Filed Under:Claims, Investigative & Forensics

Understanding Made-Whole Doctrines

No other relationship is as sacred in our business as the insurer-insured relationship. It should be considered on every claim we handle, and subrogation is no exception.

In subrogation, the most important aspect of that relationship is the relation of the insured's total loss to the amount the insured received under the policy. This, by definition, is the scope of your subrogation claim. What happens when your insured is not fully reimbursed by the insurance payout, though? The answer depends on what jurisdiction your claim arises from and the type of underinsured loss your insured is claiming, as that determines how you must handle your subrogation claim.

A similar question, although not exactly on point, was answered by a Florida Court in the case Monte de Oca v. State Farm, 897 So.2d 471 (Fla.Dist.Ct.App.2004). The court determined that the deductible was not to be considered for made-whole purposes. Additionally, in the realm of subrogation where there are underlying issues of personal injury, and the underlying liability limits on the other side are low, this answer can be more complex, and one should consult an attorney with relevant experience in the area when faced with such challenges.

A good rule of thumb, especially in the first-party property context is this: If the policy limits were paid or there was a co-insurance penalty applied, look for made-whole issues. When all else fails, an insurer can always ask the insured whether they have any additional losses that were not covered by the policy (you should ask this anyway, in order to determine whether there are any other policies out there available to your insured and to find out whether the insured intends on filing his own lawsuit against the responsible parties).

Accordingly, the insured made-whole doctrine, at its heart, is concerned with the priority of the distribution of settlement funds. It dictates that the insured's claim is given first priority over the insurers when faced with a tortfeasor who does not have enough funds to cover both.

When faced with an insured made-whole situation, note that in most instances the subrogation claim has the lesser priority, and you may not be able to assert the claim until both the insurance payment has been made to the insured and the insured is determined to have been made whole.

Accordingly, in an "insurer-equal" state, the rule is not that the insured gets first dollar from the third-party tortfeasor. Rather, it gives the insurer the right to make its claim against the third-party tortfeasor at any time after payment to the insured, regardless of whether the insured is underinsured or not.

Contractual Exceptions

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