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Montana remains one of the toughest states to subrogate in because it has a very strict made whole policy. It is the rule in Montana that an insured must be totally reimbursed for all losses as well as costs, including attorney fees involved in recovering those losses, before the insurer can exercise any right of subrogation, regardless of contract language to the contrary. In fact, courts have held that an insurer cannot attempt to collect subrogation without first determining that its insurer has been made whole. In Skauge v. Mountain States Tel. & Tel. Co., the Supreme court stated:
When the sum recovered by the insured from the tortfeasor is less than the total loss and thus either the insured or the insurer must to some extent go unpaid, the loss should be borne by the insurer for that is a risk the insured has paid it to assume.
The Made Whole Doctrine, as established for the first time in Skauge in 1977, required that an insured be “made whole” before an insurer could assert its subrogation rights. This meant that not only must the insured recover all of his or her losses but also all costs of recovery as well, such as attorneys’ fees and costs of litigation.
When the sum recovered by the insured from the tortfeasor is less than the total loss sustained by the insured, and either the insured or insurer must to some extent go unpaid, the loss should be borne by the insurer because that is a risk the insured has paid it to assume.
Swanson v. Hartford Insurance Company
Montana courts have even ruled that an insurer is precluded from bringing a subrogation action when the insured has independently negotiated a settlement agreement with a tortfeasor for less than the insured’s total loss. In Swanson, the Montana Supreme Court ruled that the subrogated insurer had no subrogation rights, even though the third-party liability insurance limits exceeded the amount of the settlement reached between the insured and third party. Unfortunately, this ruling allows an insured to negotiate a settlement with a tortfeasor without regard to the carrier’s subrogation rights. By agreeing to settle for an amount less than the total amount of damages sustained by the insured, the tortfeasor insulates itself from further subrogation liability.
Ferguson v. Safeco Insurance Company
The Montana Supreme Court has even twisted the Made Whole Doctrine to place an affirmative duty on a subrogating insurer to affirmatively determine whether the insured has been made whole before it subrogates. Ferguson v. Safeco Insurance Company was a class action suit filed against Safeco because it sought subrogation without first investigating and determining whether the insureds were made whole. Ferguson was in an auto accident, and her insurer, Safeco, paid for the total loss of the vehicle, less the deductible, but did not pay for several other losses Ferguson had sustained. Safeco never provided her with any notice that it would seek subrogation; never investigated, inquired or made a determination as to whether Ferguson was made whole for her losses; and never reimbursed Ferguson for her uncovered losses including her deductible, unpaid rental car expenses, and attorneys’ fees. Based on those egregious facts, the Supreme Court erroneously interpreted Swanson to establish a duty on the part of a subrogating carrier to determine if the insured was made whole before it subrogated. Ferguson sued Safeco and certified a class action lawsuit, claiming Safeco engaged in “a common scheme of deceptive conduct,” by taking subrogation recoveries without an investigation into and determination of whether the insureds have been made whole. That class action suit was pending as of the date of this publication.
Compounding the made whole nightmare in Montana, is a Montana state court case involving an insured’s action to prevent the insurance company from enforcing its subrogation rights, and where although the court noted “it appeared” the burden fell on the insurer to prove that the insured had been made whole, did not address the issue any further.
Van Orden v. USAA
In Van Orden v. USAA, Robert Van Orden suffered personal injuries and his vehicle was damaged in an accident for which he was not at fault. Van Orden’s insurer, USAA, paid for repair of his vehicle under his collision coverage, and then sought subrogation for those payments from the insurer of the at-fault driver. In the federal court action, Van Orden maintained that USAA’s failure to wait until he had been “made whole” as to all of his damages, including his personal injuries, violated Montana’s Unfair Claim Settlement Practices Act, constituted both a breach of contract and constructive fraud, and was sufficient cause for forfeiture of the insurer’s subrogation rights. The insurer argues that, because Van Orden had been made whole under his separately elected collision coverage for his property damages, the insurer was entitled to assert its subrogation rights under Montana law. The U.S. District Court for the District of Montana asked the Montana Supreme Court to clarify Montana law concerning subrogation and the Made Whole Doctrine, for purposes of a class action now pending before the federal court.
On February 19, 2014, the Montana Supreme Court issued a significant decision which specifically addressed the following question:
Does Montana law prohibit an insurer from exercising its rights of subrogation to seek payment from the separate property damage coverage of the liable third-party’s automobile insurance for the discrete amounts paid by the insurer for property damage where:
the insured has suffered both bodily injury and property damage in an accident;
the insurer’s property damage payments were made under separate, optional collision coverage for physical damage to the insured’s vehicle;
the amounts sought from the liable third-party’s automobile insurance are covered by separate property damage liability coverage that is not exhausted by the amounts sought by subrogation;
the insured has been fully compensated by payment from his insurer for the property damage loss − including all costs associated with the property damage loss − and made whole as to the property damage loss that he insured as a result of the accident; and
the insured contends he has not been made whole from the separate personal injury liability coverage of the liable third-party’s automobile insurance and the underinsured motorist coverage of his own automobile insurance policy?
The Supreme Court issued a long-awaited common-sense decision declaring that Montana law does not prohibit an insurer from exercising its right of subrogation under the above-listed conditions, single-handedly resurrecting auto property damage subrogation in Montana. This is true even though the Supreme Court had previously stated that an insured must be totally reimbursed for all losses as well as costs, including attorney fees, involved in recovering those losses before the insurer can exercise any right of subrogation, regardless of contract language to the contrary. The dissent in Swanson had urged a more narrow interpretation of when an insured is made whole – limiting the definition to all compensation, including costs and attorney’s fees, for only that element of damage for which the insured purchased insurance. Because Van Orden sustained $12,981.75 in total property damage, USAA paid that full amount under a separate and optional property damage portion of his policy, and USAA received that full amount from a separate property damage liability limit of the third-party liability policy, the court held that subrogation could proceed. The court stated that the key here was that the insured had been made whole for the element of damage for which he purchased insurance.
Konecky v. Allstate Fire & Casualty Insurance Company
Three years after Van Orden, a federal district court in Montana ruled that no subrogation would be allowed in a case where the insured had $15,017.72 in property loss damages, including costs of repair, diminution, replacement vehicle and rental charges, loss of use, the deductible, and attorney fees incurred in securing recovery from the tortfeasors. Allstate insisted subrogation was appropriate because its policy did not cover the insured’s unrecovered damages under its policy. The court disagreed, noting that whether Allstate is contractually bound under the policy to pay plaintiffs’ deductible, rental expenses, or attorney fees incurred while pursuing damages is irrelevant to the question of whether the “made whole” rule applies. However, unlike Van Orden, in Konecky, the insured was not fully compensated by payment from his insurer for the property damage loss—including all costs associated with the property damage loss—and made whole as to the property damage loss” he incurred.
While the Van Orden and Konecky decisions are obviously carefully tailored and limited to a specific set of conditions, they do open the door for successful auto property subrogation in a state where subrogation had been all but written off. MWL currently represents dozens of insurance carriers, self-insureds, and TPAs for national auto property subrogation. If you have any questions regarding these cases or auto subrogation anywhere within the U.S., please contact Gary Wickert at [email protected]. Our book, Automobile Insurance Subrogation In All 50 States remains a reference staple in insurance companies and law schools around the country and may be previewed HERE.
 Ferguson v. Safeco Ins. Co. of Am., 180 P.3d 1164 (Mont. 2008); Swanson v. Hartford Ins. Co. of Midwest, 46 P.3d 584 (Mont. 2002); Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628 (Mont. 1977); Mont. Code Ann. § 33-23-203(2) (1997) (held unconstitutional to the extent that it allowed auto insurer to charge premiums for non-existent UIM coverage); Hardy v. Progressive Specialty Ins. Co., 67 P.3d 892 (Mont. 2003).
 Ferguson, supra.
 Skauge, 565 P.2d at 632; Mont. Code Ann. § 33-30-1102(4) (1987).
 Swanson v. Hartford Ins. Co., 46 P.3d 584 (Mont. 2002); Oberson v. Federated Mut. Ins. Co., 126 P.3d 459 (Mont. 2005); Blue Cross & Blue Shield of Montana, Inc. v. Montana State Auditor, 218 P.3d 475 (Mont. 2009).
 Swanson, supra.
 Ferguson v. Safeco Ins. Co. of Am., 180 P.3d 1164 (Mont. 2008).
 Poppleton v. United Services Automobile Association, 2011 Mont. Dist. LEXIS 52 (18th Dist. 2011).
 Robert Van Orden v. USAA, 318 P.3d 1042 (Mt. 2014).
 Swanson, supra.
 Allstate Fire & Casualty Insurance Company, 2017 WL 6625038 (D. Mont. 2017).