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.

In 2015, a patient of the addiction-treatment sued, alleging consumer protection and racketeering claims against Aminokit Labs relating to inpatient treatment that was administered at the facility. Evanston denied coverage and the underlying plaintiff amended his claim to include negligence and vicarious liability claims against the treatment center and a doctor employed by the center, which potentially brought the claim into the scope of coverage provided by the policy.