This is the second post in an occasional series entitled “Law Gone Wrong.” The editors of the Faculty Blog invited Law School faculty to share their thoughts on misguided statutes, disastrous judicial decisions, and other examples where the law has gone wrong (and needs to be nudged back on course). Today’s contribution is from Professor Jack Kircher.
Alright, the law of subrogation is fairly simple. If one who is secondarily liable pay a debt that should have been paid by the primarily liable person, the one who pays the debt steps into the shoes of the creditor to pursue the one primarily liable. Subrogation also applies to an indemnity insurance situation. An insurer paying on its policy when its insured sustains a loss caused by a tortfeasor may pursue the tortfeasor for the amount the insurer paid. It thus becomes the alter ego of its insured, the tort victim, as to the tortfeasor. In this context both insurance and tort law concern themselves with indemnity.
A wrinkle has been added to the basic context in Wisconsin and elsewhere. The Wisconsin Supreme Court determined that an insurer’s subrogation rights remain inchoate until its insured is “made whole” by the tortfeasor for the losses sustained. [Garrity v. Rural Mut. Ins. Co., 77 Wis.2d 537, 253 N.W.2d 512 (1977); Rimes v. State Farm Mut. Auto. Ins. Co. 106 Wis.2d 263, 316 N.W.2d 348 (1982).] No real problem with that, as the insurer is a commercial risk-taker while its insured is not and a pecking order here should favor the latter over the former.
But ah, here comes the rub! In Koffman v. Leichtfuss, [246 Wis.2d 31, 630 N.W.2d 201 (2001)] the court was confronted with a case in which the plaintiff received medical treatment for injuries sustained in an accident. The total amount billed by health care providers was $187,931.78. However, through certain contractual relationships with the plaintiff’s health care providers, the plaintiff’s insurers received the benefit of reduced “contracted rates” and were able to satisfy the amounts billed by the providers with total payments of $62,324. The plaintiff personally paid $1,869.43 in deductibles, co-payments, and out-of-pocket expenses. The court, nevertheless, held that the plaintiff was entitled to seek recovery of the reasonable value of medical services, the amount billed, without limitation to amounts paid. That ruling would make sense if the medical services had been provided gratuitously. That would be no more than an application of the collateral source rule. But in Koffman, the ruling impacts not only upon the tortfeasor’s liability but, because of the “made whole” rule, the insurer’s ability to advance its subrogation rights.
Even though the two dissenters did not say so in Koffman I will. If the law says that, the law is an ass! [Charles Dickens, The Adventures of Oliver Twist 399 (Oxford Univ. Press 1981 (1838)]