In California, the made whole doctrine states that an insurance company is generally prohibited from seeking reimbursement from its insured through subrogation until the insured has first been made whole for the covered loss. This sounds a bit complicated because there’s so much going on here. To better understand the made whole doctrine, let’s examine a hypothetical car accident.
Made Whole Doctrine Example
Hunter is a pedestrian crossing a crosswalk at an intersection in Sacramento. While he’s walking through the intersection, he’s hit by a driver named Cam. Hunter has health insurance with Hutchinson Health Insurance, Inc., and Cam has a car insurance policy with Clint Car Insurance Co. Cam is 100% at fault for this accident, and he fully admits his liability.
Immediately after the accident, Hunter is taken to a hospital for medical treatment. He suffered several traumatic injuries, resulting in him missing several months of work and going through a grueling physical therapy regimen. Hunter’s medical bills total $50,000, his lost income amounts to $40,000, and he believes his pain and suffering damages add up to $30,000.
Hutchinson Health Insurance pays the full $50,000 for Hunter’s medical expenses (for the sake of simplicity, we’re ignoring things like deductibles, out of pocket limits, co-pays, etc.). Because Hunter missed work and endured so much pain and suffering from the accident, he decides to file a pedestrian personal injury lawsuit against Cam and asks for $120,000 in damages ($50,000 + $40,000 + $30,000 = $120,000). Cam and Hunter try to settle the case, but no agreement can be reached and they go to trial where Hunter wins $45,000 for his medical bills, $35,000 for his lost wages, and $25,000 for pain and suffering.
Hutchinson Health Insurance learns about this payout and demands that Hunter reimburse them for the money they paid for his medical treatments. Under the legal concept of subrogation (we’ll explain what this is in a minute), Hunter may have to hand over money to Hutchinson Health Insurance even though Hunter hasn’t been made whole through his lawsuit against Cam.
The made whole doctrine stops Hutchinson Health Insurance from demanding this money back because Hunter hasn’t yet been made whole through his lawsuit against Cam. The public policy reasoning is that if either an insurance company or an insured has to bear a risk of getting “short-changed” when it comes to a legal recovery, it’s better that the insurance company bear this risk, not the insured.
What’s Subrogation?
Subrogation refers to an insurance company being allowed to seek reimbursement for insurance benefits it pays to its own insured. In many cases, the insurance company will seek reimbursement from the at-fault party’s insurance company, not its own insured. Even when the insurance company is going after money from a third party, the made whole doctrine prevents the insurance company from doing this unless its insured is first made whole for their loss.
Exceptions to the Made Whole Doctrine
An insurance policy main contain language that allows the insurance company to ignore the made whole doctrine. Even if no such language exists, there can be disagreement as to what kind of recovery by the insured qualifies as being “made whole.” For example, does being made whole apply to just covered losses or all losses suffered by the insured? It may also be possible to challenge the enforceability of a contractual provision that attempts to override the made whole doctrine.
Get Help From a California Personal Injury Lawyer
As you can see, insurance law can be complex and confusing, making obtaining full compensation difficult to recover (or keep once obtained). This is why it’s important to have a lawyer on your side during the insurance claims process. Luckily, the attorneys at Maison Law understand how this all works and can protect your rights and ensure you’re fully and fairly compensated. To learn more about how we can help, contact us to schedule a free, no-obligation consultation.
