Right of recovery: Overview, definition, and example
What is right of recovery?
Right of recovery refers to a party’s legal right to get back money, property, or compensation if certain conditions are met—usually after a loss, overpayment, mistake, or breach of contract. It gives someone the ability to recover what’s rightfully theirs through legal or contractual means.
In simple terms, it’s the right to say, “I’m owed something—and I have the legal grounds to get it back.”
Why is right of recovery important?
In business, mistakes happen—payments may be made in error, products delivered late, or losses caused by another party’s actions. A right of recovery clause protects you by giving you a way to seek reimbursement or return of what’s been lost, overpaid, or damaged.
It’s especially important in contracts involving insurance, indemnity, healthcare, supplier payments, or service agreements. Without this right clearly spelled out, it can be harder to reclaim money or assets that should be returned to your business.
Understanding right of recovery through an example
Let’s say your company accidentally overpays a contractor by $5,000 due to an invoice error. If your contract includes a right of recovery clause, you can demand the overpayment be returned—and take legal action if it’s not.
Or imagine your business pays for goods that are never delivered. The right of recovery allows you to recover the payment, since the seller failed to meet their obligation.
It also shows up in insurance: if your insurer pays for a loss caused by someone else, they might exercise their right of recovery to get reimbursed from the responsible party.
An example of a right of recovery clause
Here’s how a right of recovery clause might appear in a contract or insurance policy:
“If any payment is made in error or in excess of the amount due, the Company shall have the right of recovery against the recipient for the full amount of the overpayment, and the recipient agrees to promptly reimburse such amount upon request.”
Conclusion
Right of recovery is a powerful tool that helps businesses correct errors, enforce fairness, and reclaim money or property when something goes wrong. Whether it’s an overpayment, a breach, or a damaged asset, this right gives you a legal path to get back what you’re owed.
If you’re entering into contracts or managing business payments, make sure a clear right of recovery clause is included—it’s a simple way to protect your bottom line.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.