Court Finds "Made Whole" Doctrine Does Not Apply To Insurer Pursuing Its Own Subrogation Interests and Does Not Require Insurer To Reimburse Insured For Deductible
In Averill v. Farmers Ins. Co. of Washington, 2010 Wash. App. LEXIS 554 (March 15, 2010), the Court of Appeals in a published decision carved out a significant exception to Washington’s “made whole” doctrine, ruling that an insurer seeking subrogation from another insurer need not make its at-fault insured “whole.” In the process, it criticized the Insurance Commissioner’s Office for changing an existing regulation to now require that an insurer pursuing its own subrogation interests fully reimburse its insured for its deductible from the insurer’s recovery, finding that this rule change an improper application of the “made whole” doctrine and wrong as a matter of law.
Averill’s daughter was involved in a car accident with another auto. Averill was insured by Farmers with a $500 deductible for collision coverage. State Farm insured the other driver. Averill’s car was a total loss, so Farmers paid her $16,254 for the car minus her $500 deductible. Farmers then submitted a claim against State Farm via inter-company arbitration, seeking recovery of its $16,254 payment and Averill’s $500 deductible. The arbitrator determined that each driver was 50% at fault for the accident and awarded Farmers one half the value of the car and one half of Averill’s deductible. State Farm paid half the value of the car to Farmers and half the deductible to Averill. Averill took no action relating to recovering the property damage to the car or her deductible from the other driver or its insurer.
Averill sued Farmers for CPA violations, bad faith, negligence, breach of contract and unjust enrichment. Farmers filed a 12(b)(6) motion to dismiss, which the trial court denied. Averill moved for summary judgment, arguing she was entitled to reimbursement for her deductible as a matter of law and contract. The trial court granted Averill’s summary judgment motion, and Farmers successfully moved for an interlocutory appeal.
The issue was whether the “made whole” doctrine (Thiringer v. American Motors Ins. Co., 91 Wn.2d 215 (1978), applies to insurance policy deductibles. Averill argued that until she recovers her deductible, she has not been “made whole” and as a matter of law Farmers may not recover. Farmers conceded that had Averill recovered on her own from the tortfeasor, she would have priority of recovery and would recover her entire deductible; but here, where Farmers pursued recovery of its own subrogation interests, the “made whole” doctrine did not apply.
I see there is absolutely no "made whole" calculation to determine if truly a client has been made whole. It would seem an attorney could come up with many different things that an insured could lose out on such as "Quality of life", "Economic loss" etc. However, since many policies have limits of $100/300k, after attorneys take their outragous fee of usually 1/3 of the whole settlement, the health care liens that were paid on the members behalf from their Health insurance company get nailed with this extremely vague "made whole" argument. It's virually based off of Hypotheticals and needs to be defined much better especially for cases that exceed a certain dollar amount. The "rule of thumb" calculation that I'm aware of is that if the "Billed" medical expenses X3 exceed the total settlement, then the insured is not "made whole". What??? The "billed" amount? Another extremely hypothetical more fictional number. It is well known that the billed amount is way less then what amounts are actually permitted via contracts. THAT should be the amount the "rule of thumb" figures should be based on. If lifetime injury and policy limits are maxed out and lien amounts do not that exceed that rule of thumb "3X" medical bills amount, the attorney's still cry client not made whole. Subrogation rights are getting weaker and weaker which will in term cause insurance rates to increase more and more which maybe in the end that is exactly what the insurance companies and legislatures are trying to achieve. Wouldn't surprise me in the least to be honest. Any thoughts on this?? Thanks!!