Dennis D. Dufour v. Progressive Classic Ins. Co., 881 N.W.2d 678

On Aug. 6, 2011 Dufour was injured in a motorcycle accident caused by an underinsured tortfeasor; his bodily injuries exceeded $200,000 and his motorcycle property damage was $15,589.86.
Dairyland (Dufour’s insurer) paid Dufour $100,000 under its underinsured motorist bodily-injury limit and $15,589.86 for 100% of the motorcycle property damage; the tortfeasor’s insurer (American Standard) paid $100,000 for bodily injury.
After Dufour and Dairyland were paid, Dairyland pursued and obtained $15,589.86 in subrogation from American Standard under a contractual subrogation clause.
Dufour demanded that Dairyland turn over the subrogation recovery, invoking Wisconsin’s made whole doctrine; Dairyland refused and Dufour sued for breach of contract and bad faith.
Trial court ordered turnover (relying on Valley Forge); the court of appeals affirmed turnover and also found bad faith; the Wisconsin Supreme Court granted review.
The Supreme Court reversed: it held the made whole doctrine did not bar Dairyland from keeping the subrogation funds and held Dairyland did not act in bad faith.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the made whole doctrine prevents Dairyland from retaining subrogation funds recovered from the tortfeasor’s insurer for property damage Dairyland paid to Dufour	Dufour: He has not been made whole for all elements of damages (bodily injury > $200k), so Dairyland may not recover subrogation that would reduce the limited pool available to make him whole	Dairyland: It paid Dufour all benefits owed under the policy (BI limit and 100% property damage), afforded Dufour priority to settle with tortfeasor, and its subrogation did not diminish any funds Dufour otherwise could have obtained	Court: Made whole doctrine inapplicable on these facts; equities favor Dairyland — it fulfilled contract, did not compete for a limited pool before Dufour recovered, and Dufour would not have obtained additional funds absent Dairyland’s subrogation
Whether Dairyland’s refusal to turnover the subrogation recovery constituted bad faith	Dufour: Denial was unreasonable because made whole doctrine entitled him to the funds, so denial was breach and tortious	Dairyland: Its denial was reasonable given its policy subrogation clause and the contested legal question; it did not breach the contract	Court: No bad faith — Dairyland had a reasonable basis to retain the subrogation funds and did not breach its contractual obligations

Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537 (1977) (articulates the made whole doctrine and priority rule that insured should be made whole before insurer recoups)
Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263 (1982) (made whole test: insured must be compensated for all elements of damages before insurer subrogation is allowed)
Vogt v. Schroeder, 129 Wis. 2d 3 (1986) (equitable application of subrogation; made whole doctrine not rigid where equities favor permitting subrogation)
Mutual Serv. Cas. Co. v. Am. Family Ins. Grp., 140 Wis. 2d 555 (1987) (recognizes insurer and insured may own separate parts of claim; made whole doctrine may be inapplicable after insured settles)
Schulte v. Franzin, 176 Wis. 2d 622 (1993) (settlement/indemnity that competes with insurer’s subrogation can extinguish subrogation where insured not made whole)
Muller v. Society Ins., 309 Wis. 2d 410 (2008) (applied equitable balancing: insurer permitted to retain subrogation where insurer paid policy limits and did not compete with insured for a limited fund)
Valley Forge Ins. Co. v. Home Mut. Ins. Co., 133 Wis. 2d 364 (Ct. App. 1986) (court of appeals decision holding insurer not entitled to subrogation where insured not made whole; discussed and distinguished by the Supreme Court)