the litigation. Most courts require the
insurer to pay a reasonable share of fees
and costs, often a percentage based on the
amounts recovered by the insured and insurer respectively, or a percentage of the
amount recovered by the insurer, similar
to a contingency fee.
Therefore it is critical to
understand which state’s
“made whole” laws will
apply to a particular loss.
not carry with it a presumption that the
policyholder has been made whole, nor
does it operate to prevent the policyholder from proving that it still has uncompensated losses.
A minority of jurisdictions do not
follow the common fund doctrine, and
permit the insurer to recover without
compensating the policyholder for its attorney’s fees. However, as with most equitable principles, the parties can nullify
the common fund doctrine in writing.
whole before subrogation would create a windfall for the policyholder for a
loss that the policyholder did not insure
against when it agreed to the deductible.
How to address deductibles
A policyholder’s deductible presents another barrier in determining whether the
insured has been made whole. Some jurisdictions deem a policyholder’s deductible to be an exception to the made whole
doctrine, and permit the insurer to subrogate before the policyholder recovers
its deductible. [See, e.g., Fireman’s Fund
Ins. Co. v. TD Banknorth Ins. Agency, Inc.,
309 Conn. 449, 468 (Conn. 2013).]
Other states use different methods to
allocate the cost of the deductible. For
example, Pennsylvania has enacted regulations requiring the policyholder and insurer to share the cost of the deductible
proportionally in a subrogation action.
[31 Pa. Code § 146.8(c).]
Some courts require the policyholder to
be made whole for all elements of damages, and not just those damages paid by
the insurer. The “double recovery” rule
allows the insurer to be reimbursed only
from that portion of a recovery which
represents a double recovery for the policyholder. However, in 2013, in an Employee Retirement Income Security Act
(ERISA) case, the Supreme Court found
that, as with the made whole doctrine, the
parties may abrogate the “double recovery” rule by contract. [US Airways, Inc. v.
McCutchen, 133 S. Ct. 1537, 1541 (2013).]
These courts reason that the insurer
and the policyholder entered into a contractual relationship whereby the policyholder agreed to a lower premium payment in exchange for a deductible. Thus,
requiring the policyholder to be made
If the policyholder reaches a settlement
with a responsible third-party without
obtaining the insurer’s consent, an issue
may arise as to whether the settlement
presumes that that policyholder has been
made whole. This is especially pressing in
the situation where the insurer’s subrogation rights are eliminated by the policyholder’s release of the third-party. Generally, however, a settlement alone does
Other jurisdictions have determined
that recovery from a third-party is divisible, and where the policyholder has
been fully compensated for its losses that
are covered by the policy, the principles
behind the made whole rule have been
satisfied. These jurisdictions reason that
to hold otherwise would authorize the
policyholder to be unjustly enriched by
requiring the insurer to insure against
losses which it had not agreed to.
As a result, where the policyholder
successfully recovers from a responsible
third-party, it is the policyholder’s responsibility to allocate the recovery between compensation for damages that are
covered by the policy and damages that
are not covered.
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The majority view is that a policyholder
is entitled to be “made whole” before an
insurer may recover from third-parties in
subrogation. However, some jurisdictions
that have adopted the majority view may
resolve related issues differently. Policyholders and insurers alike must be aware
of the applicable policy language and the
laws in the applicable jurisdiction, not
only when paying on a claim and contemplating subrogation, but also when pursuing subrogation and agreeing to settle
T (888) 873-6752 F (888) 436-3092 www.USFORENSIC.com
Matthew D. Stockwell ( matthew.stockwell@
pillsburylaw.com), counsel with Pillsbury Winthrop Shaw Pittman LLP in New York, focuses
his practice on representing policyholders in
insurance coverage and construction litigation.
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