Attempts at Expanding the Made Whole Rule:
Square Pegs in a Round Hole?

By Randy Wallace

You are evaluating a case and realize that the at-fault party has no insurance and no assets. Your client has medical expenses in excess of $8,600, his employer’s health insurance plan (non-ERISA) has paid over $6,000 in medical benefits and only $10,000.00 in uninsured motorist coverage is available. To make matters worse, the health insurer wants to recoup the money it has paid out of the $10,000.00 in uninsured motorist benefits leaving less than $4,000.00 to compensate your client and pay your fee.  

These basic facts were in play for plaintiff’s counsel in Hare v. State, 733 So.2d 277 (Miss. 1999). What could be done to maximize the recovery for the client? Plaintiff’s counsel sought application of the made whole rule. But what exactly is the made whole rule? It “is the general principle that an insurer is not entitled to equitable subrogation until the insured has been fully compensated.” Id. at 281. In adopting the made whole rule, the Court held that:

It is not to be overridden by contract language, because the intent of subrogation is to prevent a double recovery by the insured, especially here as expressly stated in the State Health Plan. Until the insured has been fully compensated, there cannot be a double recovery. Otherwise, to allow the literal language of an insurance contract to destroy an insured's equitable right to subrogation ignores the fact that this type of contract is realistically a unilateral contract of insurance and overlooks the insured's total lack of bargaining power in negotiating the terms of these types of agreements.

Id. at 284 (citations omitted).

Given expert testimony that the true value of Hare’s damages were in the range of $50,000 to $175,000, application of the made whole rule allowed Hare to receive the benefit of his health insurance (over $6,000) and also receive the uninsured motorist policy limits of $10,000.00.  It is important to note, that the made whole rule does not eliminate the health insurance provider’s right of recovery, it simply delays the insurer’s right of recovery until the insured has been made whole.  Now that you know how the made whole rule works, what about attempts to expand it beyond contractual subrogation?

Made Whole Rule v. ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) codified at 29 U.S.C. §1001 et seq. has broad application to most every conceivable employer sponsored health insurance plan with certain exceptions for plans described in §410 (c)(1)(A-D) (church plans, government plans, and trade association plans) and those exemption by the “safe harbor” provisions prescribed by the Secretary of Labor.  See 29 C.F.R. § 2510.3-1(j) (1993).

How would Hare’s case have been different had his employer been subject to ERISA? In  Yerby v. United Healthcare, 846 So.2d 179 (Miss. 2002), the Mississippi Supreme Court held that the made whole rule is not the default rule in an ERISA plan. The Fifth Circuit has likewise rejected the made whole rule where it was not included in the ERISA plan, and held that a clear and unambiguous subrogation/reimbursement provision entitles an ERISA plan to the full amount of medical benefits paid on the insured's behalf.  See Sunbeam-Oster Company, Inc. v. Whitehurst, 102 F.3d 1368, 1376 (5th Cir. 1996); AT&T v. Flores, 322 Fed. Appx. 391, 394 (5th Cir. 2009).

As a result, an ERISA plan seeking contractual subrogation in Mississippi is entitled to subrogation regardless of whether or not the insured has been made whole by the settlement or judgment.  In Hare’s case, he would have been required to pay his health insurer the $6,000 from his uninsured motorist settlement of $10,000.  

With respect to adults provided coverage by an ERISA plan, Yerby and Sunbeam do not yield a particularly satisfying result for an injured client or his attorney. But what if the injured party is a minor insured by an ERISA health insurance plan?  Chancery Court approval is required in order to validly assign a minor's right to insurance proceeds. Methodist Hosps. of Memphis v. Marsh, 518 So. 2d 1227, 1228 (Miss. 1988); McCoy v. Preferred Risk Ins. Co., 471 So. 2d 396, 398 (Miss. 1985).  

In Cooper Tire v. Striplin, 652 So. 2d 1102 (Miss. 1995), the Mississippi Supreme Court came to the conclusion that "the subject of minor's estates is a matter within the field of domestic relations not governed by ERISA," and that the law did not "directly or indirectly relate to pension plans." Striplin, 652 So. 2d at 1004.  At least one Federal Court considering the issue has found likewise. See Clardy v. ATS Inc. Employee Welfare Benefit Plan, 921 F. Supp. 394 (N.D. Miss. 1996).  Therefore, if your client is a minor, an ERISA plan must have chancery court approval before a parent can contract away the rights of the minor though a subrogation or reimbursement provision.
How can you help your client if you suspect an ERISA plan has a subrogation claim? First, verify that the plan is in fact an ERISA plan.  Second, determine if the insurance contract has a valid subrogation or reimbursement provision.  Third, determine if your client is a minor that would benefit from Striplin. Last, if the ERISA plan is entitled to subrogation (if subrogation is included in the contract and no minor is involved), negotiate with them early for a reduction of their lien. Many ERISA plan administrators claim it is against their internal policies to reduce liens. Other plans will be quite reasonable once they understand that the plaintiff is not willing to proceed with the tort case without some sort of financial incentive.

Made Whole Rule v. Uninsured Motorist (Kuehling) Offset 

Your client comes to explain the following:

a.    She has $26,000 in unpaid medical expenses, a facial scar, and a crushed pelvis that will result in a lifetime of pain;
b.    She has uninsured motorist coverage on two vehicles at $25,000 each;
c.    The potential defendant has only $25,000 in liability coverage and no assets.

If you understand stacking of uninsured motorist benefits and Kuehling offsets after reading State Farm v. Kuehling, 475 So.2d 1159 (Miss. 1985) you will come to the conclusion that the maximum potential recovery from insurance (disregarding any med pay coverage) will be $50,000 ($25,000 from the tortfeasor and $25,000 from the UM carrier). You scratch your head, and wonder if there any way for the made whole rule to help this client? Unfortunately, no.

In United Service Automobile Association v. Stewart, 919 So.2d 24 (Miss. 2005), the courts were faced with similarly bad fact pattern. In Stewart, a 45 year old male died in a motorcycle collision. Mr. Stewart had contracted with USAA to provided uninsured motorist coverage for five vehicles at $10,000 each. Id. at 25. USAA acknowledged that there was stacked UM/UIM coverage in the total amount of $50,000, but claimed that it was entitled to a set off in the amount of the tortfeasor’s liability coverage of $25,000. Id. at 26.

After a hearing on Stewart’s declaratory judgment action, the chancery court granted Mr. Stewart’s wife summary judgment based on Hare v. State and held that USAA was not entitled to an offset because the plaintiff would not be made whole by the recovery. Id. The Mississippi Supreme Court reversed the Chancellor and while reaffirming Hare, explained the limited scope of the made whole rule:

While we reaffirm our decision in Hare to stand for the proposition that the "made whole" rule may be appropriately applied to certain subrogation cases, we unhesitatingly state here that Hare did not overrule the long line of UM/UIM cases, many of which were discussed in Wise, which was decided more than four years after Hare. If we had intended such a result in Hare, we would have said so in express language overruling prior case law. Wise was not a subrogation case, and neither is today's case.     

Id. at 29. This, coupled with the Court’s observation that “[W]e have to recognize that in many UM/UIM cases, it is virtually impossible for the injured insured(s) to be made whole” again sends the clear message that Hare and the made whole rule are limited to a small set of subrogation cases rather than generally applicable to any situation where the plaintiff does not receive an adequate remedy. While the made whole rule will not prevent a Keuhling offset, remember that a UM/UIM carrier may not offset UM/UIM benefits by amounts the insured receives under the Mississippi Workers’ Compensation Law. See Nationwide v. Garriga, 636 So.2d 658 (Miss. 1994).   

Made Whole Rule v. Workers’ Compensation – Statutory Subrogation

The Mississippi Workers' Compensation Act provides workers' compensation insurers the statutory right to reimbursement for benefits paid an injured worker in the event the worker recovers from a responsible third party.
[A]ny amount recovered by the injured employee or his dependents (or legal representative) from a third party shall be applied as follows: reasonable costs of collection as approved and allowed by the court in which such action is pending, or by the commission of this state in case of settlement without suit, shall be deducted; the remainder, or so much thereof as is necessary, shall be used to discharge the legal liability of the employer or insurer; and any excess shall belong to the injured employee or his dependents.

Federated Mutual Ins. Co. v. McNeal, 943 So.2d 658, 660 (Miss. 2006) (citing Miss. Code Ann. 71-3-71 (Rev. 2000).  However, this statutory right of reimbursement does not extend to the injured employee’s UM/UIM benefits. See Cossitt v. Nationwide Mutual Ins. Co., 551 So.2d 879 (Miss. 1989).

In Federated Mutual, McNeal suffered an on the job injury and was paid workers’ compensation benefits for the injury.  Id. at 659.  McNeal also brought suit against various parties he claimed were at fault for his injuries and obtained a jury verdict in the amount of $1,687,500. Id. Subsequent to the jury verdict, McNeal and the defendants reached a settlement agreement and sought circuit court approval of the settlement. Id. Federated then filed a Motion to Compel Compliance with Section 71-3-71 requesting the circuit court order McNeal to reimburse it for all workers’ compensation benefits it had paid to McNeal.  Id.

The circuit court denied Federated’s motion and held that Hare’s made whole rule applied to workers’ compensation liens.  Id. The circuit court also found that the amount McNeal received in settlement was insufficient to make him whole and until McNeal was made whole, Federated had no right to repayment. Id. at 660.

Federated appealed and the Mississippi Supreme Court held that the circuit court “erred when it applied the equitable made whole doctrine to the statutory right of subrogation provided in Section 71-3-71.” Id. at 661. As noted by the Court of Appeals and cited with approval by the Supreme Court, “A workers’ compensation insurer’s right of reimbursement exists by virtue of statute and must rise or fall strictly as a matter of statutory interpretation.”  Id. (citing Mississippi Food & Fuel Workers’ Compensation Trust v. Tackett, 778 So.3d 136, 143 (Miss. Ct. App. 2000).

Federated Mutual is instructive if you are dealing with any other entities with a statutory right to subrogation or reimbursement such as Medicaid or the Mississippi Crime Victims Impact Fund.  (Miss. Code Ann. §43-13-125 and § 99-41-21). While either of these entities can demand repayment in full, both will generally reduce their lien if written request is made.

Made Whole Rule v. Inadequate Jury Verdict

The latest appellate case discussing an attempt to expand the made whole rule came with the recently handed down Armstrong v. Mississippi Farm Bureau, No. 2010-CA-41-COA (Jan. 11, 2011). Armstrong and Hill were injured in a car wreck due to the alleged negligence of a Flowers Baking Company employee. Id. at ¶2.

Armstrong had medical payments coverage through his automobile insurer, Farm Bureau. Armstrong and Hill were paid med pay benefits of approximately $3,000 each. Id. at ¶3. The case proceeded to trial and a jury awarded $4,411 to Armstrong and $3,725 to Hill.  Id. at ¶7. Farm Bureau learned of the jury award and demanded repayment of its contractual subrogation interest totaling $6,058. Id. at 8. The plaintiffs refused and Farm Bureau filed suit.

Despite the fact that a jury had awarded damages to Armstrong and Hill, the plaintiffs claimed that the amount was insufficient to make them whole. Id. at ¶15. The defendant argued that the judgment made the plaintiffs whole as a matter of law and that the plaintiffs were collaterally estopped from attacking the judgment. Id. at ¶15.

The Court of Appeals held:

Armstrong’s and Hill’s damages were actually litigated and decided. At their trial, the jury was instructed to award actual or compensatory damages “in an amount which will reasonably compensate for [the] loss sustained.” The instructions stated that such damages “are awarded for the purpose of making the [plaintiffs] whole again.” After hearing all of the evidence and being given those instructions, the jury returned verdicts of $4,411 for Armstrong and $3,735.30 for Hill. The jury determined these were the amounts necessary to make them whole.  We find that Armstrong and Hill are collaterally estopped from attacking that judgment in the present case.

Id. at ¶18-19.

The easy lesson from Armstrong is that a non-appealed jury verdict is your client’s measure of damages regardless of whether you agree with the jury’s assessment of damages or not.

A Peg that Thankfully Hasn’t Made it to an Appellate Court

Remember that the made whole rule “is the general principle that an insurer is not entitled to equitable subrogation until the insured has been fully compensated.” Hare, at 281. Nothing more and nothing less. It is an equitable doctrine that allows seriously injured individuals to seek the full measure of their damages, but it is not for use in every situation where the plaintiff doesn’t receive adequate compensation or doesn’t want to repay a creditor. While there are other scenarios involving the made whole rule, one of the most discussed is medical providers’ expenses.

Medical providers are not insurers, nor are they seeking subrogation. If there are medical expenses of $25,000 and available insurance benefits of $20,000, do not misuse the made whole rule to argue that the provider receives nothing until your client has been made whole. The provider’s right of recovery is not based on subrogation. You can nicely ask the provider to compromise on the amount it will accept in satisfaction of the debt, but the provider is not legally obligated to reduce the debt based on the made whole rule.

So there you have what the made whole rule is and what it isn’t. Just remember, it will not :

1.    Eliminate contractual subrogation or a lien against an adult by an ERISA insurer;
2.    Prevent Kuehling offsets in UM/UIM;
3.    Reduce a workers’ compensation carrier’s statutory right to reimbursement;
4.    Save your client from the effect of collateral estoppel on an un-appealed jury verdict.
5.    Prevent a medical provider from collecting on a bill your client owes for services rendered.

Randy Wallace is a partner in the Clinton, Mississippi law firm of Robert Boyd and Associates PLLC where his legal practice is primarily devoted to representation of injured clients in personal injury and wrongful death claims including: automobile collisions, nursing home injuries, premises liability, medical negligence, uninsured motorist claims, and bad faith insurance denial. He is a member of the American Association of Justice Insurance Section and Bad Faith Insurance Litigation Group.