Clarification on Interpreting Wholeness of an Insured

Clarification on Interpreting Wholeness of an Insured

The Washington Supreme Court granted review of Daniels v. State Farm Mutual Automobile Insurance Company, 96185-9 (2019). In this case, the court discusses whether first party insurer State Farm is required to reimburse its fault-free insureds for the full amount of deductibles, prior to any allocation of subrogation proceeds to the insurer.

Daniels was the middle car of a three-vehicle collision occurring on July 25, 2015. Daniels was insured by State Farm, the front car was insured by Liberty Mutual, and the rear car was insured by GEICO. All agreed the rear car was 70 percent at fault. State Farm paid for costs exceeding Daniels’s deductible and subsequently sought recovery from GEICO. From the recovered funds, State Farm reimbursed Daniels for 70 percent of her $500 deductible.

Daniels filed suit alleging an insurer is entitled to reimbursement, including the full deductible amount, only after its insured is made whole. State Farm filed a motion to dismiss under 12(b)(6), citing Averill v. Farmers Insurance Co. of Washington, 155 Wn. App. 106, 229 P.3d 830 (2010), and WAC 284-30-393. Averill held the “made whole doctrine” is inapplicable in this type of subrogation. WAC 284-30-393 requires an insurer to return deductibles “less applicable comparable fault.”

Subrogation is grounded in the common law as an equitable doctrine providing for proper allocation of payment responsibility. Thus, an insurer who has paid an insured’s loss may recoup the payment from the party responsible for the loss. Recovery from a third party may occur through: (1) the insured filing suit against the third party and the insurer subsequently seeking reimbursement from the insured or (2) the insurer stands in the shoes of the insured and pursues a claim against the responsible party directly.

The Made Whole Doctrine

The Made Whole doctrine permits an insurer to recover only the excess, from which the insured has received, remaining after the insured is fully compensated for the loss. Generally, the insurer may not obtain recovery if its insured has uncompensated damages. The court held this rule embodies a policy deemed socially desirable in Washington, as it prioritizes indemnification of victims of accidents. The court chose to not limit the made whole doctrine and remain with the broad view already established in previous cases. This broad view allows the made whole doctrine to apply whenever an insurer seeks offset, subrogation, or reimbursement for PIP benefits already paid.

The court held an insured would not be receiving a windfall if they were reimbursed for the full deductible amount. Deductibles may be viewed as contracted-for risk; the court chose to view deductibles as eliminating insurance coverage for losses small enough to be borne by the insured, as administrative expenses for an insurer are substantial in relation to the amount of such losses.


The relevant portion of WAC 284-30-393 reads, “The insurer must include the insured’s deductible, if any, in its subrogation demands. Any recoveries must be allocated first to the insured for any deductible(s) incurred in the loss, less applicable comparable fault.” The dispute in this case centered on “less comparable fault.”

State Farm argued the language did not limit “applicable comparable fault” to fault attributed to the insured. Daniels argued the language was limiting re: fault attributed to the insured. The court turned to the analysis issued during the rule making process. This analysis explained the petitioner for the amendment specifically asked that the rule be amended so “insurers may deduct the amount of an insured’s comparative fault from reimbursement for their deductible.” Here, there was no evidence Daniels bore any fault for the collision. As such, the court interpreted the regulation in the manner intended by the rule making agency and found the WAC rule entitled Daniels to be fully reimbursed for her deductible.

Policy Language

State Farm’s policy language was also analyzed by the court. The relevant language states:

If we are obligated under this policy to make payment to or for a party who has a legal right to collect from another, then the right of recovery of such party passes to us . . . . Our right to recover our payments applies only after the insured has been fully compensated for the bodily injury, property damage or loss.

The court found State Farm’s policy language to have only one reasonable interpretation. This interpretation must align with the common law and the made whole doctrine. State Farm’s interpretation, which does not align, was rejected. The court accepted Daniels’s assertion that the second section of the policy language prohibits State Farm from allocating subrogation proceeds to itself until its insured is fully compensated for their loss, which includes full reimbursement for the insured’s deductible. The court held interpretation of policy language must be consistent with the made whole doctrine and the basic principles of subrogation.


The above summary reveals significant clarification in how Washington courts will now interpret rules and policy language. The Washington Supreme Court has provided a well-sheltered harbor for an insured’s recovery. In Washington, made whole, means made whole.

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