Made-whole doctrine

An Arkansas law student has stimulated some discussion in the state's legal community with a recent article in the Fayetteville law school review on the made-whole doctrine. Melissa Perry calls for the legislature and courts to reexamine the doctrine in Arkansas and restore carriers to their contractual rights. The made-whole doctrine is a descriptive term for an equitable application of unjust enrichment -- an insured should not recover more than that which fully compensates him or her, and an insurer should not recover any payments that should rightfully go to the insured so that he or she is fully compensated. As an example of how the doctrine is applied here in Arkansas, the fact that an automobile insurer's right to subrogation arises from a contract does not give it a higher priority than its insured's tort claim, and an insured is entitled to be made whole before the insurer is entitled to recover anything against the tortfeasor.

My firm has been abuzz with this issue for the last month or so since the Texas Supreme Court delivered its opinion in Fortis Benefits v. Cantu et al, --- S.W.3d ---, 50 Tex. Sup. Ct. J. 965 (Tex., June 29, 2007). The Court held there that the made-whole doctrine must yield to Fortis’s right to contractual subrogation under the plain terms of the insurance policy (the Texas Supreme Court distinguished equitable subrogation vs. contractual subrogation in an effort to keep the law on equitable subrogation intact in Texas, but the ruling will significantly change the civil trial practice from the perspective of medical providers, Plaintiffs, and insurance companies in that state). That's basically what Perry advocates in her recent article (I can't find a free link online -- it'll be here eventually).