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You’ve just been in a crash and the other party (the third party) doesn’t have insurance or denies liability. As a result, you make a claim under your own automobile insurance for your property damage. The problem is, you have to pay a deductible, often $500. Can you ever recover that when the third party has insurance? Our Supreme Court has given an answer.

In Daniels v. State Farm Mutual Automobile Insurance Co., Wash., No. 96185-9, 2019 WL 2909308 (July 3, 2019), the Washington Supreme Court recently held that an insured (you) must receive the full deductible before the insurer may distribute any recovered funds to itself.

Daniels was the middle car in a three-vehicle crash. The at-fault driver denied liability and Daniels used her own property damage insurance with State Farm and paid her $500 deductible. State Farm then recovered 70% of the repair costs from the at-fault driver and reimbursed Daniels 70% of the $500 deductible – or $350. Daniels sued State Farm, arguing that State Farm could retain money recovered directly from an at-fault party only after the insured, Daniels, was fully reimbursed for her loss, the $500 deductible. The Court agreed.

State Farm argued that the “made whole” doctrine did not apply to a subrogated insurer’s direct action against an at-fault party. Averill v. Farmers Ins. Co. of Washington, 155 Wn.App. 106, 229 P.3d 830 (2010). The “made whole” doctrine requires that an injured party must be placed in the same position as he or she was prior to the crash before the insurer may require the injured party to reimburse the insurer. State Farm also relied on WAC 284-30-393, which requires subrogated insurers to reimburse deductibles “less applicable fault.” The Washington Supreme Court held that the “made whole” doctrine did apply to any and all loss recovery, no matter the manner of recovery.

A previous case, Averill, allowed the insurer to allocate recovery to itself, before the insured, contending that it was consistent with the purpose of the deductible. However, Daniels rejected this reasoning noting that the deductible had other purposes, including that the deductible shifts coverage of smaller losses to the insured, which saves on administrative expenses, and enforcement of the “made whole” doctrine in subrogation situations does not interfere with this purpose. The Daniels Court also noted that it had not previously distinguished between reimbursement to insurers from recovered funds based on recovery from suing the third-party or recovery from their insured.

The Daniels Court also held that WAC 284-30-393 did not support State Farm here. Instead, this regulation allows for a deduction of the reimbursement to the insured for “applicable comparable fault.” However, there was no finding of fault on the part of Daniels. Therefore State Farm could not reduce the amount they reimbursed her for her deductible. The upshot for insured drivers after Daniels is that, regardless of how recovery is made, a fault-free insured must recover their entire loss before the insurer may reimburse itself.

This seems only fair.