## Facts

- Phoenix Indemnity Company issued Steiden Stores, Inc. a “comprehensive dishonesty, disappearance, and destruction” policy covering money and securities with multiple insuring agreements and different limits.
- Under one agreement, Phoenix covered losses from “actual destruction, disappearance or wrongful abstraction” up to $10,000, but that coverage excluded losses caused by an employee’s dishonest, fraudulent, or criminal act (except defined robbery or safe burglary).
- A separate employee-dishonesty agreement covered losses from employees’ fraudulent or dishonest acts but capped recovery at $2,500.
- On October 4, 1948, Steiden suffered a safe theft of $4,598.20; the parties agreed the event was not “robbery” or “safe burglary” as defined by the policy.
- Police and Phoenix’s investigators initially found no evidence implicating employees; Steiden submitted a proof of loss describing an unknown perpetrator.
- In January 1949, Phoenix paid Steiden $4,598.20 under the $10,000 disappearance/wrongful abstraction coverage.
- In November 1950, former employee William Louden confessed he committed the theft using duplicate keys, establishing the loss was caused by an employee.

## Issues

1. Whether an insurer may obtain restitution of amounts paid under a mistake of fact concerning the cause of loss, when the correct facts place the loss under a lower policy limit.
2. Whether waiver, estoppel, the insurer’s investigation conduct, or equitable considerations bar recovery of the overpayment.

## Decision

- The Kentucky Court of Appeals reversed the trial court’s dismissal of Phoenix’s claim.
- The court held Phoenix was entitled to recover the amount paid in excess of the $2,500 employee-dishonesty limit.
- The court treated the payment as made under a material mistake of fact: the belief that the theft was by unknown outsiders rather than an employee.
- The court rejected the contention that Phoenix’s payment enlarged coverage by waiver or estoppel.
- The court found no equitable bar based on Steiden’s reliance or on alleged inadequacy of Phoenix’s investigation.

## Legal Principles

- Money paid under a material mistake of fact may be recovered in restitution absent circumstances making repayment inequitable (such as estoppel or detrimental reliance by the payee).
- Insurance policy structure and limits allocate distinct risks; courts will not require an insurer to cover a risk beyond the contract simply because the insurer initially paid under mistaken facts.
- An insurer’s negligence or lack of diligence in discovering the true facts does not, by itself, defeat restitution for a payment made under mistake of fact.
- Waiver or estoppel generally cannot be used to create or expand insurance coverage for risks the policy excludes or limits; a mistaken payment does not constitute a voluntary enlargement of coverage.

## Conclusion

The court allowed the insurer to recoup the portion of its claim payment exceeding the employee-dishonesty limit because the payment was induced by a mistake of fact about who committed the theft, and no equitable basis justified forcing coverage beyond the policy’s agreed allocation of risk.


Phoenix Indem. Co. v. Steiden Stores, Inc., 267 S.W.2d 733 (Ky. Ct. App. 1954)