## Facts

- Robert and Evelyn Wimberly owned a restaurant that was destroyed by fire, resulting in an undisputed loss of $44,619.10.
- The fire occurred after Shelia McLemore negligently drove her automobile into the restaurant.
- The Wimberlys carried fire insurance totaling $15,000, split between American Casualty Company of Reading, Pennsylvania and New Hampshire Insurance Company.
- The policies included subrogation language allowing an assignment of the insureds’ rights against responsible parties to the extent the insurers paid the loss.
- The Wimberlys signed a proof of loss and subrogation receipt assigning rights against liable parties and agreeing to cooperate in any related claim.
- The insurers paid the Wimberlys the full policy limits ($7,000 and $8,000; total $15,000).
- McLemore’s liability insurer tendered its $25,000 policy limits by joint check payable to the Wimberlys and both fire insurers; the parties executed a joint release of McLemore.
- From the $25,000 settlement, the insurers retained $8,404.47 and the Wimberlys received $16,595.53.
- The Wimberlys’ total receipts were $31,595.53, leaving them undercompensated relative to their $44,619.10 loss.
- The Wimberlys sued the insurers to recover the portion of the tort settlement the insurers retained.

## Issues

1. When the insured’s combined recovery from property insurance and the tortfeasor is less than the insured’s total loss, must the insured be fully compensated before the insurer may enforce subrogation rights against the tort recovery?
2. Whether policy subrogation clauses and a subrogation receipt allow the insurer to take part of the tort settlement despite the insured’s remaining uncompensated loss.

## Decision

- The Tennessee Supreme Court reversed the Court of Appeals and reinstated the trial court’s judgment for the Wimberlys.
- The court held the insured must be made whole before the insurer is entitled to subrogation against the tortfeasor where total recovery is less than the loss.
- Because the Wimberlys were not fully compensated, the insurers were not entitled to retain any portion of the tort settlement as subrogation.

## Legal Principles

- Insurance subrogation is governed by equitable principles and is applied to achieve justice between the parties.
- Absent clear contractual language to the contrary, the insured’s right to full indemnification has priority over the insurer’s subrogation interest.
- Subrogation exists to prevent an insured’s double recovery, not to permit insurer reimbursement when the insured remains partially unpaid for the loss.
- Standard policy subrogation language and a subrogation receipt will be construed consistently with equity and will not be read to reduce the insured’s ability to be made whole unless unmistakably stated.

## Conclusion

Tennessee applies the made-whole doctrine in insurance subrogation: when the insured’s total recovery from the insurer and the tortfeasor is insufficient to cover the loss, the insurer has no enforceable subrogation right to the tort recovery until the insured is fully compensated.


Wimberly v. American Casualty Co. of Reading, Pa., 584 S.W.2d 200 (Tenn. 1979)