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Made Whole Doctrine
What is a Made Whole Doctrine?
A made-whole doctrine states that the insurance company must make a policyholder whole before taking any money from them (or the settlements) to reimburse themselves for the payments they have already made.
Subrogation Laws
Subrogation generally means that an insurance company has the right to recover money paid on a claim from the insured, and this doctrine deals with the legal concept of subrogation.
When the insurance company takes any proceeds from a jury award or settlement, the injured party may not be "made whole" if the made whole doctrine is invoked.
Made Whole Doctrine
In certain circumstances, the made whole doctrine is intended to protect injury victims from their own insurance companies coming after the money the insurance company paid on a claim. When the victim has not been fully compensated for his or her damages, this equitable principle protects them from: an insurance company requesting reimbursement from the victim of personal injury or property damage.
If a victim hasn't recovered his entire debt, the insurer can't seek subrogation from him. The insurance company can then take money necessary to make the injured party whole from the responsible party, thus protecting the injured party / policyholder from not being able to receive full compensation from the responsible party.
The Application of the Doctrine
An injured party can sue the responsible party or parties if damages have been caused, whether through personal injury or property damage. The insurance company will also want to be compensated by the responsible party if funds were paid out during this time (e.g. for hospital bills).
As a result, the victim and insurer are seeking the same amount of money from the person at fault. This doctrine is a safeguard to make sure that overeager insurance companies do not come in and steal from the victim's account if the "pool" is not deep enough to compensate the victim fully.
Issues With the Doctrine
Generally speaking, the made whole doctrine pertains to situations where: the responsible party lacks the funds or assets to adequately compensate the victim.
This means that the injured party is likely to receive only part of the compensation needed to fully cover the person's losses.
Overruling a Contract
If your case is not specifically excluded by a written agreement, the made whole doctrine will apply. Most insurance contracts contain a provision that overrules this doctrine, however. An example of this is when a contract provides that "the insurer is entitled to all recovery rights the insured person has against another."
In other words, any amount an insurance company pays out can be recovered from the responsible party, as can any amount the insured recovers from the insurance company. California is one of many states that has this right to contract around the "made whole" doctrine, which is typically stated clearly in the insurance contract you sign when you first get coverage. In many cases, even if you are unaware of the provision, it can be enforced against you.
Conflicting Language
The "made whole" rule may still apply even if your contract with the insurance company contains conflicting language if you hire an attorney. In certain contracts, certain provisions aren't enough to bypass the doctrine, and certain courts won't allow it when this is the case.
Subrogation and “Made Whole” Doctrine
Subrogation clauses are commonly found in insurance policies (for example, those from State Farm, Allstate, and Liberty Mutual). The right of an insurer to seek reimbursement from the person who caused an accident for damages paid by the insurer has been described as: subrogation. As the insurance company, the company has the right to act as the victim in seeking recovery from the person responsible for the accident. The insurance company takes over the rights of the accident victim.
Subrogated insurance companies give the right to the accident victim to take their place and get reimbursed by the person who caused the accident by agreeing to pay money to the accident victim.
Subrogation
Any costs that the insurance company has already paid need to be repaid by the responsible party, if possible. Moreover, they want to ensure that they do not pay a large sum of money out to an injured victim and then have the plaintiff sue over the compensation, and then keep the money without paying back the insurance company.
In order to protect accident victims' rights, this approach makes sense, but must be carefully monitored.
Attorney Fees
A person's attorney's fees are generally not considered in determining whether they were "made whole" under the law. Therefore, the insurer's subrogation rights will be determined without considering this amount as a deduction of any kind.
Common Fund Doctrine
In the case of no attorney or no representation by an insurance company, the common fund doctrine requires the insurance company to pay a percentage of recovery to the accident victim's attorney.
The victim, as well as their attorney, can work together to ensure the accident victim and his attorney are able to recover as much money as possible. By combining this with the made whole doctrine, accident victims are better protected.
The Doctrine at Work
An individual who is injured in an accident is entitled to compensation by filing a personal injury lawsuit. With the made whole doctrine, if a person recovers, whether through a jury verdict or through a settlement, the award amount may be considered.
Insurance Company Recovering
An insurer can collect from the award amount if a person is fully compensated for the injuries he or she suffered.
No Recovery
Underinsured and uninsured responsible parties will not be able to reimburse the company when the injured victim is not fully compensated.