Montana’s Harsh History with the Made-Whole Doctrine
For decades, Montana has been recognized as perhaps the harshest jurisdiction in the country when it comes to the application of the “Made-Whole” doctrine in subrogation cases. And it stands to reason that the harsh application of this anti-subrogation rule has led to depleted subrogation opportunities and has translated into higher insurer costs—and ultimately, higher premiums for Montana residents. For subrogation professionals and insurers writing business in this anti-subrogation state, however, a new Montana Supreme Court decision has revealed a glimmer of hope and a thin vein of common sense.
Since the Montana Supreme Court’s landmark decision in Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628 (Mont. 1977), Montana has demanded that an insured must be fully compensated for the entirety of their losses—plus attorney’s fees and costs of recovery—before an insurer can exercise subrogation. This public-policy-driven approach effectively gutted subrogation opportunities in the state. In practice, because few insureds are ever truly “made whole” in every respect, subrogation rights were rendered all but illusory. The state became a breeding ground for bad faith and class action lawsuits filed against carriers who simply tried to recoup their collision damages following an at-fault accident. See HERE for an article describing this phenomenon.
Judicial Reinforcement and Limited Exceptions
In subsequent cases such as Swanson v. Hartford Insurance Co. of the Midwest, 46 P.3d 584 (Mont. 2002), the Montana Supreme Court continually doubled down and even expanded this punitive approach. The Court consistently held that subrogation could not occur until the insured was compensated for all damages and all recovery costs, regardless of contractual language to the contrary and irrespective of the fact that contractual subrogation was involved, not equitable subrogation. The message to carriers was clear: in Montana, the insured’s right to be made whole trumped all; don’t even try to subrogate in Montana.
A glimmer of hope finally emerged in Van Orden v. United Services Automobile Association, 318 P.3d 1042 (Mont. 2014), where the Court recognized that subrogation could proceed on a category-by-category basis if the insured had been made whole as to a discrete element of damages—such as property damage under an auto policy—without requiring that the insured also be made whole for unrelated categories such as bodily injury. This was the first sign of a shift from Montana’s absolutist approach, suggesting that the doctrine might not be quite as expansive as once thought.
Johnson v. State Farm: A Turning Point
That faint hope has now been reinforced and expanded by the Montana Supreme Court’s recent decision in Johnson v. State Farm, 2025 WL 2505181 (Mont. 2025), decided on September 2, 2025. In Johnson, the insureds (Mark and Molly Johnson) argued that State Farm had violated the Made-Whole Doctrine by seeking subrogation from the tortfeasor’s insurer, GEICO, before they had been fully compensated. The Johnsons had certain uncovered property losses—items like snow tires and compact discs—that State Farm did not pay for under the policy. They also incurred attorney’s fees in recovering these losses from GEICO. They alleged that State Farm’s reimbursement from GEICO violated the Made-Whole Doctrine because they were not made whole for these outstanding property damages and related costs.
The Montana Supreme Court rejected the Johnsons’ argument and upheld dismissal of their claims. The Court reaffirmed the made whole principle in general, noting that an insured must be fully compensated for covered damages, including attorney’s fees, before an insurer may subrogate. However, the Court announced a critical distinction: the doctrine applies only to damages within the scope of coverage for which the insured paid premiums. It does not extend to categories of damages that the policy did not cover in the first place. Because the Johnsons’ uncompensated losses fell outside the policy’s coverage, State Farm had no obligation to delay its subrogation until those losses were recovered. In short, the made-whole doctrine does not require insurers to wait for insureds to be made whole for damages they never agreed to cover.
A Groundbreaking Limitation
This is a groundbreaking limitation on Montana’s runaway made-whole jurisprudence. In fact, as far as we know, this is the first time such a limitation has been applied to avoid the Made-Whole Doctrine in any state. For the first time, the Court drew a clear boundary around the doctrine, tethering it to the scope of coverage under the contract. It is not a blank check covering every conceivable loss an insured might suffer. Instead, the insured must be made whole only with respect to those damages for which the insurer assumed the risk in exchange for premiums. That distinction gives new vitality to subrogation in Montana, offering insurers a path forward in a jurisdiction long thought to be inhospitable.
The Court’s reasoning also aligns with and clarifies Van Orden. Together, the two cases create a more workable framework: subrogation may proceed when the insured has been made whole as to discrete categories of covered loss, even if other uncovered damages remain uncompensated. This preserves the equitable purpose of the doctrine—ensuring that insureds are fully compensated for the losses they paid their insurer to assume—without stretching it to absurd lengths that extinguish subrogation altogether.
Policy Implications and Industry Impact
From a policy standpoint, Johnson represents a beacon of hope. Montana had wandered too far down the anti-subrogation rabbit hole, adopting one of the most punitive interpretations of the Made-Whole Doctrine in the nation. Carriers faced the practical reality that subrogation was impossible unless the stars aligned and an insured was reimbursed for every conceivable category of loss. That was rarely, if ever, the case. By narrowing the doctrine’s application to covered categories of damages, the Court has restored balance to the relationship between insured and insurer, preserving the equitable principles underlying subrogation while preventing the doctrine from being weaponized to destroy it.
Conclusion: A Landmark Win for Subrogation
In sum, Johnson v. State Farm is a landmark decision in Montana subrogation law, and an innovative new approach to circumventing the Made-Whole Doctrine not tried in any jurisdiction prior to this decision. It hails from a state infamous for its hostility to subrogation rights, yet it provides a workable distinction that reins in the punitive extremes of the past. Insurers need no longer fear that an uncovered category of damages will forever bar them from pursuing reimbursement. Instead, the focus rightly returns to whether the insured has been made whole for covered losses—the risk the insurer actually agreed to bear. This is an important victory for subrogation and a welcome course correction in a state where subrogation rights have been suppressed for far too long.
For subrogation professionals and carriers alike, Johnson is cause for celebration. It offers a new foothold in Montana, a jurisdiction long deemed a dead zone for recovery. More importantly, it signals that even in the most hostile environments, distinctions and limitations can be drawn to restore fairness and allow subrogation to serve its intended purpose: ensuring that those ultimately responsible for a loss bear the cost, rather than unjustly enriching the insured or letting tortfeasors escape their obligations.
