Submitted: January 16, 2019
from United States District Court for the Western District of
Arkansas - El Dorado
LOKEN, GRASZ, and STRAS, Circuit Judges.
seriously damaged the home of Milton and Norma Blakely in
Crossett, Arkansas, in October 2014. Entergy Arkansas, Inc.,
provided electric power to the home. In August 2015, the home
was completely destroyed by a second fire while being
repaired without electric power service. The Blakelys'
homeowner's insurer, EMC Insurance Companies, paid $203,
247.49 for their total property damage and then brought this
diversity action against Entergy, alleging the utility's
equipment caused the 2014 fire and asserting subrogation
claims for damages "in excess of $203, 247.49." The
case proceeded to a jury trial. At the close of plaintiff
EMC's evidence, the district court granted
Entergy's motion for judgment as a matter of law,
concluding that EMC "does not have standing to pursue
its subrogation claim" because "it failed to obtain
a legal determination that its insureds had been made whole .
. . prior to initiating this subrogation action." EMC
appeals. We affirm, though on a different ground.
The Made Whole Doctrine.
apply the substantive law of Arkansas in this diversity
action. "Under Erie,  we are obligated to apply
governing precedent from the Arkansas Supreme Court. When
there is no state supreme court case directly on point, our
role is to predict how the state supreme court would rule if
faced with the same issue before us." Blankenship v.
USA Truck, Inc., 601 F.3d 852, 856 (8th Cir. 2010)
at its essence is the substitution of one party for another
in the exercise of some legal right." Welch Foods,
Inc. v. Chicago Tit. Ins. Co., 17 S.W.3d 467, 470 (Ark.
2000). "Subrogation is a normal incident of indemnity
insurance" that "assures against unjust enrichment
by way of double recovery." S. Farm Bureau Cas. Ins.
Co. v. Tallant, 207 S.W.3d 468, 471 (Ark. 2005). In
applying equitable subrogation principles, the Supreme Court
of Arkansas has adopted a "made whole" doctrine
that has also been adopted, with significant variations, in
many jurisdictions. The made whole doctrine in Arkansas
reflects the principle that "equity will require that
the insured be made whole before the insurer's right to
subrogation will arise." Franklin v. Healthsource of
Ark., 942 S.W.2d 837, 839 (Ark. 1997) (quotation
omitted). Thus, "[t]he general rule is that an insurer
is not entitled to subrogation unless the insured has been
made whole for his loss." Riley v. State Farm Mut.
Auto. Ins. Co., 381 S.W.3d 840, 848 (Ark. 2011). Whether
the insured has been made whole is an issue of equity for the
court. Tallant, 207 S.W.3d at 473.
Riley, typical of situations in which the made whole
issue commonly arises, an insurer paid the injured
insured's medical bills and then asserted the right to a
statutory reimbursement lien on the insured's settlement
recovery from a tortfeasor's insurer. The insured sought
injunctive relief to invalidate the lien on the ground that
the third party settlement had not made her whole. Ruling on
a certified question, the Supreme Court held that,
"absent an agreement or settlement between the parties,
an insurer's right to subrogation does not accrue until
there has been a legal determination by a court that the
insured has been made whole." 381 S.W.3d at 850. The
Court therefore remanded for resolution of the made whole
appeal presents the made whole doctrine in a different
setting. EMC is not asserting a subrogation right to share in
the Blakelys' recovery from a third party. Rather, EMC is
asserting its right to subrogation directly against Entergy,
the alleged tortfeasor, claiming as damages all amounts paid
its insureds for property losses from two fires (the second
of which was unrelated to the first and could not have been
caused by Entergy's negligent provision of electrical
services). EMC's Complaint did not allege that its
insureds have been made whole. Though Milton and Norma
Blakely testified at trial, the made whole issue was not
addressed. When Entergy raised the made whole issue in its
motion for judgment as a matter of law, EMC argued (i) the
made whole doctrine does not apply to property damage claims,
and (ii) Entergy was barred from arguing the made whole
defense by the doctrine of inconsistent positions. Relying on
broad statements in Riley and Tallant, the
district court concluded that EMC lacked standing and granted
Entergy judgment as a matter of law because "EMC failed
to obtain a legal [made whole] determination . . . prior to
initiating this subrogation action."
The Made Whole Doctrine Applies.
appeal, EMC first argues that the made whole doctrine does
not apply to property damage claims. Citing no secondary
authority or supporting precedent from other jurisdictions,
EMC argues that no Arkansas state court has ever applied the
doctrine to property loss claims, and it is illogical to do
so. We disagree.
Supreme Court of Washington has cogently explained why there
are few cases applying the made whole doctrine to property
loss subrogation claims:
Property loss subrogation caused few disputes between the
insurer and the insured, because once the insured had
recovered from the insurer the economic value of the loss,
the insured had little or no interest in competing with the
insurer for the right to sue ...