Amaris Elliott-Engel
The Legal Intelligencer

The state Supreme Court has granted allocatur in a case that would give it the opportunity to decide whether a car insurer can repay only a prorated portion of an insured's deductible when recouping expenses through subrogation from a third party at fault.

Plaintiff Brenda Jones, who is seeking to be a class representative in a class action against Nationwide Property and Casualty Insurance Co., argued that she should be made whole for her deductible before Nationwide was entitled to subrogation.

Jones was paid $450 of her $500 deductible when Nationwide Property and Casualty Insurance Co. received more than $500 but less than the amount paid to Jones because of a car accident, according to the state Superior Court opinion in Jones v. Nationwide Property and Casualty Insurance Co .

The Supreme Court, according to its Nov. 17 order, will consider whether Pennsylvania law requires that a party suffering damages be made whole before an insurer is entitled to subrogation; whether the Pennsylvania Insurance Commissioner has the authority to promulgate a regulation regarding the allocation of subrogation proceeds between an insurance company and its insured following subrogation recovery; and whether the commissioner's regulation allowing insurance companies to allocate subrogation proceeds on a pro rata basis is void because it violates the common law "made whole" doctrine.

In Jones' petition, Thomas More Marrone of Feldman Shepherd Wohlgelernter Tanner Weinstock & Dodig argued that subrogation is an equitable principle that allows an insurance company, after it has paid its insured, to enforce the insured's right to recover damages from a third party. Under Pennsylvania law, the subrogation right of an insurance company must come behind the right of an insured to recover the full amount of his or her loss under the "made whole" doctrine, Marrone said.

The "made whole" doctrine has not been applied in Pennsylvania jurisprudence to an insured's attempt to recover the full amount of his or her deductible following a subrogation recovery, Marrone wrote. But he said it can and should be applied to the case of Jones.

"The 'made whole' doctrine is not described by any court as being limited to any particular factual circumstances," Marrone wrote. "Instead, it is stated broadly as an equitable doctrine intended to make certain that an insured's losses are recovered before any insurer may make any recovery based upon the event triggering the insurer's obligation to make a payment in the first place."

Marrone also argued that a Pennsylvania Insurance Commissioner's regulation allowing for subrogation recoveries to be shared on a proportionate basis between an insured and the insurance company is a nullity because the commissioner did not have the authority to issue the regulation.

The insurance commissioner cannot establish that the General Assembly granted the commissioner the express authority to regulate distribution of subrogation proceeds or that the commissioner has the implied power to enact the regulation in order to effectuate some other responsibility conferred on the commissioner by the legislature, Marrone argued. The Unfair Insurance Practices Act, which authorizes regulation of the insurance industry, does not touch on the distribution of subrogation proceeds, Marrone said.

The General Assembly may enact a statute overturning the made whole doctrine and require that an insured is only entitled to a pro rata return of his or her deductible, but until that occurs the Insurance Department can't enact such a regulation, Marrone wrote.

In an interview, Marrone said the case exemplifies the importance of class actions. That's because the cases may involve just a few dollars for the insured, but could shed light on the decision-making of insurance companies over "how much to write the check for."

In the Superior Court, Judge Judith F. Olson, writing for the panel of Judge Mary Jane Bowes and Senior Judge James J. Fitzgerald III, upheld a Philadelphia trial judge's dismissal of the proposed class action on preliminary objections in which the class argued that Nationwide Property and Casualty Insurance Co.'s policy of reimbursing only a pro rata share of an insured deductible was a breach of contract, bad faith, conversion and unjust enrichment.

Olson found a federal court decision to be persuasive authority: the 2009 U.S. District Court decision in Harnick v. State Farm Mutual Insurance Co . Marrone also represents the plaintiffs in that case.

The 3rd U.S. Circuit Court of Appeals has stayed Harnick , and three common pleas court putative class actions against other car insurers are also stayed, Marrone said.

The Pennsylvania Defense Institute, the Insurance Federation of Pennsylvania Inc., the National Association of Subrogation Professionals Inc. and American Independent Insurance Co. have filed amicus briefs in the case.

Thomas Martin of Feldman Shepherd is co-counsel representing Jones.

Nationwide's counsel, Michael R. Nelson of Nelson Levine de Luca & Horst in Blue Bell, Pa., did not respond immediately to a request for comment Monday.