This article addresses some general guidelines regarding insurer recovery from third parties through subrogation or contractual indemnification principles. Understanding these rights will help an insurer protect its subrogation rights during the handling of the claim and evaluate the potential recovery from the insured’s contractual indemnitors.
Types of Subrogation Rights
Subrogation allows an insurer that has paid amounts under a policy to step into the shoes of the insured to assume the insured’s rights against a third party to prevent that party’s unjust enrichment. Subrogation can be pursued in any of three ways. First, subrogation can be asserted as an equitable claim, also known as legal subrogation, on the principle that one has paid a debt for which another is liable. In this way, “[s]ubrogation is ‘a creature of equity having for its purpose the working out of an equitable adjustment between the parties by securing the ultimate discharge of a debt by the person who in equity and good conscience ought to pay it.’”
Second, subrogation may be pursued as a contract claim, also known as conventional subrogation. “Conventional or contractual subrogation arises from a contract between the parties establishing an agreement that the party paying the debt will have the rights and remedies of the original creditor.” Insurance contracts typically contain subrogation provisions that obligate the insured to do nothing that would impair the insurer’s subrogation rights.
Third, subrogation rights may be provided by statute, such as workers’ compensation laws, uninsured/underinsured motorist coverage statutes, Medicare/Medicaid, and the federal Employee Retirement Income Security Act of 1974 (ERISA).
The type of subrogation rights at issue makes a difference as to the extent of potentially available recovery to the insurer.
General Equitable Rule: The “Make Whole” Doctrine
The “make whole” doctrine, also known as the “made whole” doctrine, is an equitable rule that generally requires that the insured be “made whole” for its loss before the insurer recovers subrogation proceeds. Whether the made-whole doctrine will apply and potentially limit the insurer’s subrogation rights will depend in part on the theory under which subrogation is available to and pursued by the insurer.
Courts in the majority of jurisdictions have recognized the make-whole doctrine for at least some purposes. Although the contours of the doctrine vary from state to state, as a general matter, the make-whole doctrine provides that an insurer’s right of subrogation arises only after the insured has been fully compensated or “made whole” for the loss. Montana, for example, has framed the issue as one of public policy, barring the insurer from subrogation recovery before an insured is totally reimbursed for all losses as well as costs, including attorney fees for recovering those losses. Florida has placed the issue in the context of common law, holding that an insurer does not have a right to subrogation or reimbursement from a tortfeasor unless the insured has collected all of his or her damages and been made whole. Regardless of the cited source for the doctrine, “[t]he equitable principle underlying the [make] whole [doctrine] is that the burden of loss should rest on the party paid to assume the risk, and not on an inadequately compensated insured, who is the least able to shoulder the loss.”
A minority of courts do not require application of the make-whole doctrine as a condition to insurer subrogation recovery, as a matter of equity. In addition, some courts have refused to apply the make-whole doctrine to commercial lines property insurers.
Few courts have addressed whether the make-whole doctrine applies to insurance policy deductibles or self-insured retentions (SIRs). The few cases that have addressed the issue generally hold that the make-whole doctrine does not apply to deductibles or SIRs. As the Washington Court of Appeals explained in Averill v. Farmers Insurance Co. of Washington, the insurer’s position that the made-whole doctrine does not apply to the deductible “is consistent with the purpose of the deductible.” “A deductible indicates the amount of risk retained by the insured. . . . The insurance [company] policy shifts the remaining risk of any damages above the deductible to the insurance company.” In other words, the insured contracted in its insurance policy to be out of pocket for the amount of the deductible. Allowing the insured to recover its deductible from the insurer’s subrogation recovery would essentially change the insurance contract to one without a deductible, but without a corresponding increase in premium.
Alternative Priority of Recovery: “Top Down”
While an equitable priority of recovery might require the insured to be first “made whole” before the insurer is entitled to subrogation proceeds, some policies provide a contractual “top down” method of reimbursement for subrogation claims that allow for insurers to recover first in a top-down fashion. Likewise, where the payments are made by both a primary and an excess insurer, the excess insurer may be entitled to subrogation recovery first, followed by the primary insurer, and then the insured to the extent that any amounts remain. “Indeed, a number of courts have indicated that, as a matter of course, ‘[w]hen more than one insurer contributes to the payment of a loss, the highest level insurer is . . . entitled to be made whole before a lower level insurer can be reimbursed.’”
In Royal Insurance Co. v. Sphere Drake Underwriting Management, Ltd., the court explained that the excess insurance policy’s subrogation provision “provides that the last paid-in monies be the first paid out.” Because the subrogation clause in the primary insurer’s policy did not address the priority of payment, the court concluded that the excess insurer was entitled to claim the entire amount of the proceeds received in settling cross-claims against third parties, less the amount of $7,500, which the trial court had allowed the policyholder to retain in reimbursement of the deductible in the primary policy. The primary insurer received nothing. The dissenting judge wrote that he found “no case law applying ‘last in, first out’ as between primary carriers and excess carriers,” notwithstanding the existence of such authority at the time of his dissenting opinion, and that he would have awarded “$60,000 only” to the excess insurer.
The “top down” approach for subrogation recovery may be pursued by an insurer in many—although not all—jurisdictions where the insurer has included such a subrogation provision in the relevant insurance contract, regardless of whether the make-whole doctrine otherwise applies to claims for equitable subrogation. As the Connecticut Supreme Court explained in Fireman’s Fund Insurance Co. v. TD Banknorth Insurance Agency, Inc., the “made whole” doctrine is the default rule, but parties may contract around it.
In the context of priority of recovery between layers of insurance, some courts also have recognized that the “top down” method should apply as a matter of equity and not solely as a contractual right. For example, in Fluor v. Allianz, the Ninth Circuit held that “traditional insurance principles and considerations of equity . . . dictate top-down allocation in accordance with the levels of risk exposure for which the various insurers bargained.” The nature of primary-excess insurance coverage creates a “hierarchy of coverage,” which dictates that “excess carriers should re-cover under subrogation before the primary insurers can be reimbursed when reimbursement circumstances arise.”
In a few instances, courts have found that a particular contractual subrogation provision is ambiguous or mere “boilerplate” and, as a result, have reverted to the “made whole” doctrine. In TD Banknorth, the Connecticut Supreme Court held that boilerplate subrogation language in a policy does not displace the make-whole doctrine in that state. Utah’s highest court likewise has held that general subrogation language is insufficient to explicitly inform the insured that an insurer has priority of rights. The test suggested by an Indiana intermediate appellate court is that to overcome the general rule that the made-whole doctrine applies, the policy language must be “clear, unequivocal and so certain as to admit no doubt on the question.” A court is thus more likely to enforce a make-whole subrogation provision that is specific as to the priority of recovery and the apportionment of expenses.
A minority of courts have refused to allow an insurer to contract around the make-whole doctrine, regardless of how the contract is drafted. Thus, in jurisdictions that follow such a rule, an insurer with a top-down subrogation provision may face challenges in enforcing its policy language as written, and its subrogation recovery could be limited to circumstances where the insured first recovers in full for its loss.
Other Limitations on Subrogation
Because the insurer’s subrogation rights are purely derivative in nature, the insured’s conduct may impair or destroy the insurer’s subrogation rights. For example, an insured’s general release in favor of a third-party tortfeasor may preclude any subsequent subrogation action by the insurer against the tortfeasor. In Baum v. Metropolitan Property & Casualty Co., a woman injured by a driver in a parking lot sought to recover from the driver’s insurer. The injured woman’s underinsured motorist’s insurer allowed her to sign a general release in favor of the driver’s insurer after it paid her the policy limits. After the injured woman sued her underinsured motorist’s insurer, the court held that allowing the injured woman to sign a general release waived the insurer’s subrogation rights. The Baum court held that it also meant that the insurer was not entitled to include other purported joint tortfeasors on the jury verdict form for the purpose of apportioning liability because doing so would allow the insurer to circumvent the consequences of the general release.
Courts have recognized an exception to the general release as a bar to the subrogation rule where the third-party tortfeasor settles with the insured and obtains a release with knowledge of the presence of insurance or with knowledge that the insured has received payment from the insurer. “The insured cannot, after the loss has occurred and after payment to the insured by the insurer, prejudice the right to subrogation by settling with or releasing the offending party who had knowledge of the insurer’s right of subrogation.” In these circumstances, the tortfeasor’s knowledge regarding its potential liability as a subrogation defendant prevents the release from impairing the rights of the insurer.
It is a long-standing rule that the insurer as subrogee cannot recover more than it paid. In addition, a subrogee is “placed in the precise position of the one to whose rights he has been subrogated” and can recover only to the extent that the subrogor could recover.
An insurer that pays an insured’s loss is only subrogated to the insured’s same rights against a third party that relate to the same loss compensated by the insurer. In light of this rule, some insureds have attempted to characterize their settlement with a tortfeasor in a manner to avoid their insurer’s subrogation rights. For example, in Pacific Insurance Co. v. Esperanza, an insured who had been injured in a car accident included language in his settlement agreement with the tortfeasor to describe only non-duplicative losses as the basis for the settlement payment and thereby cut off his disability insurer’s reimbursement rights. In the subsequent subrogation action, the court refused to give dispositive evidentiary status to how the damages and resulting settlement payment were categorized in the insured’s release. Nonetheless, on remand, the insurer would have the burden to show that the settlement payment by the tortfeasor’s insurer duplicated its disability payments.
Recovery from the Insured’s Contractual Indemnitor
An insurer may recover some or all of its payment to (or on behalf of) an insured if the same loss is paid to the insured as a result of a contractual indemnity arrangement. Even if the contractual indemnitor has not paid the insured, the insurer subrogee may be able to pursue the contractual indemnitor directly. To the extent that the insurer pursues recovery from the indemnitor via subrogation, the rules discussed above, including the rule that the insurer can recover only up to the amount that it paid and only for the same loss that it paid, would apply.
Some jurisdictions will prioritize which policy or insurance program must respond first to a loss according to the parties’ intention to shift liability as reflected in an indemnification agreement. As the Fifth Circuit explained, “an indemnity agreement between the insureds or a contract with an indemnification clause, such as is commonly found in the construction industry, may shift an entire loss to a particular insurer notwithstanding the existence of an ‘other insurance’ clause in its policy.” Insurers must use caution, though, because some courts have rejected the use of contractual indemnification provisions to prioritize coverage, relying instead on only the policies’ respective other insurance provisions.
Beyond the priority of insurance policies, a contractual indemnification agreement may give the indemnitor the primary payment obligation, resulting in no affirmative defense or indemnity obligation by the indemnitee’s insurer. In MapleWood Partners, L.P. v. Indian Harbor Insurance Co., the Eleventh Circuit, applying Florida law, held that an insurer did not breach its duty to defend or indemnify an insured where the insured’s defense and settlement costs were paid by its contractual indemnitor. In MapleWood, the insured financial services firm had entered into an advisory services agreement with a company operating a chain of Mexican restaurants. The restaurant chain also agreed to defend and indemnify the insured in any lawsuits because of its association with the chain. When three such lawsuits were filed against the insured, the restaurant chain paid the vast majority of the insured’s defense expenses and settlement costs pursuant to the parties’ contractual indemnity provision. The insured then sued its professional liability insurer for breach of contract for failing to pay the insured’s losses from the three suits. The trial court granted the insurer summary judgment, concluding that allowing the insured to recover under the policy would give it an improper double recovery because the restaurant chain had already paid the insured’s defense and indemnity.
The Eleventh Circuit affirmed on appeal, holding that the contractual indemnification agreement between the insured and the restaurant chain gave the restaurant chain the “primary obligation” to pay the insured’s losses in the three lawsuits. The court rejected the insured’s argument that the contractual indemnification provision was never intended to cover losses covered by an insurance policy, finding nothing in the provision’s text to support that interpretation. The court observed that the insured was not “left alone as the losses were piling up,” because the contractual indemnitor had paid the defense and settlement costs.
In sum, insurer recovery rights from third parties will depend on which jurisdiction’s laws apply and, in large part, on whether the insurer is pursuing its rights in equity or under contract. However, a claims professional can take steps from the outset of a claim to evaluate the potential recovery rights, reserve them accordingly, and take steps to protect and pursue those rights.
Mary E. Borja is with Wiley Rein LLP in Washington D.C.
 See, e.g., Preferred Prof’l Ins. Co. v. Doctors Co., 419 P.3d 1020, 1023 (Colo. App. Apr. 5, 2018) (citation omitted).
 E.g., Travelers Indem. Co. v. Chumbley, 394 S.W.2d 418, 422 (Mo. Ct. App. 1965) (“Plaintiff Travelers relies upon conventional subrogation, i.e., upon subrogation by virtue of contract.”).
 Dade Cty. Sch. Bd. v. Radio Station WQBA, 731 So. 2d 638, 646 (Fla. 1999) (citation omitted).
 A few jurisdictions have codified the application of the make-whole doctrine to subrogation rights, typically in the context of medical liens. See, e.g., § 23/50.2012, Ill. Legis. Serv. P.A. 97-1042 (H.B. 5823) (amending the Health Care Services Lien Act to codify the made-whole doctrine in subrogation cases and other reimbursement actions by proportionately reducing claims by (i) the insured’s comparative fault or (ii) the amount in which a claim is deemed to be uncollectible due to limited liability insurance); Colo. Rev. Stat. § 10-1-135 (Colorado statute codifying make-whole rule for health insurance subrogation and automobile medical subrogation).
 See, e.g., Ysasaga v. Nationwide Mut. Ins. Co., 279 S.W.3d 858, 866 (Tex. App. 2009) (“We have determined Nationwide’s right to subrogation was defined by the policy; therefore, equitable subrogation and the “made‐whole” doctrine have no application here.”).
 See Fields v. Farmers Ins. Co., 18 F.3d 831, 835 (10th Cir. 1994) (listing jurisdictions following the rule).
 Magsipock v. Larsen, 639 So. 2d 1038, 1042 (Fla. Ct. App. 1994); see also Int’l Underwriters/Brokers, Inc. v. Liao, 548 So. 2d 163, 165–66 (Ala. 1989) (holding that equitable principles denying subrogation until the insured has been made whole apply to all instances of subrogation except those in which a contract expressly provides otherwise); Progressive W. Ins. Co. v. Yolo Cty. Super. Ct., 37 Cal. Rptr. 3d 434, 443 (Ct. App. 2005) (the make-whole rule generally precludes insurer from recovering any third-party funds until insured has been made whole for the loss); Werner v. Latham, 752 A.2d 832, 835 (N.J. Super. Ct. 2000) (insurer may not recover through subrogation if the insured has not been made whole); J. Parker, “The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation,” 70 Mo. L. Rev. 723, 737 (2005) (“[I]n the event of a subrogation dispute between the insurer and its insured, the insured has priority of rights to collect from the responsible third party. Thus, [when] the insured’s recovery from both the insurer and [the] tortfeasor is less than or equal to its loss the insurer forfeits its right to subrogation.”).
 L. Russ & T. Segalla, 16 Couch on Insurance § 223:136, at 223-152 through 223-153 (3d ed. 2005).
 See Stancil v. Erie Ins. Co., 740 A.2d 46, 49 (Md. Ct. Spec. App. 1999) (equitable principles do not require the insured to be made whole before the insurer can pursue subrogation); Frost v. Porter Leasing Corp., 436 N.E.2d 387, 392 (Mass. 1982) (Wilkins, J., concurring) (“A health insurer should not be obliged to forbear asserting subrogation rights in order to assist in making the claimant whole on some other aspect of his damages, such as lost wages and pain and suffering, for which the insured has not purchased coverage from the health insurer”); see also Dufour v. Progressive Classic Ins. Co., 881 N.W.2d 678, 696 (Wis. 2016) (explaining that the make-whole doctrine might apply where the equities favor the policyholder but would not apply where the equities favor the insurer).
 See, e.g., Woodcraft by Macdonald, Inc. v. Ga. Cas. & Sur. Co., 743 S.E.2d 373, 375 (Ga. 2013) (although Georgia recognizes the make-whole doctrine for personal injury claims, court held that the doctrine is inapplicable to property claims under commercial policies).
 See also Jones v. Nationwide Prop. & Cas. Ins. Co., 32 A.3d 1261, 1271 (Pa. 2011) (“Application of the [make] whole doctrine to deductibles would not only be contrary to the relevant . . . provisions [of the state’s insurance regulations] but, when considering the inherent nature of deductibles, would [also] run counter to the equitable principles underlying the [make] whole doctrine and subrogation.”).
 See Fluor v. Allianz, 234 F. App’x 579, 580 (9th Cir. 2007) (applying California law) (“[S]ubrogation proceeds should be allocated to insurers in the order opposite to that in which they contributed to the settlement payout.”); Century Indem. Co. v. Lloyds Underwriters, 16 Cal. Rptr. 2d 393, 397 (Ct. App. 1993) (holding excess carriers are entitled to any subrogation recovery from a third-party tortfeasor before the primary carrier may recover subrogation proceeds).
 Fireman’s Fund Ins. Co. v. TD Banknorth Ins. Agency, Inc., 72 A.3d 36, 46–47 (Conn. 2013) (quoting Allan D. Windt, Insurance Claims and Disputes § 10:5 (6th ed. 2013) and collecting cases).
 TD Banknorth, 72 A.3d at 40. See also Fortis Benefits v. Cantu, 234 S.W.3d 642, 647 (Tex. 2007) (explaining that the make-whole doctrine does not apply to contractual subrogation claims under Texas law); Canfora v. Coast Hotels & Casinos, Inc., 121 P.3d 599, 604 (Nev. 2005) (recognizing that insurer can enforce contractual subrogation rights even if insured has not been made whole); Council Grp. Health Benefits Plan v. Lawson, 814 N.E.2d 1210, 1215 (Ohio 2004) (holding that the made-whole doctrine may be disclaimed by the policy’s terms); Principal Mut. Life Ins. Co. v. Baron, 964 F. Supp. 1221, 1223 (N.D. Ill. 1997) (Illinois courts will enforce contractual subrogation rights even if the insured is not fully compensated for all of its injuries); Nat’l Emp. Benefit Trust of the Associated Gen. Contractors of Am. v. Sullivan, 940 F. Supp. 956, 960 (W.D. La. 1996) (explaining that the made-whole doctrine is a rule of interpretation or gap filler that becomes significant only when a contract fails to clearly address the issue); Barnes v. Indep. Auto Dealers Ass’n of Cal. H&W Benefit Plan, 64 F.3d 1389, 1394 (9th Cir. 1995) (explaining that make-whole doctrine applies only when there is no agreement to the contrary); Cutting v. Jerome Foods, Inc., 993 F.2d 1293, 1297 (7th Cir. 1993) (“No one doubts that the beneficiary of an insurance policy or (as here) an employee welfare or benefits plan can if he wants sign away his make-whole right. The right exists only when the parties are silent. It is a gap filler.”) (citations omitted)); Samura v. Kaiser Found. Health Plan, Inc., 22 Cal. Rptr. 2d 20, 28–29 (Ct. App. 1993) (giving effect to express contractual language with respect to subrogation recoveries).
 Fluor, 234 F. App’x at 580; see also Travelers Prop. Cas. Ins. Co. of Am. v. Nat’l Union Ins. Co. of Pittsburgh, Pa., 621 F.3d 697, 716 (8th Cir. 2010) (applying Missouri law and concluding that “[t]he industry practice, in short, is that excess carriers are the last insurers obligated to pay claims and the first insurers entitled to recover in subrogation”).
 Travelers Cas. & Sur. Co. v. Am. Int’l Surplus Lines Ins. Co., 465 F. Supp. 2d 1005, 1029 (S.D. Cal. 2006) (internal quotation marks omitted).
 Capps v. Klebs, 382 N.E.2d 947, 951 (Ind. Ct. App. 1978). See also Sapiano v. Williamsburg Nat’l Ins. Co., 33 Cal. Rptr. 2d 659, 661–62 (Ct. App. 1994) (holding that where a policy’s subrogation language is general in nature and insurer does not participate or cooperate with insured in the subrogation action, the insured retains the right of priority over any recovery).
 See, e.g., Ferguson v. Safeco Ins. Co. of Am., 180 P.3d 1164, 1168 (Mont. 2008) (Montana public policy prohibits insurer from contracting around the make-whole rule); BlueCross & BlueShield of Neb., Inc. v. Dailey, 687 N.W.2d 689, 699 (Neb. 2004) (insurance policy provisions contrary to equitable principles of made-whole rule are unenforceable in Nebraska); Hershey v. Physicians Health Plan of Minn., Inc., 498 N.W.2d 519, 520 (Minn. 1993) (Minnesota’s “full recovery rule” applies regardless of whether subrogation is pursued via equity or contract); New Orleans Assets, LLC v. Woodward, 363 F.3d 372, 375 (5th Cir. 2004) (where policy’s subrogation clause stated broadly, “If you [the insured] waive your rights against another party in writing after loss or damage, we [the insurer] can recover from you any amount you received for that waiver,” court rejected top-down approach in favor of the make-whole doctrine).
 An insurer also may be barred from pursuing a subrogation action in the name of an insured whose corporate license is suspended. Travelers Prop. & Cas. Co. of Am. v. Engel Insulation, Inc., 29 Cal. App. 5th 830, 836 (2018).
 Westchester Fire Ins. v. Heddington Ins., 883 F. Supp. 158, 162 (S.D. Tex. 1995), aff’d, 84 F.3d 432 (5th Cir. 1996). See also Couch on Insurance 3d § 224:100; Progressive Ins. Co. v. Sheri Torah, Inc., 847 N.Y.S.2d 90, 91 (2d Dep’t 2007) (when an insured executes a general release in favor of a tortfeasor without reserving the rights of its insurer, the insured impairs the insurer’s right of subrogation).
 In re The Livingstone, 130 F. 746, 749 (2d Cir. 1904) (insurer cannot “profit” via assertion of subrogation claim that results in recovery of more than what the insurer paid to the insured; the balance goes to the insured); The Saint Johns, 101 F. 469 (S.D.N.Y. 1900) (insurer’s subrogation right could not extend beyond recoupment or indemnity for the amount that it actually paid); Aetna Ins. Co. v. United Fruit Co., 304 U.S. 430, 436 (1938) (disapproving English case allowing insurer to recover more through indemnification claim than it had paid to the insured, explaining that “it would in some cases deprive the insured of indemnity, and indeed might enable the insurer to make a profit by recovering more from the insured than the amounts paid on the policy. We are unable to sanction a doctrine involving such consequences”).
 See, e.g., Home Ins. Co. v Cincinnati Ins. Co., 821 N.E.2d 269, 275 (Ill. 2004) (insurer entitled to pursue equitable subrogation whenever two or more policies cover the same “loss,” and not only where they cover the same “risk”); Pa. Lumbermens Mut. Fire Ins. Co. v. Nicholas, 253 F.2d 504, 506 (5th Cir. 1958) (if insured is entitled to and does recover also from a third party, the insurer that has paid the insured for the “same loss” is entitled to the benefit of that recovery).
 But see Cont’l W. Ins. Co. v. Swartzendruber, 570 N.W.2d 708, 712–13 (Neb. 1997) (insurer that paid property loss to vehicle not able to recover from the insured’s settlement with tortfeasor and liability insurer where settlement agreement stated that tortfeasor and liability insurer payments were not compensating insured for property damage to vehicle).
 See, e.g., Valley Crest Landscape, Inc. v. Mission Pools of Escondido, Inc., 238 Cal. App. 4th 468, 485 (2015) (holding that insurer could recover on a claim for equitable subrogation against the contractual indemnitor subcontractor of its insured general contractor under the doctrine of superior equities, even where the subcontractor was found to be without fault).
 Am. Indem. Lloyds v. Travelers Prop. & Cas. Ins. Co., 335 F.3d 429, 436 (5th Cir. 2003). See also Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583, 588 (8th Cir. 2002) (holding that enforceable indemnification agreement may be used to “determine the allocation of liability in an insurance dispute”); J. Walters Constr., Inc. v. Gilman Paper Co., 620 So. 2d 219, 221 (Fla. Ct. App. 1993) (same).
 See, e.g., Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co., 85 N.Y.S.2d 459, 467 (2008) (rejecting trial court’s use of the construction contract or the intentions of the parties if contrary to the application of the plain meaning of the policies’ other insurance clauses).
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