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 one case, the 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. 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 that case, the Made-Whole Rule has been developed and grown into a strong protection for injury victims. 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.
John built an addition to his barn on his property. Two years later, the new roof blew off and cut a power line on the neighbor’ property which sparked a fire consuming outbuildings, fences, corrals, trees, a field, and personal property. The neighbor sued for negligent construction of the roof, alleging that he should have used “storm collars” to secure the roof in high winds.
The case proceeded to trial and each party introduced expert testimony. The neighbor’s expert testified that he always used storm collars in windy areas and believed that the lack of collars was not reasonable and prudent, rendering the roof insufficient. On John’s behalf, a wood science expert testified that while storm collars are commonly used in windy areas, the fact that John had used 550 nails to secure the roof was significant. He believed it would have required winds of 100-105 mph to lift the roof, compared to 90 mph which was the standard.
The trial judge, gave the following instruction to the jury:
Negligence is not proven merely because someone later demonstrates that there would have been a better way. Reasonable care does not require prescience nor is it measured with the benefit of hindsight.
The neighbor objected to the instruction, claiming that it was cumulative, unnecessary, and a comment on the evidence. The Judge over ruled the objection and the jury returned a verdict in John’s favor.
The Supreme Court disagreed, holding that jurors could have reasonably inferred from the instruction that the testimony of both experts as to the effect that storm collars make better roofs should be disregarded. The majority held that jurors following this instructions could ahve concluded that they were obligated to disregard much of the evidence, instead of using their own sense of which evidence to accept and which to reject.
Justices dissented on the grounds that the instruction was not an incorrect statement of negligence law and had previously been held proper in a negligence case.