Subrogation and the “Made Whole Doctrine”

What is subrogation and to whom does this right belong?

Subrogation is a common term in personal injury cases. Many people don’t know what it means, but if they’ve been in a car accident and received a settlement—one that was smaller than what they expected—they probably know that it has to do with their own insurance company getting part of the settlement amount they received from the insurance company of the person who was at fault.

Subrogation is the substitution of one party, for another. One party, the insurance company, claims, under the banner of “subrogation”, that they have a right to something that the other party, the person who’s insured by them, is about to receive. That “something” which the person is about to receive is the settlement money—or part of it.

This right of subrogation is statutory, meaning, it’s really in the law; your insurance company does have this right…but only under certain circumstances, which we’ll discuss below. The Arkansas statute (AR Code. Ann. § 23-89-207) that gives an insurance company its right of subrogation could be paraphrased as follows: “When an insurance company has paid expenses on behalf of one of its customers who was injured in an accident, and that customer then receives money through a settlement or judgment, his insurance company has a right to be reimbursed—for the expenses it paid—out of the customer’s settlement amount.”

Why does an insurer’s right to subrogation arise?

Why would an insurer have this right of subrogation? Because they have paid obligations on behalf of their insured; it’s only fair.

However—and, happily, for the insured—this “subrogation” is something to which an insurer is not entitled unless and until the insured has been wholly compensated for his injuries. This idea of “wholly compensated” is referred to as the insured being “made whole.” He had an accident, lost wages, lost money in medical bills, etc., and isn’t “whole” until all that he’s lost has been paid back to him.

When does an insurer’s right to subrogation arise?

When does an insurer’s right to subrogation arise? What are those “certain circumstances” mentioned earlier that are the only times an insurance company can legally claim part of your settlement under subrogation? Here are a few answers from recent Arkansas case law:

  • The insured must first be wholly compensated. The insurance company’s right to subrogation arises only in situations where the settlement the insured is about to receive would exceed the total amount of damages he actually incurred.

If the insured, injured person and his insurance company disagree on this issue and there wasn’t any special prior arrangement for it, an insurer’s right doesn’t come into being until a court itself has actually determined the insured person is “made whole.” Just because the insurance company has made its own determination that their insured is now “made whole,” it can’t legally assert subrogation rights and snag part of your settlement—not until, and unless, a court comes to the same conclusion.

What does “made whole” mean?

What does “made whole” actually mean? How can an injured person actually know whether or not his insurance company has a legal right to claim part of their settlement through exercise of subrogation? The injured person is “made whole” when to receive any more money than what they’ve already gotten would be to receive more than what they lost due to the accident. This is called “double recovery”, and neither party is allowed this—not the injured person, or their insurance company.

No double recovery for either party

Arkansas case law has said it this way: the insurer should not be stopped from claiming subrogation if the insured has been fully compensated and is in a position where he would recover twice for some of his damages. That same case then goes on to emphasize, though, that in the same way that the insured person should not recover twice for the same expense, neither should any insurance company ever recover payments that should rightfully go to the insured in order to be fully “made whole.”