What you don’t know can’t help you. That is certainly the case in Iowa when plaintiff’s attorneys claim no obligation to reimburse a carrier exists based on a general assertion that the insured was not made whole. This objection overlooks the proper application of the made-whole doctrine to specific damage types as required under Iowa Law. This article deals with application of the made-whole doctrine under Iowa law when an insured sustains both personal injury and property damages as a result of an accident.
An insured need not be paid in full for pain and suffering and disability prior to allowing subrogation for medical expenses. Iowa Am. Ins. Co. v. Pipho, 456 N.W.2d 228, 229 (Iowa Ct. App. 1990).
The made-whole doctrine is an equitable defense which precludes subrogation in circumstances where the insured has not been fully compensated following a loss for which insurance benefits were paid. The marquee argument advanced in favor of this doctrine is that if one of the two parties must be left with uncompensated damage, it should be the insurer and not the insured who bears the loss.
In 1986, the Iowa Supreme Court decided Ludwig v. Farm Bureau Mut. Ins. Co. 393 N.W.2d 143 (Iowa 1986). In that matter, an automobile insurer, Farm Bureau, provided medical coverage to the plaintiff insured who asserted claims for both personal injuries and pain and suffering. In evaluating the subrogation claim asserted by Farm Bureau, the court was asked to determine whether the made-whole doctrine applied to damages, collectively, or in the alternative apply the doctrine separately to each damage type.
Stated differently, a made-whole analysis could either:
- look to medical damages only, and if the insured is made whole in this area, then Farm Bureau has subrogation/reimbursement rights; or
- look to medical damages + pain and suffering damages, and only if the insured is made whole, considering both elements of damages, will Farm Bureau have any subrogation/reimbursement rights.
In Ludwig, the Iowa Supreme Court opted for (1) – Look at damage categories separately in addressing made whole. The rationale for this determination was as follows:
In this case, Farm Bureau’s policy did not agree to indemnify Ludwig for pain and suffering or disability. Yet, denial of its claim for medical expenses because Ludwig had not also recovered for other elements of damage would have the effect of making Farm Bureau an insurer against those losses as well. This would be a windfall to an insured who has not paid for such protection. Id. at 147.
What is left then is to determine which portion of the settlement proceeds can be attributed to various elements of damages. In addressing this question, the Ludwig court stated that there are essentially two paths available. First, the settlement documents themselves can apportion the damages so long as the parties—including the carrier asserting subrogation—are in agreement with the proffered apportionment.
If, however, there is either: (1) a lump-sum settlement without apportionment; or (2) a gerrymandering of the proceeds to avoid subrogation (i.e., carrier disagrees with purported apportionment), then the court can hold an evidentiary hearing which allows both sides to offer evidence as to the proper apportionment of the settlement proceeds to various categories of damages. This is referred to in Wisconsin as a Rimes hearing, and as it so happens the Ludwig court adopted the very same process:
When the amount attributed to the subrogated claim cannot be determined by other means, a mini trial, such as that used in Rimes, might be required. Id. at 148, n. 2.
A Rimes hearing, in Wisconsin, is a mini bench trial in which the trial court judge hears evidence from both sides to make a determination as to what amount a jury would have found sufficient to make the insured whole had the case gone to trial.
In Wisconsin, the court would be looking at the gross damages sustained to determine if the insured was made whole, and only if that were the case would equitable subrogation rights vest. As noted above, though, Iowa differs and allows the court to consider various categories of damages. In rejecting the wholistic Wisconsin approach, the Ludwig court stated:
We disagree with the holding of the Rimes case. The amounts recovered against a third party for separate elements of a claim can be identified and credited toward subrogation claims, even though other elements of the third-party claim may not be fully satisfied. Allocation of the separate amounts could be done in the settlement documents, as in this case. In the case of trial it could be done by special interrogatories, Westendorf, 330 N.W.2d at 702; Dockendorf v. Lakie, 240 Minn. 441, 448, 61 N.W.2d 752, 756–57 (1953), or by separate findings by the court in a nonjury case. See Iowa R.Civ.P. 179(a). Id. at 146 (Iowa 1986).
The Made-Whole doctrine is of course only one consideration when evaluating recovery potential. Policy language and factors specific to the incident at hand may impact this general procedure. At bottom, however, the distinction between application of the made-whole doctrine in wholistic damages states (such as Wisconsin) vs. targeted damages states (such as Iowa) is important. Assuming the same fact pattern (i.e., loss type, policy language, etc.) a subrogated carrier subject to Iowa law may have a right to reimbursement, whereas an equivalent carrier subject to Wisconsin law does not due to this nuanced distinction in applying made whole.
In Iowa, recovery professionals should contest objections to reimbursement claims founded on application of the made-whole doctrine without consideration of either: (1) the type of benefits paid by the insurer, or (2) the actual damages sustained by the insured with respect to the corresponding damage.
 In Ludwig, the trial court found and acknowledged that plaintiff’s medical expenses had been paid by Farm Bureau and that she had also been paid for said medical expenses through the third-party settlement. It determined, however, that Farm Bureau lacked subrogation rights because the insured was not “made whole” due to her outstanding and uncompensated damages for pain and suffering. Ludwig v. Farm Bureau Mut. Ins. Co., 393 N.W.2d 143, 145 (Iowa 1986).
 Such apportionment of a lump-sum settlement was ordered by an Iowa appellate court. Iowa Am. Ins. Co. v. Pipho, 456 N.W.2d 228 (Iowa Ct. App. 1990).
 See Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 316 N.W.2d 348 (1982)
If you should have any questions about this article or subrogation in general, please contact Steve Smith at [email protected].
Stephen A. Smith is an insurance litigation attorney with Matthiesen, Wickert & Lehrer, S.C. His practice focuses on insurance litigation and subrogation, including automobile, property, workers’ compensation, and product liability. He is licensed to practice law in Illinois, Minnesota, and Wisconsin and is admitted to practice in all federal courts in Wisconsin, Illinois, and Indiana.