The Made-Whole Doctrine in Alabama: When You Don't Have to Repay

By the FigureMyTax Editorial Team · How we calculate

Under Alabama law, a health insurer's right to be repaid from your settlement generally does not arise until you have been fully compensated for your losses, and the insurer has the burden of showing that you were.

The rule from Powell

In Powell v. Blue Cross and Blue Shield of Alabama (1990), the Alabama Supreme Court held that the insurer had no right to subrogation because the insured had not yet been made whole. A federal appeals court later summarized it this way: Alabama law holds that subrogation cannot occur until the beneficiary has been made whole, and the insurer bears the burden of proving the insured was fully compensated.

What "made whole" means

It is a comparison between your full damages, medical bills, lost income and pain and suffering, and what you actually recovered. A settlement for less than your full damages usually means you are not made whole. A lawyer's summary notes that the Alabama Supreme Court has rejected the argument that settling a claim means the insured was made whole. Our medical lien calculator asks you to say whether the settlement fully compensates you and shows the difference.

The common-fund rule is a second protection

Even when an insurer can be repaid, the Alabama Supreme Court has applied the common-fund doctrine: in Alfa Mutual Insurance Co. v. Head (1995) the question was whether the insurer must pay a pro rata share of the attorney fees and litigation costs that created the fund it draws from. A summary of Alabama practice says that, in that setting, an insurer ordinarily reduces its claim by the share of attorney fees you pay, unless it took an active role in the case.

When the doctrine may not protect you

It is a rule of state equity and insurance law. A plan that is self-funded by an employer is governed by federal law rather than state insurance law, and clear contract terms can change the result. A summary of Alabama decisions says the parties may contract around the doctrine where the contract clearly says so. Ask your plan administrator whether the plan is self-funded and have an attorney read the reimbursement clause.

What does not change

The doctrine speaks to health insurers and similar payers. A hospital's statutory lien and Medicaid or Medicare recoveries follow their own rules; compare them in health insurer claims versus hospital liens and Medicare and Medicaid liens.

This is general information, not legal advice, and the state comparisons above are illustrative, not an exhaustive survey. Confirm how Alabama's rules apply to your specific case with a licensed Alabama attorney.