Before initiating a subrogation claim under the Arkansas made whole law, insurers must obtain either a judicial determination or agreement with the insured that they have been made whole.
Although insurers have some obstacles to overcome in pursuing their right to subrogation when complying with the made whole law in Arkansas, it can be done with the help of subrogation attorneys who are intimately familiar with the made whole doctrine, its intricacies, and how it relates to subrogation.
What is the “Made Whole” Doctrine?
The made whole doctrine is a pretty simple concept: people who are injured deserve to be compensated for all the damages they suffer, but they do not deserve to make money from their misfortune by collecting more than what it takes to make them whole. Allowing the injured party to keep overpayments would allow them to be unjustly enriched for their damages and profit from their injuries. Arkansas law provides guidance as what damages an injured person is entitled to and what kinds of reimbursement will make a person whole.
When those who are injured collect more from a third party than is necessary to make them whole, the insurer who has paid benefits is entitled to be reimbursed for money it has already paid. To rectify this overpayment, the insurer files a claim for subrogation, which essentially says, “Out of the overpayment you received, pay me back the money I advanced you.”
How Does the Made Whole Law in Arkansas Affect My Subrogation Claim?
In 2011, the Arkansas Supreme Court discussed the made whole doctrine and how it applies to insurers’ statutory and equitable rights to subrogation. The court decided that insurers may initiate an action to recover funds paid to their insureds after the injured person has been paid by a third party, and if the amount the injured received was more than the amount that would make him or her whole.
The main question presented to the court was: When can the insurer legally file a subrogation lien or legal action for reimbursement?
The court established some guidelines ruling, “An insurer is not entitled to subrogation unless the insured has been made whole for his loss.” The court specifically held that the right to initiate subrogation does not accrue until one of two events occurs:
- The parties enter into an agreement or settlement between them acknowledging the injured person has been made whole; or,
- There is a judicial determination that the insured has been made whole.
So, determining what makes an injured party “whole” is key. If property has been lost or damaged, being made whole is usually the injured party receiving an equivalent replacement or funds enough to buy an equivalent replacement. If personal injury or medical bills are involved, the definition of “whole” can get much more tangled.
One concern expressed was that insurers could become involved in protracted litigation about whether or not the insured was made “whole” before they were entitled to commence an action to collect in subrogation. This prospect could have inspired some insurers to give up their subrogation claims.
To address this, the court also held that a letter sent by one insurance company to another expressing the intent to make a subrogation claim is not equivalent to filing a subrogation lien. Insurers are entitled to provide notification of their intent without it being construed as a lien.
If you have questions about how the made whole law in Arkansas affects your business, contact the McHughes Law Firm at 501.376.9131 to speak with one of our experienced subrogation attorneys.
