Avoiding Split Decisions: The Pitfalls of Proceeding Separately from the Insured

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In subrogation actions, the insurer, as subrogee, steps into the shoes of its insured. However, problems can arise when an insured has uninsured losses. In this situation, both the insurer and the insured have a right to file suit against the tortfeasor. The possibility of two different lawsuits raises a number of issues, such as whether: 1) proceeding separately impermissibly splits the cause of action; 2) the insured’s attorney is entitled to attorney’s fees under the common fund doctrine; and 3) the insurer can proceed before the insured is made whole. In light of these issues, subrogating insurers should proceed with caution before filing suit separately from the insured.

Splitting a Cause of Action

Where a single incident results in both insured and uninsured losses, many jurisdictions hold that filing separate lawsuits impermissibly splits the cause of action.[1] Even if the tortfeasor is on notice of the subrogating insurer’s claim, a jurisdiction may require an insurer to, in the exercise of reasonable diligence, intervene in the insured’s lawsuit to protect its rights.[2] In contrast, other jurisdictions hold that an insurer and an insured have separate and distinct claims and, thus, the insurer and the insured can proceed independently, without violating the rule against splitting a cause of action.[3]

Whether an insurer impermissibly splits a cause of action may depend on the type of uninsured loss at issue. Consider a situation where an insured is involved in a motor vehicle accident and, after the accident, recovers property damage benefits for damage to the vehicle and then, later, sues the tortfeasor for personal injury damages. If the insurer files suit to recover property damage losses, the insurer may be subject to a motion to dismiss, wherein the defendant argues that, because the insurer’s action arises out of the same transaction or occurrence as the insured’s action, the insurer cannot maintain a separate action. While some jurisdictions treat the insured’s property damage subrogation claim as an independent claim,[4] other jurisdictions treat the insured and insurer as having a single cause of action.[5] In this later situation, courts may find that the insurer is trying to split the cause of action. Thus, in jurisdictions where the insured’s and insurer’s actions are treated as a single cause of action, insurers who are on notice of the insured’s lawsuit should seek to intervene in the insured’s action.

If a subrogating insurer seeks to intervene late in the game, the insurer may face a defense based on the statute of limitations as some jurisdictions hold that, because the insurer’s action is independent of the insured’s, the insured’s action does not toll the statute of limitations for the insured’s action.[6] In contrast, other jurisdictions hold that, because the insurer steps into the insured’s shoes, the timeliness of the insurer’s petition to intervene is measured by the timeliness of the insured’s lawsuit, not the insurer’s intervention petition.[7]

Assuming there are no time bars to an insurer’s petition to intervene in the insured’s action, whether a court will grant intervention in a particular case depends, ultimately, upon the balance of the non-party’s interest in the litigation, the insured’s interest in avoiding outside interference and interests of judicial economy. Generally, however, a subrogating insurer should be entitled to intervene in an insured’s litigation to either assist the insured in prosecuting the lawsuit or to take any other action necessary to protect its subrogation interests.[8]

The Common Fund Doctrine

To the extent that a subrogating insurer intervenes in the insured’s lawsuit, the insurer’s subrogation representative should consider whether the common fund doctrine will apply to any damages the insurer recovers. Pursuant to the common fund doctrine, where an insured’s attorney’s efforts create a fund of money that benefits both the insured and the insurer, an insurer-subrogee is liable for a pro rata share of the insured’s attorney fee. An exception to the doctrine exists, however, where an insurer intervenes in the insured’s lawsuit and, thereafter, actively participates in prosecuting the tortfeasor. For the exception to apply, an intervening insurer’s counsel should actively assist with discovery, retaining experts and other activities that lead to the ultimate resolution of the case. Otherwise, the insurer may be required to pay a pro rata share of the insured’s attorney’s fees.

Made Whole

Pursuant to the made whole doctrine, many jurisdictions hold that, before an insurer can recover from a tortfeasor for its subrogation claim, the insured must be made whole for his or her uninsured losses. Thus, another issue that can arise in situations where the insured and the insurer proceed separately is whether, by proceeding before the insured, the insurer violates the made whole doctrine.

The question of whether an insurer can pursue its subrogation claim before the insured is made whole should depend on whether there is sufficient insurance available from the tortfeasor to cover both the insurer’s and the insured’s losses. Where the available insurance is insufficient, courts have held that the made whole doctrine prohibits the insurer’s enforcement of its subrogation rights until after the insured is fully compensated for his or her injuries.[9] However, where there are sufficient funds to resolve both the insured’s and the insurer’s claims, equitable principles supporting the made whole doctrine do not apply. In this situation, an insurer should not be prohibited from pursuing or resolving its subrogation claim before the insured is “made whole.”[10]

A secondary consideration with respect to the made whole doctrine is how the doctrine applies when an insured suffers both personal injury losses and property damage losses. In this situation, should the determination of whether the insured has been made whole consider the tortfeasor’s combined policy limits or, alternatively, the policy limits for each type of damage?  For example, assume that the plaintiff suffers personal injuries damages valued in excess of $200,000 and damage to his vehicle in the amount of $10,000, and his motor vehicle insurer pays him for the damage to his vehicle. Further assume that the tortfeasor has liability limits of $100,000 for personal injury damages and $50,000 liability limits for property damage. If the insured settles his personal injury claim for the tortfeasor’s policy limits, can the insured’s vehicle insurer subrogate against the tortfeasor to recover the $10,000 it paid for property damages? Although some courts hold that an insured must be made whole before an insurer’s subrogation rights arise,[11] recent decisions have concluded that, in a situation where the insured has received all of the money he is entitled to under his own policies and the tortfeasor’s policy has separate policy limits, the equitable made whole doctrine does not apply.[12] Consistent with this reasoning, so long as the insurer gives priority to the insured with respect to funds available to the insured, the made whole doctrine should not bar an insurer from pursing its subrogation claim.

Pro Rata Litigation Agreements

To the extent that the insurer believes that the insured’s uninsured losses are reasonable, and recoverable, one way to avoid some of the issues noted above is to offer to represent the insured with respect to his or her uninsured loss. If the insured accepts the insurer’s offer, the insurer should ask the insured to sign a written agreement. The agreement should, among other things, include clauses stating: 1) that the insurer will control the litigation; 2) that the insurer’s counsel will maintain an open line of communication with the insured; 3) that the insured will cooperate in the prosecution of the action; 4) the specific amount each party seeks to recover and the percentage of the recovery each party will receive; 5) who will pay litigation costs and fees; 6) the attorney’s fee and how it will be calculated; and 7) whether the made whole doctrine will apply to any recovery. Once the insurer secures a litigation agreement, issues associated with splitting a cause of action, the common fund doctrine and the made whole doctrine should, by agreement, become moot or be resolved.


Based on the foregoing, a number of potential pitfalls present themselves when an insured has uninsured losses. Potential pitfalls relate to possible claims that the insurer is splitting a cause of action, the insurer owes the insured attorney’s fees and the insurer cannot proceed until the insured has been made whole. Thus, prior to proceeding, subrogating insurers should consult subrogation counsel about these issues and discuss their potential impact on the insurer’s subrogation action. In addition, where appropriate, subrogating insurers should consider signing a pro rata litigation agreement with the insured so that both the insurer and the insured can proceed, together, in one action against the tortfeasor.

NOTE: This article first appeared in the Winter 2017 edition of Subrogator Magazine.

[1] See, e.g., Travelers Ins. Co. v. Hartford Accident & Indem. Co., 294 A.2d 913 (Pa. Super. 1972) (discussing personal injury and workers’ compensation claims).

[2] Id.

[3] Awkwright-Boston Mfrs. Mut. Ins. Co. v. New York, 762 F.2d 205 (2nd Cir. (NY) 1985).

[4] See, e.g., State Farm v. Ware’s Van Storage, 953 A.2d 568 (Pa. Super. 2008).

[5] Simpson v. Robert’s Express, Inc., 182 A.2d 449 (N.H. 1962).

[6] See, e.g., Aetna Cas. & Sur. Co. v. Owen, 530 N.W.2d 51 (Wis. App. 1995).

[7] See, e.g., Holloran v. Larrieu (Appeal of Cown Cork & Seal Co.), 637 A.2d 317 (Pa. Super. 1994).

[8] 9 Am. Jur. 2d Parties § 184.

[9] See, e.g., Fireman’s Fund Ins. Co. v. TD Banknorth Ins. Agency, Inc., 72 A.3d 36 (Conn. 2013).

[10] See, e.g,. Woodcraft by MacDonald, Inc. v. Georgia Cas. and Surety Co., 743 S.E.2d 373 (Ga. 2013).

[11] See Wimberly v. American Cas. Co., 584 S.W.2d 200 (Tenn. 1979).

[12] DuFour v. Progressive Classic Ins. Co., 881 N.W.2d 678 (Wis. July 6, 2016); see Van Orden v. United States Automobile Ass’n, 318 P.3d 1042 (Mont. 2014).


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