In California, the made whole doctrine requires you be “made whole” financially before your insurance company subrogates you. Subrogation is when your insurance takes money from you (or your settlement) to reimburse itself for the payments it has already made you.
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?
- Additional Reading
1. What is the made whole doctrine?
California’s made whole doctrine protects you (an injury victim) from your own insurance company coming after money it paid out on a claim when you have not been fully compensated for your damages.1
Whenever you sustain personal injuries or property damage, you can sue the responsible party or parties. If your insurance company paid out funds during this time (like for hospital bills), it will also wish to be compensated by the responsible party.2
This means that both you and your insurer are going after the same pool of money from the person at fault.3 When the “pool” is not deep enough to fully compensate you, the “made whole” doctrine steps in to prevent your insurer from coming in and taking the money needed by you.4
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.
The made whole doctrine is designed to protect you from your own insurance company.
2. Can the doctrine be overruled?
Unless there is a contractual agreement that specifically says otherwise, the made whole doctrine will apply to your California case. However, in 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 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. In some cases, however, your attorney can challenge the sufficiency of the language in your contract so that the “made whole” doctrine will still apply even when there’s conflicting language.6
3. What is subrogation?
Most insurance contracts in California (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
In short, insurance companies want to get paid back by the responsible party for any costs they have already paid, if possible. This makes sense but must be carefully monitored to protect your rights.
Example: Jane 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 sues 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.
Many insurance contracts contain a subrogation clause permitting the insurer to sue in the policy holder’s place.
4. Does it protect costs associated with attorney fees?
The cost of attorney’s fees is not typically calculated into whether you were “made whole” under California law.10
This means that this amount will not be considered a deduction of any kind in determining your insurance company’s subrogation rights.
5. What is the common fund doctrine?
California’s 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 ensure that both you and your attorney 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.
6. How does this doctrine work in personal injury cases?
When you are injured in an accident in California, you can sue to recover damages. If you are fully compensated for the injuries you suffered, your insurance company will be able to collect from the award amount.
However, your insurer will not be able to recover when you are not fully compensated, typically because of underinsured responsible parties.
Example: Adam rear ends Emily, who sustains $100,000 in damages. 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.
Additional Reading
For more in-depth information, refer to these scholarly articles:
- ERISA Subrogation and Reimbursement Claims: A Vote to Reject Federal Common Law Adoption of a Default Make Whole Rule – Arizona State Law Journal.
- “Grossly Negligent Utilities,” “Unimaginable Property Damage” and the Scope of Liability Insurers’ Duty to Indemnify Subrogated Property Insurers – Probative and Empirical Inferences from Courts’ Divided Subrogation and Indemnification Decision – Ohio State Business Law Journal.
- Subrogees Beware: The Pitfalls of Subrogation for Insurers – Torts, Insurance & Compensation Law Section Journal.
- Holes in the Whole: Considerations on the Made Whole Doctrine and Its Applicability to Environmental Claims – Environmental Claims Journal.
- The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation – Missouri Law Review.
Legal References:
- 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).