Auto Insurance Claims: Stolen Car, recovered theft

Question
On August 24, 2010 my car was stolen. It was actually the early morning of the 25th at about 1 am. I reported my car stolen to my insurance company (state farm) and was told it was being investigated. I was told to send them the keys and the title, which I did. After investigation was complete in September it was sent back to the claims department to be settled.I was contacted in October and told It was settled and I would receive a check and so would my lien holder (Honda). In early November I received a check and a letter saying my claim was settled and Honda was sent a check also. I cashed the check and then was contacted and told the check had a stop payment because my car was found. Now they are trying to give me the car back and make me pay the check back also I now owe Honda. what can I do? is this legal after they settled? I tried to speak with state farm and they said I had to take the car or "Hire a lawyer".

Answer
Well, laws are different in each State, but in general here is how that works:

1.  Your insurance policy most likely covers you for the loss of or damage to your insured property.

2.  If the claim was paid, and then the vehicle was recovered, then the time frame involved between the two is the key.  If they were able to get a stop pay put on the settlement check, then the vehicle was recovered fairly quickly, and they (ins co) should be able to void out the loss payment and convert it to a damage payment.  

3.  I don't see how you could pay back a check that was stop payed?  Did you get the cash and spend it because the bank didn't honor the stop pay request of the insurance company?

4.  If you got the money even though they tried to stop pay, then you may be in for some fighting.  Since I am not an attorney, I can't provide any legal advice, but if I were you I would "hire a lawyer", as there seems to some liability on the bank that cashed the check (but this is a complex legal theory that will require an attorney to prove).

5.  Worst case scenario is that you say you spent the money and then see what the insurance company does.  They don't have many options other than to sue you, and that might not be a good deal for them (if you have no money).  The insurance company should probably cut their losses and go ahead and get the vehicle titled in their name and sell it.  

I hope this helps.