Why All or Nothing? A Middle Ground to Subrogation Law Will Protect South Dakota's Insureds

By Trefz, Marilyn F. | South Dakota Law Review, Spring 2013 | Go to article overview

Why All or Nothing? A Middle Ground to Subrogation Law Will Protect South Dakota's Insureds


Trefz, Marilyn F., South Dakota Law Review


I. INTRODUCTION

Historically, subrogation was established as an equitable principle allowing an insurer who has indemnified an insured "to stand in the shoes of the insured's claim" for damages against a tortfeasor. (1) Today, subrogation often centers on a conventional approach, flowing from a contract (2) or is statutorily driven, governed by the terms of a statute. (3) Black's Law dictionary defines a "subrogation clause" in insurance as "[a] provision in a property or liability insurance policy whereby the insurer acquires certain rights upon paying a claim for a loss under the policy." (4) These rights include receiving a full or proportionate amount of the benefits paid to the insured. (5)

The concept of subrogation in property insurance was widely applied; however, the concept in the context of personal injury claims remained intensely prohibited at common law. (6) This tenor changed dramatically during the 1960's and 1970's when insurance companies, through aggressive collection efforts and litigation, quickly promoted the expansion of subrogation for medical bills paid by automobile insurers, (7) leaving only a minority of states resisting this movement. (8) Additionally, health insurers began adding subrogation clauses in an attempt to get a share of the damages paid to victims by tortfeasors after the first reported judicial decision addressed the propriety of health insurance subrogation in 1982. (9) Yet, "[m]ore and more jurisdictions have come to recognize the harsh results placed upon the insured through the doctrine of subrogation." (10)

In fact, after an insurer has paid out benefits, but when an insured is not fully reimbursed for all of its losses, a split of authority exists as to who has a superior interest in the third-party recovery. (11) In Basic Text on Insurance Law, Robert E. Keeton describes five standard rules that courts and legislatures often consider. (12) The first and second rules favor the insurer:

First Rule: The insurer is the sole beneficial owner of the claim against the third party and is entitled to the full amount recovered, whether or not it exceeds the amount paid by the insurer to the insured.

Second Rule: The insurer is to be reimbursed first out of the recovery from the third party, and the insured is entitled to any remaining balance. (13)

The third rule provides a middle ground approach between favoring the insurer and the insured. (14)

Third Rule: The recovery from the third person is to be prorated between the insurer and the insured in accordance with the percentage of the original loss for which the insurer paid the insured under the policy. (15)

The fourth and fifth rules favor the insured:

Fourth Rule: Out of the recovery from the third party the insured is to be reimbursed first, for the loss not covered by the insurance, and the insurer is entitled to any remaining balance, up to a sum sufficient to reimburse the insurer fully, the insured being entitled to anything beyond that. Thus, if there is any windfall, it goes to the insured.

Fifth Rule: The insured is the sole owner of the claim against the third party and is entitled to the full amount recovered, whether or not the total thus received from the third party and the insurer exceeds his loss. (16)

In keeping with Keeton's Fifth Rule, (17) some states now have laws prohibiting subrogation, through either statute or common law. (18) While the majority of states allow subrogation, many of these same states, through judicial decisions and legislation, have pronounced the made-whole doctrine in order to minimize its detrimental effects of insurance subrogation on the insured. (19) Additionally, some federal courts have adopted the made-whole doctrine as the default rule. (20)

Insureds anticipate a shift in the risk of loss to the insurer in return for their premium payment. (21) When a loss occurs, there is a certain expectation by insureds that they will be made whole because of this purchased protection. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Why All or Nothing? A Middle Ground to Subrogation Law Will Protect South Dakota's Insureds
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.