For nearly fifty years, Montana has been ground zero for the aggressive application of the Made Whole Doctrine. Intimidation, bad-faith actions, and class action lawsuits have littered the ground where common-sense insurance subrogation used to dwell. What began as an equitable principle established by the Montana Supreme Court in 1977 in Skauge v. Mountain States Tel. & Tel. Co., has evolved into one of the most restrictive subrogation environments in the country.[1] In Montana, an insured must be fully compensated for all losses and all costs of recovery, including attorney’s fees, before an insurer may exercise subrogation rights—regardless of contractual language to the contrary.[2] The doctrine has been described and applied not merely as an equitable defense, but as a matter of public policy with constitutional overtones.
Thirty-one years after Skauge, Montana courts extended the doctrine beyond recovery itself and into the timing and mechanics of subrogation, in Ferguson v. Safeco Ins. Co. of Am., the Montana Supreme Court held that an insurer has an affirmative duty to determine whether the insured has been made whole before it subrogates.[3] That language fueled class actions and bad faith allegations premised not on the taking of subrogation proceeds, but on the assertion of subrogation rights without a prior made whole determination. The result was a jurisdiction in which even routine lien correspondence was scrutinized as potential misconduct.[4]
A meaningful doctrinal shift began in 2014 with the Supreme Court’s decision in Van Orden v. USAA.[5] There, the Montana Supreme Court addressed whether an insurer that paid property damage under optional collision coverage could pursue subrogation for that discrete category of loss when the insured had not been made whole for bodily injury damages. The Court held that Montana law does not prohibit subrogation under those circumstances, provided the insured has been fully compensated for the specific category of damage for which coverage was purchased.[5] In doing so, the Court effectively endorsed a category-by-category analysis tied to the scope of coverage.
That refinement was reinforced and expanded by the Supreme Court in Johnson v. State Farm Mut. Auto. Ins. Co.[6] In Johnson, the insureds argued that State Farm violated the Made Whole Doctrine by pursuing subrogation while they still had uncompensated property losses that were not covered under the policy. The Montana Supreme Court rejected that argument. While reaffirming that an insured must be made whole for covered losses before subrogation may proceed, the Court drew a critical limitation: the doctrine applies only to damages within the scope of coverage for which the insured paid premiums.[7] It does not require an insurer to wait until an insured is compensated for losses the insurer never agreed to cover.
Taken together, Van Orden and Johnson appeared to restore some balance. Subrogation in Montana would remain subject to the Made Whole Doctrine, but only as to covered categories of damage. The doctrine would not function as a blanket prohibition whenever any uncompensated loss remained, and subrogation professionals would not have to fear their employers would be named in a class action for pursuing a simple collision subrogation claim. For the first time in decades, Montana auto property subrogation appeared viable under defined conditions.
Against this backdrop, the federal courts have recently added a new layer of volatility in Smith v. Health Care Serv. Corp.[8] The litigation began with a 2025 magistrate judge’s recommendation.[9] In Smith v. Health Care Serv. Corp., the plaintiff alleged that Blue Cross breached the terms of its health plan and violated Montana’s Unfair Trade Practices Act by “pursuing, asserting, and/or enforcing” subrogation without first conducting a made whole analysis. The allegations focused on letters from the insurer’s subrogation vendor (Rawlings & Associates) stating that the plan had a reimbursement and/or subrogation “lien/claim,” requesting information, and instructing counsel not to distribute settlement funds until its rights were accounted for.[10]
The magistrate judge recommended dismissal, concluding that informational correspondence and reservation-of-rights language did not amount to actionable enforcement of subrogation. The recommendation emphasized that treating such communications as “enforcement” would effectively prevent insurers from gathering information necessary to determine whether the insured had been made whole.[11] That reasoning aligned with earlier federal authority, distinguishing between asserting a contractual right and actually enforcing or collecting it.[12]
However, in February 2026, the district court rejected that recommendation.[13] The court held that, at the pleading stage, the insurer’s express statement that it “has a reimbursement and/or subrogation lien/claim,” combined with directives not to distribute settlement proceeds until its rights were discharged, plausibly constituted an assertion or pursuit of subrogation before any made-whole determination. Relying on Skauge, Ferguson, and § 33-30-1102(4), the court concluded that such allegations were sufficient to state claims for breach of contract and violation of Montana’s Unfair Trade Practices Act. Section 1102(4) provides that “the right of subrogation granted in 33-30-1101 may not be enforced until the injured insured has been fully compensated for the insured’s injuries.”[14]
The reversal in Smith does not repudiate Van Orden or Johnson, but it introduces renewed risk at the front end of any subrogation effort. Substantively, Montana now recognizes that the Made Whole Doctrine applies only to covered damages and may be satisfied on a category-by-category basis. Procedurally, however, Smith signals that communications asserting the existence of a lien and restricting settlement distribution may themselves trigger litigation if they precede a documented made-whole analysis. The use of subrogation counsel to navigate the bad faith/class action minefield is recommended.
The current landscape in Montana, therefore, reflects both restoration and restraint. Johnson and Van Orden confirm that subrogation is not extinguished simply because some losses remain uncompensated. The doctrine is tethered to covered risks and discrete categories of damage. At the same time, Smith underscores that insurers must exercise caution in how and when they articulate subrogation rights before a made-whole determination is made.
Montana remains a challenging jurisdiction. Its courts continue to affirm that when the insured and insurer cannot both be fully compensated, the loss is borne by the insurer because that is the risk assumed in exchange for premiums.[15] Yet the recent decisions demonstrate that the doctrine is no longer limitless. It is bounded by coverage and shaped by context.
For subrogation professionals, the path forward requires disciplined adherence to three principles. First, analyze made-whole on a category-specific basis tied to covered damages. Second, document the made whole evaluation before conditioning settlement or reimbursement. Third, draft subrogation communications with precision, distinguishing between notice of contractual rights and enforcement of those rights.
Montana subrogation is no longer dormant, but it remains volatile and on life support. The recent trilogy of Van Orden, Johnson, and Smith reflects a judiciary attempting to reconcile equitable protection of insureds with contractual subrogation rights. Those who understand the contours of that reconciliation can still recover in Montana. Those who ignore it will continue to face the class action crosshairs that have long defined this uniquely challenging jurisdiction.
For questions regarding subrogation in any state, please contact Lee Wickert at leewickert@mwl-law.com
[4] See, e.g., Bolin v. Allstate Indem. Co., 2010 WL 4286357 (D. Mont. 2010); Forsman v. United Fin. Cas. Co., 966 F. Supp. 2d 1091 (D. Mont. 2013).
[5] Van Orden v. USAA, 318 P.3d 1042 (Mont. 2014).
[6] Johnson v. State Farm Mut. Auto. Ins. Co., 2025 WL 2505181 (Mont. 2025).
[7] Smith v. Health Care Serv. Corp., 2025 WL 4066512 (D. Mont. 2025).
[8] Id.
[9] Cramer v. John Alden Life Ins. Co., 763 F. Supp. 2d 1196 (D. Mont. 2011).
[10] Smith v. Health Care Serv. Corp., 2026 WL 458111 (D. Mont. Feb. 18, 2026).
[11] Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628, 632 (Mont. 1977).
[1] Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628 (Mont. 1977).
[2] Swanson v. Hartford Ins. Co. of the Midwest, 46 P.3d 584 (Mont. 2002); Ferguson v. Safeco Ins. Co. of Am., 180 P.3d 1164 (Mont. 2008).
[3] Ferguson, supra.
[4] See, e.g., Bolin v. Allstate Indem. Co., 2010 WL 4286357 (D. Mont. 2010); Forsman v. United Fin. Cas. Co., 966 F. Supp. 2d 1091 (D. Mont. 2013).
[5] Van Orden v. USAA, 318 P.3d 1042 (Mont. 2014).
[6] Johnson v. State Farm Mut. Auto. Ins. Co., 2025 WL 2505181 (Mont. 2025)
[7] Id.
[8] Smith v. Health Care Serv. Corp., 2026 WL 458111 (D. Mont. Feb. 18, 2026), rejecting Findings and Recommendation at 2025 WL 4066512 (D. Mont. 2025).
[9] Smith v. Health Care Serv. Corp., 2025 WL 4066512 (D. Mont. 2025).
[10] Id.
[11] Id.
[12] Cramer v. John Alden Life Ins. Co., 763 F. Supp. 2d 1196 (D. Mont. 2011).
[13] Smith v. Health Care Serv. Corp., 2026 WL 458111 (D. Mont. Feb. 18, 2026).
[14] Mont. Code Ann. § 33-30-1102(4).
[15] Skauge, supra.
