When others cause damage to a policyholder’s insured property, there arise issues about liability for those causing the damage. When insurance companies pay their policyholders and then seek reimbursement from those causing the damage, this is known as “subrogation.” But what happens when policyholders have deductibles or losses in excess of the payment from their insurers? Who gets paid first, the subrogating insurers or the policyholders? This is where the “made whole” doctrine comes into play.

Florida’s “made whole” rule requires an insurer to reimburse the insured’s loss in full before the insurer is entitled to retain any subrogation proceeds. Florida Courts recognize that between an insured and an insurance company it is the insurer that bears the risk of loss. As described by one Florida Court:

Subrogation is a normal incident of indemnity insurance where the primary purpose of the insurance is to allow true restitution for the loss suffered…Furthermore, it is not available to an extent greater than the amount paid by the insurer, and then only after the insured has been fully indemnified.1

The entire purpose of first-party indemnity insurance is the formation of a contractual obligation where the insurer must pay the insured under the terms of the policy irrespective of any wrongdoing on the part of the insured. This contractual obligation is secured by the payment of premiums by the insured. The common law “made whole” rule further encompasses this purpose as it requires the insured, who has paid premiums to secure financial reimbursement under the insurance contract, to be fully reimbursed for their losses by the insurer, who is then free to pocket any of the excess recovery provided that the contractual obligation is fulfilled.

Florida’s Supreme Court acknowledges the Made Whole Doctrine stating:

Using the common law subrogation principle, endorsed by Florida courts…the insured was entitled to be made whole before the subrogated insurer could participate in the recovery from a tortfeasor.

The Made Whole Doctrine applies to “limited fund” scenarios—when the party responsible lacks adequate funds or insurance coverage. Florida law allows the Made Whole Doctrine to be used as a defense by insureds to protect the insured’s direct recovery from a tortfeasor, where the insured’s own insurer makes a subrogation claim upon the insured’s recovery. An insurer in Florida does not have a common law right to subrogation or reimbursement against a tortfeasor unless the insured has collected all of his damages and been made whole. If a full recovery has been made by the insured, who is thus “made whole,” any payments to the insured over and above his actual damages may be viewed as “double recovery,” entitling the carrier to subrogation or reimbursement rights.

There is one caveat—Florida recognizes that the parties are to contract out of the “made whole” doctrine if the contract specifically provides for this. Accordingly, some insurers have included subrogation clauses and sections into policies which have to be read carefully to see if they are valid and specifically describe how subrogation scenarios contractually change the common law.  Florida courts seem to strictly construe these clauses against the insurer.

Finally, the “made whole” doctrine varies, sometimes significantly, from state to state. This is about Florida law and follows work and research I have been doing in the Champlain Towers collapse case.

Thought For The Day

Show me a hero and I’ll write you a tragedy.”

—F. Scott Fitzgerald

1 DeCespedes v. Prudence Mutual Casualty Co. of Chicago, 193 So.2d 224, 227 (Fla. 3d DCA 1966), cert. denied 202 So.2d 561 (Fla. 1967).