Academic journal article The University of Memphis Law Review

The "Made-Whole" Doctrine: Its Effect on Tennessee Tort Litigation and Insurance Subrogation Rights

Academic journal article The University of Memphis Law Review

The "Made-Whole" Doctrine: Its Effect on Tennessee Tort Litigation and Insurance Subrogation Rights

Article excerpt

I. INTRODUCTION

In today's legal system, personal injury actions have become increasingly common. Similarly, when dealing with personal injury litigation, it is not unusual to find that some type of health insurance or medical payments insurance is involved. Often an insurance company will play a large role in the suit, either by representing its insured2 or actively participating to protect any separate interest the insurance company may have. In some instances, the insurance company may find that its interest is adverse to its insured.3 In light of the foregoing, consider the following hypothetical and the resulting issues presented.

Assume A and B are involved in an automobile accident in which A suffers serious injuries as a result. A's health insurance provider makes payments on A's behalf for medical expenses in the amount of $100,000. The payments are made pursuant to an insurance policy, which contains a standard subrogation4 provision or reimbursement clause entitling the insurance company to reimbursement for any payments made on A's behalf, should A seek and obtain a recovery from a third party. Thereafter, A files suit against B and seeks recovery of the $100,000 for medical expenses, as well as $500,000 for pain and suffering. Soon after A files suit, A's insurance company files a separate petition, or is impleaded into the suit, to determine whether the insurance company has a right to subrogation or reimbursement of the medical expenses totaling $100,000.5

If A recovers the entire $600,000 damages, whether by judgment or settlement (A is made whole), a majority of courts will enforce the insurance company's subrogation right and allow reimbursement of the $100,000 paid in medical expenses on A's behalf.6 However, if A, prior to trial, settles for less than the total amount of damages, the insurance company may find, depending on the law of the jurisdiction, that it has no right to subrogation because the insured has not been made whole.7 For example, if A recovers only $300,000, the policy limits of B's insurance, should A's insurance company be given priority to the first $100,000 (pro tanto subrogation), or should A have first priority to any recovery because he or she has not been made whole? Further, if A recovers more than $500,000, but less than $600,000 (i.e. $550,000), should only the amount exceeding $500,000 be awarded to the insurance company, or should the insurance company be given first priority to $100,000 of the recovery? Suppose the jury returns a verdict in favor of the insured, but only awards $200,000 in damages. Does the jury's award constitute the amount needed to make the insured whole, or may the insured argue that he or she was entitled to recover in excess of the $200,000 judgment? Perhaps the best question is, at what point is the insured "made whole"?

The above hypothetical merely outlines the ultimate issue litigants face when dealing with an insurance company's right to subrogation or reimbursement in personal injury cases-whether and to what extent a right to subrogation has arisen. However, as mentioned in the example, the ultimate issue may turn on a court's application of the made-whole doctrine. The purpose of this Note is to examine the made-whole doctrine in Tennessee, particularly as it relates to an insurance company's right to subrogation or reimbursement in personal injury cases. First, this Note will discuss the history, purpose, and principles behind the doctrine of subrogation.8 Second, this Note will consider Tennessee's initial adoption of the "made-whole" doctrine and its effect on an insurance company's right to subrogation.9 Third, this Note will examine the Tennessee Supreme Court's application of the madewhole doctrine to personal injury cases, with particular attention paid to two recent decisions of the court.10 Fourth, the Note will consider the Legislature's reaction to one of the court's decisions.11 Finally, this Note will attempt to address several issues left unanswered by the Tennessee Supreme Court's recent decisions and, hopefully, will provide some practical guidance for courts and practitioners when dealing with those issues. …

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