The made whole doctrine is a common law principle in subrogation law that says a policyholder must be made whole before the insurance company is permitted to take any money from the person (or the settlement) to reimburse itself for the payments it has already made.
The made whole doctrine deals with the legal concept of subrogation, which for these purposes simply means:
- the right of an insurance company
- to recover money from the insured
- for money it paid out on a claim.
The made whole doctrine is protection against subrogation when it would cause the injured party to not be “made whole” if the insurance company took any proceeds of a jury award or settlement.
Our California personal injury attorneys discuss the following frequently asked questions about the made whole doctrine:
- 1. What is the made whole doctrine?
- 2. Can the doctrine be overruled by a contract with my insurance company?
- 3. What is subrogation and what does it have to do with the “made whole” doctrine?
- 4. Does it protect costs associated with attorney fees?
- 5. What is the common fund doctrine?
- 6. How does this doctrine work in personal injury cases?
The made whole doctrine is designed to protect injured victims from their own insurance company coming after money the insurance company paid out on a claim under certain circumstances.
This equitable principle is meant to protect against:
- an insurance company
- seeking reimbursement from a victim of personal injury or property damage
- when the victim has not been fully compensated for his or her damages.1
This limits the insurer’s right to seek subrogation from a victim when that victim has not recovered his entire debt.
This helps to protect an injured party / policyholder from
- being unable to get full compensation from the responsible party, and
- then the insurance company pulling away money needed
- to make the injured person completely whole.2
When damages have occurred, whether through personal injury to a victim or property damage, the person injured can sue the responsible party or parties through a lawsuit. If the insurance company has paid out funds during this time (like for hospital bills), the insurance company will also wish to be compensated by the responsible party.
This means that both the victim and the insurer are going after the same pool of money from the person at fault. When the “pool” is not deep enough to fully compensate the victim that suffered the injury, this doctrine steps in to make sure that overeager insurance companies do not come in and take the money needed by the victim.3
For the most part, the made whole doctrine applies when:
- the responsible party
- does not have enough funds or assets
- to fully compensate the victim
- for his or her injuries.4
When this occurs, the injured party likely only received part of the money needed to fully compensate him or her for the injuries the person suffered.
Example: Reginald files a car accident lawsuit in which Jonathan, the other party, is completely at fault. Reginald’s auto insurance company pays out $2,000 for medical treatment related to a strain in his neck. Reginald’s total damages come out to $25,000, but he is only able to receive a $21,000 settlement from Jonathan since he is uninsured.
The $21,000 settlement did not “make whole” Reginald because his damages were above that amount. Under the doctrine, he can argue that his auto insurance company may not be reimbursed for the $2,000 payment because it would have to be taken out of his settlement amount. This helps protect him from paying out money he desperately needs to handle the damages and injuries he suffered.
Unless there is a contractual agreement that specifically says otherwise, the made whole doctrine will apply to your case. However, in many if not most insurance contracts, there is language that attempts to overrule this doctrine.
This typically occurs in a contract that states something to the effect of “the insurer is entitled to all rights of recovery that the insured person to whom payment was made has against another.” Translating this into plain English, it means:
- any amount of money the insurance company pays out on a claim
- can be recovered from
- any amount the injured person recovers
- from the responsible party.5
In many states, including California, this right to contract around the “made whole” doctrine is well accepted and is usually contained in the very long-form contract you sign when you first get insurance coverage. Despite the fact that you may have never known the provision existed, it can still be enforced against you in many cases.
In some cases, your attorney can challenge the sufficiency of the language in your contract with the insurance company so that the “made whole” doctrine will still apply even when there’s conflicting language.
Certain provisions in a contract are not sufficient to get past the doctrine, and certain courts will not uphold bypassing the doctrine when this is the case.6
Most insurance contracts (such as from State Farm, Allstate, and Liberty Mutual) contain a subrogation clause that gives insurers the right of subrogation. An insurer’s subrogation has been described as:
- the right of an insurance company (subrogee) to recover money from the person who caused the accident for the damages it paid to you.7
- the insurance company’s right to be put in the position of the accident victim to pursue recovery from the person responsible for the accident.8
- the substitution of the insurance company in place of the accident victim to whose rights they take over. By agreeing to pay money to the accident victim, the subrogated insurance company is given the right to take the place of the accident victim and get reimbursed by the person who caused the accident.9
These rights to compensation stem from the accident victim’s right to compensatory damages.
Insurance companies want to get paid back by the responsible party for any costs they have already paid, if possible. They also want to make sure:
- they do not pay out a large sum of money to the injured victim
- who is then compensated fully through a lawsuit
- but then keeps the money without paying back the insurance company.
This makes sense but must be carefully monitored to protect the rights of accident victims.
Example: Jane is severely injured after she is rear-ended by a semi-truck owned by CA Trucking, LLC. Jane has medical costs totaling $100,000, which Jane’s own insurance pays less the deductible. Jane files a personal injury lawsuit against the trucking company and wins $100,000 for her economic damages and $65,000 for her pain and suffering.
Because the insurance company is the one who paid the $100,000 in the first place, Jane was never actually “out” that amount. The insurance company will then recover that amount to get paid back and also prevent Jane from over-recovering compensation (a double recovery). Because Jane is fully compensated for her injury, the made whole doctrine will not prevent the insurance company from subrogating her claim.
The cost of attorney’s fees is not typically calculated into whether a person was “made whole” under the law.10
This means that this amount will not be considered as a deduction of any kind in determining the subrogation rights of the insurance company.
The common fund doctrine:
- requires insurance companies
- to pay part of the money it recovers
- to the accident victim’s attorney
- if it does not have or did not use its own attorney
- to recover the amounts won in a lawsuit or settlement.11
This helps both the victim of the accident and his or her attorney ensure that both are able to recover and keep the funds they worked hard to earn. This, in combination with the made whole doctrine, helps to protect accident victims.
When a person suffers injuries as the result of an accident, he or she can file a personal injury lawsuit in order to recover damages. If a person recovers, whether through a jury verdict or a settlement, the amount of the award could come into play with the made whole doctrine.
If a person is fully compensated for the injuries he or she suffered, an insurance company will be able to collect from the award amount.
Example: Allison is injured in a horse-riding accident because the owner of the horse riding ring did not properly cinch her saddle, causing her to fall off and land on her neck. Allison suffers $16,000 in damages from her hospital trip but will recover fully. Her health insurance company pays all of her medical bills.
Allison sues the owner of the ring for negligence. She recovers the full $16,000 in economic damages and $5,000 in non-economic damages. She had been “made whole” under the law, and her insurance company will be able to recover from her for the $16,000 it expended for her medical bills.
6.2 When can it not recover?
The company will not be able to recover when the injured victim is not fully compensated, typically because of underinsured responsible parties.
Example: Adam rear ends Emily because he was intoxicated behind the wheel and not paying attention to the road. Emily is very severely injured and her medical bills total $110,000 at the time of the lawsuit she files against him. Her car insurance company has a rider that pays up to $5,000 in medical bills related to a car accident, and that amount is spent by the company.
Adam only has insurance up to a $50,000 policy limit and is otherwise broke. Emily is able to recover the $50,000 from Adam’s insurance company but is otherwise left without full compensation for her injuries. Because of this, Emily’s car insurance company, who is asking for the $5,000 it is owed through its subrogation claim, will not be able to recover because of the made whole doctrine.
This doctrine helps to protect individuals from paying out of their settlement when they need that money to cover their past and future financial costs.
For questions about the made whole doctrine or to confidentially discuss your case with one of our skilled California personal injury attorneys, do not hesitate to contact us at the Shouse Law Group.
We have local law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities. We appear in state courts as well as United States federal courts.
Disclaimer: Past results do not guarantee future results.
- 2 CAINLAWDDR M4, California Insurance Law Dictionary and Desk Reference, Made Whole Rule in California (“The made–whole rule is a rule that protects first-party insurance policy insureds from insurer reimbursement claims after a recovery from a third party tortfeasor.”)
- Sapiano v. Williamsburg Ins. Co., 28 CA 4th 533, 538 (1994); see also Progressive West Ins. Co. v. Yolo County Superior Court, 135 CA 4th 263, 273 (2005).
- 21st Century Ins. Co. v. Superior Court (2009) 47 Cal.4th 511, 515.
- Same as 3; see also Johnny Parker, The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, 70 Mo. L. Rev. 723 (2005). (“Pursuant to statutory interpretation and an assessment of legislative in-tent, California has adopted the common law made whole doctrine in the context of uninsured motorist coverage. However, the insurer has priority of rights and is entitled to be subrogated from the tortfeasor prior to the insured being made whole in the context of underinsured motorist coverage and, subject to certain exceptions, workers’ compensation benefits.”)
- Travelers Indem. Co. v. Ingebretsen, 38 Cal. App. 3d 858, 865, 113 Cal. Rptr. 679 (Court of Appeals, 2d Dist. 1974). (There is authority that language in an insurance policy that grants the insurance company “all rights of recovery to the extent of its payment” overrides the common law Made Whole Doctrine.)
- Sapiano v. Williamsburg Nat. Ins. Co., 28 Cal. App. 4th 533, supra at 538–539.
- California Department of Insurance, Resources for Accident Victims.
- Fireman’s Fund Ins. Co. v. Maryland Cas. Co. (California Supreme Court, 1998) 77 Cal. Rptr. 2d 296, 302.
- Same as 8.
- 21st Century Ins. Co. v. Superior Court (2009), supra at 515 (California case law holds that insurance companies are entitled to reimbursement of payments they made under a Med Pay policy provisions even though the insured has not been reimbursed all of his attorney’s fees. In other words, the Made Whole Doctrine does not include liability for all the attorney’s fees the insured must pay in order to recover economic damages (including medical expenses) from a third-party tortfeasor. Id.); see also Asbury Park v. Star Insurance Co., (New Jersey Supreme Court, 2020), 2020 N.J. LEXIS 746; see also Collins v. Wilcott, (Fla. Dist. Ct. App. 1991) 587 So. 2d 742.
- Progressive West Ins. Co., supra at 444. (Many jurisdictions recognize both the made whole doctrine and common fund doctrine, such as Montana, Alabama, and Florida).