To understand the made-whole rule, we first need to talk about Subrogation. Generally in injury law, subrogation refers to a situation where an insurance company is trying to recoup expenses for a claim it paid when another party should have paid at least some of the amount.
For example, imagine you are hit by a car while crossing the street and the driver speeds off. Since you don’t know who hit you, your insurance company may pay for some or all of the damages and losses you experienced. If later you find out who the driver was and make a claim against his insurance company, it would be subrogation if your insurance company tried to recoup some (or all) of what it paid to you from the second insurance company.
The made-whole rule addresses when an insurance company is entitled to subrogation. In Skauge v. Mountain States Tel. & Tel. Co., the Montana Supreme Court held that an insurance company cannot seek subrogation until the insured has been made whole. This includes the expenses of litigation and attorney’s fees. In Skauge, the Court reasoned that in a situation where either the insured or the insurer must sustain a loss, it should be the insurer that goes unpaid because that is the risk the insured has paid it to assume.
Since Skauge, the Made-Whole Rule has been developed through Montana cases and grown into a strong protection for injury victims in Montana. The basic idea is that in a situation where someone (either the insurer or the insured) is going to suffer a loss, it should be the insurer. And because of that, where there isn’t enough money from the person who caused the damage to go around, it should first go to the victim until his losses have been repaid, and then go to repay the insurance company. Because this is a very pro-victim rule, it is controversial. If you have questions about the made-whole rule, please call me today to discuss your specific situation.