The Made-Whole Doctrine in Arkansas: A Strong Protection

By the FigureMyTax Editorial Team · How we calculate

Under Arkansas law, an insurer is not entitled to subrogation unless you have been made whole, and its right does not accrue until a court determines, or you and the insurer agree, that you are.

The rule from Franklin

In federal courts applying Arkansas law, the Arkansas Supreme Court's statement in Franklin v. Healthsource of Arkansas (1997) is quoted as the rule: an insurer is entitled to enforce its right of subrogation after the insured has been fully compensated, or made whole, for his total loss. Summaries of Franklin say the Court refused to uphold a contractual subrogation clause where the insured had not been made whole. Arkansas applies the doctrine rather broadly, according to one subrogation firm.

Tallant (2005)

In Southern Farm Bureau Casualty Insurance Co. v. Tallant (2005), the Court called the made-whole doctrine a descriptive term for the application of unjust enrichment: an insured should not recover more than full compensation, and an insurer should not recover payments that should go to the insured. It held that the insurer's right arising from contract did not give it priority over the insured's claim, so the insured was entitled to be made whole before the insurer recovered anything from the third party.

Riley (2011): a court must decide

The Eighth Circuit summarizes Riley v. State Farm (Ark. 2011) in EMC Insurance v. Entergy Arkansas (2019): absent an agreement or settlement between the parties, an insurer's right to subrogation does not accrue until a court legally determines that the insured has been made whole. That case involved an insurer that paid medical bills and then asserted a statutory reimbursement lien on the insured's settlement. Whether you were made whole is an issue of equity for the court.

It reaches the statutory medical payments lien too

Ark. Code 23-89-207 gives an auto insurer that pays certain medical benefits a right of reimbursement and credit out of your tort recovery, less the cost of collection, with costs assessed against the insurer and insured in proportion to the benefit each receives, and a lien up to its payments. Riley applied the made-whole requirement to that kind of lien.

Limits and open questions

Self-funded employer plans are governed by federal law, and a federal court in Arkansas has had to decide whether the terms of a federal employee health plan displace the state doctrine, so do not assume Arkansas's rule applies to every plan. Sources also differ on whether parties can contract around the doctrine: a national chart says they may if the clause is clear, while Franklin refused to enforce a contractual clause. Read your plan before you sign a reimbursement agreement.

How to use it

The made-whole question helps most when your damages are larger than the settlement, usually because of policy limits. Model it in the Arkansas medical lien calculator, and see how provider and Medicaid claims differ in the hospital lien post and the Medicare and Medicaid post.

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