The made whole doctrine is the principle that you, as a policyholder, must be “made whole” before the insurance company may take any money from you (or your 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 you (the insured)
- for money it paid out on a claim.
The made whole doctrine is protection against subrogation when it would cause you (the injured party) not to be “made whole” if the insurance company took any proceeds of your 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?
- 3. What is subrogation?
- 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 you (an injury victim) from your 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 you (a victim of personal injury or property damage)
- when you have not been fully compensated for your damages.1
This limits the insurer’s right to seek subrogation from you when you have not recovered your entire debt.
This helps to protect you from
- being unable to get full compensation from the responsible party, and
- then the insurance company pulling away money needed
- to make you completely whole.2
Why is this doctrine important to my personal injury or property damage case?
You can sue the responsible party or parties through a lawsuit when damages have occurred to you, whether through personal injury or property damage. 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 you 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 you, this doctrine steps in to make sure that overeager insurance companies do not come in and take the money needed by you.3
When does this doctrine typically become an issue?
For the most part, the made whole doctrine applies when:
- the responsible party
- does not have enough funds or assets
- to fully compensate you
- for your injuries.4
When this occurs, you likely only received part of the money needed to fully compensate you for the injuries you 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 you recover
- 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.
Can I fight the language in my agreement so that the common law rule still applies?
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 you ( the accident victim) to pursue recovery from the person responsible for the accident.8
- the substitution of the insurance company in place of you (the accident victim) to whose rights they take over. By agreeing to pay money to you, the subrogated insurance company is given the right to take your place and get reimbursed by the person who caused the accident.9
These rights to compensation stem from your 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 you
- 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 your rights.
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 you were “made whole” under the law.10
This means that this amount will not be considered 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 your 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 you and your attorney ensure that you both are able to recover and keep the funds you worked hard to earn. This, in combination with the made whole doctrine, helps to protect you.
When you are injured in an accident, you can file a personal injury lawsuit in order to recover damages. If you recover damages, whether through a jury verdict or a settlement, the amount of the award could come into play with the made whole doctrine.
When can the insurance company recover?
If you are fully compensated for the injuries you 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.
When can it not recover?
The company will not be able to recover when you are 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 you from paying out of your settlement when you need that money to cover your past and future financial costs.
- 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).