Made Whole Doctrine

Where an insured does not interfere with an insurer’s subrogation rights, an insurer may neither be reimbursed nor seek a set-off from the limits of coverage until the insured has been fully compensated. An insurer’s subrogation interests will not be given priority where doing so will result in less than full recovery to the insured. Voluntary settlement, prior to judgment, for less than the responsible party’s liability insurance coverage is generally indicative of full compensation.

However, on September 29, 2004 , the Ohio Supreme Court rendered its decision in Northern Buckeye Education Council Group Health Benefits Plan v. Lawson, 103 Ohio St. 3d 188, 2004-Ohio-4886. Pursuant to this decision, an insured’s right to recovery is no longer given priority over an insurer’s right to reimbursement, so long as the policy includes clear and unambiguous language preserving the insurers right to recovery. Based on this decision, it appears as if an insured’s right to be “made whole” will no longer be given priority over an insurer’s subrogation interests, so long as the insurance policy is clear as to priority of coverage.

The “Made Whole Doctrine” and the State - R.C. §2744.05(B)(1)

If a claimant receives or is entitled to receive benefits for injuries or loss allegedly incurred from a policy or policies of insurance or any other source, the benefits shall be disclosed to the court, and the amount of the benefits shall be deducted from any award against a political subdivision recovered by that claimant. The amount of the benefits shall be deducted from an award against a political subdivision regardless of whether the claimant may be under an obligation to pay back the benefits upon recovery, in whole or in part, for the claim. A claimant whose benefits have been deducted from an award is not considered fully compensated and shall not be required to reimburse a subrogated claim for benefits deducted from an award.

Real Party in Interest

It has been a long-standing rule in Ohio that the subrogated insurance carrier may bring suit in its own name, rather than that of its insured, to seek recovery of amounts paid to the insured. In Hartford Accident Co. v. Elliot (1972), 32 Ohio App.2d 281 (1st Dist. Ct. App., Hamilton Cty.), the defendant’s insurance carrier settled the claim of plaintiff’s insured, after being placed on notice of the plaintiff’s subrogation rights for medical payments made on behalf of the insured, and thereafter refused to recognize the plaintiff’s subrogation claim. The court held, where a defendant’s insurance company is placed on notice of another company’s subrogation claim and nevertheless later settles with the insured, the subrogated company may maintain an action in its own name, as the real party in interest, against the settling company for the amount of its subrogation claim.

Notice Requirements

In order for a subrogated carrier to seek recovery from a tortfeasor, or the tortfeasor’s insurance company, it is necessary for the subrogated carrier to place the appropriate parties on notice of its specific subrogation claim. “[A] general, non-specific subrogation claim can not place a carrier on notice for any specific type of subrogation claim . . .” Motorists Mut. Ins. Co. v. Yates (1988), 44 Ohio Misc.2d 5 ( Dayton Municipal Court). Following the decision in Hartford Accident Co. v. Elliot, supra, the court affirmed that a tortfeasor’s insurance company must be placed on notice of a subrogated carrier’s rights in order for the subrogated carrier to make a successful claim after the tortfeasor’s insurance company has settled with the insured.

Examples of Standard Subrogation Language

In the event of any payment under this policy, we are entitled, except where prohibited by law, to all rights of recovery of the person to whom payment was made against another. That person must sign and deliver to us any legal papers relating to that recovery, do whatever is necessary to help us exercise those rights and do nothing after loss to prejudice our rights.

When a person has been paid damages by us under this policy and also recovers from another, the amount recovered from the other shall be held in trust by that person for us and reimbursed to us to the extent of our payment.

Federal Fair Debt Collections Practices Act - 15 U.S.C. §1692

Purpose of the Act

Enacted as a consumer protection measure to eliminate abusive debt collection practices.

Regulates the practices of persons who regularly collect or attempt to collect the debts of another.

Violations are reviewed from the standpoint of the “least sophisticated consumer.”

General Requirements

The amount of the debt must be specifically stated.

False representation concerning the amount, character or legal status of the debt is a violation.

Legal expenses and fees incurred to collect a debt may not be included, unless the debtor agrees to pay the expenses, or judgment is rendered including these expenses.

Specifically identify to whom the debt is owed.

Advise the debtor the debt shall be assumed valid unless within 30 days of receipt of the notice of the debt, the debt is contested. However, in Sprouse v. City Creditors Company (Nov. 2, 2000), S.D. Ohio, unreported, the court held that a debt collector did not violate the Fair Debt Collection Practices Act by filing a state court collection action prior to the expiration of the 30 day period provided by statute.

If the debt is contested, all collection activities must cease until the debt collector obtains and sends the debtor an accounting and verification of the disputed portion of the debt.

Specifically advise the debtor all information collected shall be used for the purpose of collecting the debt.

Specific Prohibitions

It is unlawful to communicate or threaten to communicate to any person credit information where there is a disputed debt.

It is unlawful for the debt collector to harass or threaten the debtor.

Policy Deductibles

Ohio Administrative Code §3091-1-54(H)(10)

Reimbursement of Insured’s Policy Deductible

An insurer shall include the first party claimant’s deductible, if any, in subrogation demands.

The insurer shall share any subrogation recovery received on a proportionate basis with the first party claimant, unless the first party claimant’s deductible has been paid in advance or recovered.

The insurer shall not deduct expenses from this amount; however, an outside attorney or collection agency retained to collect such recovery may be paid a pro rata share of his expenses for collecting this amount.

In Board of Comm. of Grievances and Disc. (Dec. 1, 1995), Opinion No. 95-014, the court held that salaried attorneys employed by an insurance company may pursue subrogation claims against a tortfeasor on behalf of an insurer who has a derivative right to stand in the place of an insured, and with the insured’s consent, may include the insured’s deductible, if any, in the subrogation demand.

Letters of Protection

Defined

An acknowledgment of the debt with a form of representation the debt will be paid at some point in the future.

While no Ohio case has ever specifically addressed the issue, other jurisdictions have held attorneys representing insureds’ personal injury claims can be held liable for failing to reimburse subrogated insurers where there is notice, acknowledgment and representation the debt will be paid under a theory of tortious interference with a contractual relationship.

Adverse insurance companies who agree to protect the subrogated insurer’s claim can also be held liable for failing to do so at the time of settlement with the insured claimant.

Statutory Subrogation Rights

Immunity of Political Subdivisions to Injured Party Claims - R.C. § 2743.02(D)

Recoveries against the state shall be reduced by the aggregate of insurance proceeds, disability award, or other collateral recovery received by the claimant.

In Community Ins. Co. v. Ohio Dept. of Transp. (2001), 92 Ohio St.3d 376, the health insurer of a victim of an automobile accident, allegedly caused by negligence of the Department of Transportation, had no subrogation right against the state for payment of the victim’s medical expenses because the victim was barred from recovering against the state pursuant to O.R.C. §2743.02(D), since she received compensation for these expenses from her insurance company.

However, in Heritage Insurance Company v Ohio Department of Transportation, 104 Ohio St.3d 513, 2004-Ohio-6766 the Court held that this § 2743.02(D) is not applicable to a joint tortfeasor seeking indemnification and/or contribution from the state as the subrogor is not a considered a claimant within the meaning of the statute.

Immunity of Political Subdivisions to Subrogation Claims - R.C. § 2744.05(B)(1)

No insurer or other person is entitled to bring an action under a subrogation provision in an insurance or other contract against a political subdivision with respect to those benefits.

A similar provision of the Ohio Revised Code prohibits subrogation claims against a state university or college. See, R.C. §3345.40(B)(2).

UM/UIM Claims - R.C. § 3937.18(E)

In the event of payment to an insured for an UM/UIM claim, the insurer making such payment is entitled to the proceeds of any settlement or judgment resulting from the exercise of the insured’s rights against a legally liable party. The right is limited by relevant insolvency proceedings.

Subrogation - R.C. § 3937.21

If an insurance company pays to or on behalf of its insured any amount later determined to be due from another insurer, it shall be subrogated to all rights of the insured against such insurer.

In United Ohio Ins. Co. v. Bird, et al., (May 18, 2001) Delaware App. No. 00CA31, unreported, the Fifth District Appellate Court held a personal UIM insurer was entitled to pro-rata contribution from the insured’s employer’s commercial insurer pursuant to the Ohio Supreme Court’s decision in Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St. 3d 660. The usefulness of this decision, however, is now minimal in light of the Supreme Court of Ohio’s decision in Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216. 2003-Ohio-5849.

Subrogation Rights of the Bureau of Workers’ Compensation - R.C. § 4123.93(B) and § 4123.931

Holeton v. Crouse Cartage Co. (2001), 92 Ohio St.3d 115. In this case, the Ohio Supreme Court held the statutes providing subrogation rights to the Bureau of Workers’ Compensation were unconstitutional as written for violating certain workers’ equal protection rights.