Made Whole Rule: Limitations to Insurance Liability

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As an insurance adjuster, I spent many years working through various types of insurance claims. One of the questions most often poised to me involved the payment of benefits for “pain and suffering” and how best to manage the inflationary outcomes of claim settlements.

There is a common law term used among the insurance industry referred to as the “made whole” rule. While not all states require that insurance companies follow the “made whole” rule, most do. In the most simplest of terms, the concept of “made whole” involves the right of an insured, or claimant, to seek full recovery of damages to the extent they are “made whole” or returned to the pre-claim status. One of the most common areas in which this type of reference is made is within the workers’ compensation claims or bodily injury claims associated with auto insurance.

The “made whole” concept is designed to prevent individuals who are damaged by a third party from pursing damages against that third party directly. While an insurance company can certainly pursue subrogation against a third party, the “made whole” concept allows for prevention of this type of process involving direct action from party to party. The key to the “made whole” rule lies in the inability of an insurance company to pursue third party recovery, or subrogation, until they have adjudicated the claim entirely, and resolved the “made whole” obligation to their insured. In other words, an insurance carrier can not pursue subrogation when only a portion of the benefits have been paid to their insured.

There are some states that will permit a process of subrogation in cases where the injured party has not reached a “made whole” status. Believing it is financially appropriate to allow an insurance company to pursue subrogation prematurely, the “made whole” rule becomes quite convoluted in these situations.

Whether you are the party who has suffered damages or you are the at-fault individual, it is important to understand how being “made whole” may affect the legal actions within the insurance claim. In most cases, being “made whole” is simply a matter of time as the insurance company documents damages and applies policy provisions to reach a full and effective settlement of the claim. Allowing this appropriate time to pass will ensure you are given every opportunity to effective manage subrogation and the “made whole” rule is resolved to the best extent possible.