Made-Whole Rule: Getting Your Own Insurance Company to Waive its Medical Reimbursement Rights

“The general rule is that an insurer that pays a portion of the debt owed to the insured is not entitled to subrogation for that portion of the debt until the debt is fully discharged. In other words, the entire debt must be paid. Until the creditor has been made whole for its loss, the subrogee may not enforce its claim based on its rights of subrogation.” This is known as the made-whole rule. It is established California law. Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4^th 533; 21^st Century Ins. Co. v. Superior Court (2009) 47 Cal.4^th 511. This rule was later extended to med-pay reimbursement claims. Progressive West Ins. Co. v. Yolo County Superior Court (2005) 135 Cal.App.4^th 263. What this means is that an insurance company cannot seek reimbursement for its med-pay until you (the injured party) have been made whole by the tortfeasor – i.e. fully compensated.

Let’s go through a simple and easy example how this applies under an auto accident scenario. You were injured in an auto accident. You go to the hospital via ambulance. Afterwards, you go to the chiropractor and treat for three to four months. Now you want to settle your claim.

Let’s say your bill from the hospital is $5,000.00. The ambulance bill is $2,000.00. The chiropractor bill is $4,000.00. Your auto accident policy has a provision for medical payments of $5,000.00. Your medical bills total $11,000.00. Your auto insurance pays $5,000.00 to the hospital. They send you letters stating that they will be seeking reimbursement of the $5,000.00 med-pay when you recover from the at-fault party. The at-fault party has the typical minimum insurance policy of $15,000.00. They offer you the $15,000.00. But, here’s the problem. You know that $15,000.00 will not “fully compensate” you for your injuries. What about your pain and suffering? Plus, you now have to pay $5,000.00 back to your own auto insurance, $1,000.00 to the ambulance, and $4,000.00 to the chiropractor. That leaves you with $4,000.00! That doesn’t seem like it’s full compensation to you, does it? You don’t believe so. What do you do now?

Under the made-whole rule, you can ask your auto insurance to waive their reimbursement right because you have not been fully compensated for your injuries. If you are successful (results vary), then you don’t have to pay back the $5,000.00 to your own insurance company! What does that mean? Well because you don’t have to pay it back, you get to keep it. Instead of only getting $4,000.00, you get $9,000.00. Boom. Class Dismissed.