July 21, 2016 – A Wisconsin Supreme Court majority (5-2) recently sided with an insurance company that retained damages received on a subrogation claim, despite a motorcycle accident victim’s argument that subrogation damages should go to him.
In Dufour v. Progressive Classic Ins. Co., 2016 WI 59 (July 6, 2016), five justices concluded that Dennis Dufour was not entitled to the $15,589 that his insurer recovered from an at-fault driver’s insurer, noting Dufour was already made whole.
“We conclude that the made whole doctrine does not apply to preclude Dairyland from retaining the funds it received from its subrogation claim because the equities favor Dairyland,” wrote Chief Justice Patience Roggensack.
Justices Shirley Abrahamson and Justice Ann Walsh Bradley dissented, concluding that the “made whole doctrine applies” and Dairyland was barred from retaining the $15,589.
Dufour sustained personal injuries as well as property damage to his motorcycle in 2011 when he was struck by an underinsured motorist. That driver had an auto liability policy covering $100,000. Dufour’s underinsured motorist policy with Dairyland insurance company covered $100,000. He also had a property damage limit of $40,000.
Dufour received $100,000 from Dairyland and $100,000 from the at-fault driver’s insurer, American Standard Insurance Company.
However, Dufour suffered bodily injury damages beyond the $200,000 he received under the policies. Dairyland also paid Dufour $15,589, the agreed value of the motorcycle that was damaged.
Dairyland then sought the $15,589 as a subrogation claim against American Standard, to recoup the money that Dairyland paid to Dufour, and American Standard paid it.
Then Dufour informed Dairyland that he was entitled to the money received on its subrogation claim, under Wisconsin’s “made whole doctrine,” which ensures that an insured party is fully compensated for a loss. Dairyland denied Dufour’s claim.
Dufour sued, adding a claim that Dairyland acted in bad faith when it rejected Dufour’s claim to funds received through subrogation. A circuit court ruled that Dufour was entitled to the funds, but Dairyland did not act in bad faith. An appeals court affirmed.
The majority recognized the made whole doctrine but explained that it is just “one consideration in determining whether an insurer is entitled to subrogation.”
“Stated otherwise, an insurer is not always precluded from retaining funds obtained as subrogation for payments the insurer previously made simply because the insured has not been fully compensated for the loss,” Chief Justice Roggensack wrote.
“Rather, the specific facts and equities dictate whether the made whole doctrine will apply to prevent an insurer from retaining funds received for its subrogation claim.”
In this case, the made whole doctrine did not apply even though Dufour did not recover all of his bodily injury damages, the majority ruled, noting that Dufour received all amounts that he was entitled to receive under his motorcycle insurance policies.
“Had Dufour wished to insure himself against greater bodily injury losses, he could have paid a higher premium for higher policy limits,” Chief Justice Roggensack wrote.
The majority ruled that Dufour could not tap into the property damage limit, which was $40,000, to pay for bodily injuries. Those policies were separate.
“We decline to rewrite Dairyland’s policy to provide for lump sum coverage where such coverage was not contemplated by the parties,” Roggensack wrote.
The majority also discharged the bad faith claim, which requires the insured party to show the insurer breached the insurance contract and knew or recklessly disregarded the fact that there was no reasonable basis to deny the claim but denied it anyway.
“As we have explained above, Dairyland paid Dufour every dollar to which he was entitled under its policy,” the chief justice wrote. “Therefore, Dairyland did not breach its insurance contract.”
Justice Abrahamson wrote a dissenting opinion, joined by Justice A.W. Bradley, arguing the made whole doctrine applied because it precludes subrogation unless and until the insured party has obtained full compensation for damages sustained.
Abrahamson noted that Dufour was not fully compensated for bodily injuries. “There is no subrogation until an insured is made whole,” she wrote. “Subrogated insurance companies should not compete with their insureds for limited settlement funds.”
She noted that the made whole doctrine is an equitable doctrine that applies to “all elements of damages” for a single occurrence. The majority had ruled that Dufour could not tap into the property damage limit to cover unpaid bodily injury damages. But Abrahamson argued that the made whole doctrine required all funds to be pooled.
“Because there was an insufficient pool of funds to satisfy Dufour’s entire claim, Dufour takes priority over Dairyland in the allocation of these funds; the made whole doctrine applies with full force,” Justice Abrahamson wrote.
There is no “impermissible double recovery” when an injured party like Dufour has not been made whole, she noted. Rather, it’s a just application of an equitable principle.
“Instead, the majority opinion shifts away from the compensatory purpose of the made whole doctrine and instead protects the financial interests of the insurance company to the detriment of its insured who paid the premiums,” Abrahamson wrote.
On one point, the dissenters did concur. They agreed that Dairyland did not engage in bad faith when it rejected Dufour’s claim to subrogated funds, since it was “fairly debatable” as to whether he was entitled to the funds under the made whole doctrine.