In two recent cases, the Washington Supreme Court has strengthened the protections of the “made whole” doctrine. This doctrine provides that a fault-free insured must recover his or her entire loss before an insurer may offset or recover its own payments. Since its adoption more than four decades ago, courts have debated whether and when the insured has been “fully compensated,” such that any part of the recovery belongs to the insurer. These cases continue the trend of robust protection for insureds.
In Daniels v. State Farm Mut. Auto. Ins. Co., 193 Wn.2d 563, (2019), the Supreme Court held that an insurer must refund the fault-free insured’s entire deductible before it may retain any recovery from a tortfeasor. In Daniels, the insured was injured in a three-vehicle car accident. She paid her $500 deductible, and her property damage insurer paid for the car repairs that exceeded the $500. Daniels’s insurer then sought recovery from the second driver’s insurer, which agreed that the second driver was 70 percent at fault. It paid 70 percent of the repair costs. From that recovery, Daniels’s insurer paid her 70 percent of her deductible.
Daniels filed a class action lawsuit, seeking the remaining 30 percent of her deductible. She asserted that the made whole doctrine required her insurer to reimburse her 100 percent of her deductible before allocating any recovery to itself. The trial court granted the insurer’s motion to dismiss. Relying on a prior case that held the made whole doctrine does not apply when the insurer pursues its subrogation claim directly, the Court of Appeals affirmed.
The Supreme Court accepted review and reversed. It overruled the prior case law, determining that the made whole doctrine applies in any scenario in which the insurer seeks to recover benefits it paid. It also rejected the argument that reimbursing an insured for her deductible improperly rewrites the policy as one without a deductible. The repair loss included the amount of the deductible, and the insured was entitled to be made whole.
In Group Health Coop. v. Coon, 447 P.3d 139 (Wash. 2019), a patient contracted a rare fungal infection, eventually leading to partial limb amputation to prevent its spreading. His health insurer paid his medical expenses. The patient made negligence claims against the hospital, asserting it exposed him to the fungus. The hospital countered that the patient probably was exposed in the course of his work. Weighing his options, the patient settled with the hospital for less than the limits of its liability coverage. The health insurer refused to waive its subrogation claim and filed a complaint seeking to recover the benefits it paid. The trial court entered summary judgment for the insurer. The Court of Appeals reversed, finding a fact issue precluded summary judgment, and remanded for determination of whether the patient had been fully compensated for his loss.
The Supreme Court accepted review and affirmed. It rejected the trial court’s reasoning that because the insurer had settled with the alleged tortfeasor for less than the available policy limits, a presumption arose that the patient had already been made whole. Instead, the Court noted that when a party chooses to settle for less than the liability limits, that is “some evidence” of full compensation. Here, the patient produced enough evidence to show that he was not fully compensated, and summary judgment was improper.