will not make much difference as a practical matter. It may simply remove the victim as an intermediary between the defendant and the victim’s insurer. Many insurance policies include a clause subrogating the insurer to any collateral recovery made by the victim, and so an order of restitution to the victim may have been destined for the insurer in any event.

The new rule will, however, raise some technical issues.

First, in most cases the insurer will not be considered a “victim” within the meaning of G.S. 15A-1340.34(a); it is not a “person directly and proximately harmed as a result of the defendant’s commission of the criminal offense.” To the contrary it is, as the court noted in Stanley, in the business of anticipating risk. That being the case, the insurer may receive the restitution only if it is an “organization, corporation, or association . . . that provided assistance to the victim following the commission of the offense by the defendant and is subrogated to the rights of the victim.” G.S. 15A-1340.37(b). Assuming someone can show that the insurer is actually subrogated to the victim’s rights, then it would appear to be a permissible recipient of restitution under G.S. 15A-1340.37(b). (Restitution awarded to that type of aggrieved party goes in Section IV of the AOC-CR-611.)

Non-victim restitution is subject to different rules than victim restitution. For example, under G.S. 7A-304(d)(1), non-victim restitution is (unless otherwise ordered by the presiding judge), fifth priority for disbursement among various monetary obligations, behind victim restitution, costs due the county, costs due the city, and fines to the schools. So, it may be less likely to be collected and dispersed than restitution directly to the victim. Additionally, there is no statutory authority to docket non-victim restitution as a civil judgment.

Even if an insurer will be a permissible recipient of restitution under the revised law, G.S. 15A-1340.37(b) continues to say that “restitution shall be made to the victim or the victim’s estate before it is made to any other person, organization, corporation, or association under this subsection.” It’s not crystal clear to me whether that is a mere restatement of the disbursement priority order outlined more specifically in G.S. 7A-304, or whether it is a substantive requirement to make the victim himself or herself whole (perhaps by awarding restitution in the amount of the victim’s deductible) before ordering any recovery to the insurer for its payments.

Finally, note that the new law repealed all of G.S. 15A-1340.37(d)—not just the prohibition of restitution to insurers. The other rule that had been rolled into that subsection was the one stating that an insurer’s obligation to compensate a victim for his or her losses did not limit the court’s authority to order full restitution to the victim. That provision theoretically allowed a victim to obtain a double recovery—one from an insurer, and one from the defendant. It also prevented a defendant from avoiding restitution merely because he or she had the good fortune to harm a victim that had sense enough to be insured. The repeal of that portion of the law could be interpreted as a requirement for the court to take insurance proceeds into account when determining the net harm to the victim.

6 comments on “Revised Law Green-Lights Restitution to Insurers

  1. The current legislature is changing the law to benefit the insurance companies at the expense of those least likely to have the means to pay?
    I, for one, am surprised by this turn of events.

    • It’s not too surprising. A friend of mine said that he was told by one of his professors in law school at Chapel Hill that North Carolina is run by insurance companies and banks.

  2. Me too, I’m surprised they didn’t raise improper equipment costs to $491.50, and extending contributory negligence at anytime in one’s life as a complete bar to tort claims.

  3. Then I suggest that ‘those least likely to have the means to pay’ have more consideration for the persons and property of others and learn to exercise an appropriate measure of due diligence with regard to same. Now there’s a novel idea!

  4. No surprise, more “screw the 99% and look at for the 1%.” The problem is, the 1/3 of the electorate who is so uneducated and cognitively-inept vote these clowns in, because they believe anything they are told. “We’re for the little guy, we’re gonna fight for you, we’re gonna make sure you have your guns and your land” say the Republicans, meanwhile, those who have ever read a history book know otherwise.

    Good job, NC. Now go vote in Nov (or before), Wake, Meck and Buncombe

  5. Jamie, Could you clarify why you say ” I think it (the repeal) probably applies to sentences imposed on or after that date”? Isn’t there an argument that to do so is ex post facto, and that it should apply only to acts committed after the effective date? Thanks.

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