1

SYLLABUS

This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the 

Clerk for the convenience of the reader. It has been neither reviewed nor approved by the 

Court. In the interest of brevity, portions of an opinion may not have been summarized.

City of Asbury Park v. Star Insurance Company (A-20-19) (083371)

Argued March 31, 2020 -- Decided June 29, 2020

FERNANDEZ-VINA, J., writing for the Court.

In this case, the Court addresses a question of law certified by the United States 

Court of Appeals for the Third Circuit: 

Whether, under equitable principles of New Jersey law, the 

made-whole doctrine applies to first-dollar risk that is allocated 

to an insured under an insurance policy, i.e., a self-insured 

retention or deductible.

The question arises from a dispute between a workers’ compensation carrier and its 

insured, a public employer.

From February 2010 to February 2011, the City of Asbury Park (the City) had an 

insurance policy with Star Insurance Company (Star) that provided coverage for workers’ 

compensation claims against the City. The policy included a “self-insured limit retention 

for workers’ compensation” losses against the City in the amount of $400,000 per 

occurrence. In turn, Star agreed to indemnify the City for its workers’ compensation 

losses that exceeded the self-insured retention.

In January 2011, John Fazio, an employee of the Asbury Park Fire Department,

suffered injuries while fighting a fire. He filed a workers’ compensation claim against 

the City, which in turn paid him $400,000, the full amount of its self-insured retention 

limit; Star paid $2,607,227.50, the amount exceeding the self-insured retention limit.

Fazio later filed suit against a third party for the injuries he suffered in the 2011 

fire. Fazio and the third party reached a settlement agreement for $2,700,000. 

Subsequently, Fazio, the City, and Star agreed that $935,968.25 of the settlement 

proceeds would be set aside to partially reimburse the City and Star.

Star issued a demand to recover the entire $935,968.25, contending that it was 

entitled to be reimbursed in full before the City could recover amounts paid on the selfinsured retention. The City asserted that under the made-whole doctrine, it was entitled 
2

to be reimbursed in full before Star could assert its subrogation right. Star responded that 

the made-whole doctrine does not apply to self-insured retentions, as application of that 

doctrine in this case would unjustly enrich the City.

The City filed a declaratory judgment action against Star. The United States 

District Court for the District of New Jersey granted summary judgment in favor of Star, 

finding that “the City has no insurance coverage for the first $400,000.00”; that the 

parties expressly agreed under the subrogation provision that “Star has the right to 

substitute itself for the City and is subrogated to all of the City’s rights of recovery”; and 

that the made-whole doctrine does not apply to this case.

The City appealed, and the Third Circuit certified its question to the Court as an 

important and unresolved matter of New Jersey law. The Court accepted the question as 

posed. 240 N.J. 45 (2019).

HELD: The Court answers the certified question in the negative. Under equitable 

principles of New Jersey law, the made-whole doctrine does not apply to first-dollar risk, 

such as a self-insured retention or deductible, that is allocated to an insured under an 

insurance policy.

1. In the insurance context, subrogation is a doctrine allowing the insurer to seek 

recovery from the party at fault, exercised after the insurer has indemnified its insured 

under the terms of an insurance policy. Subrogation rights are created in one of three 

ways: (1) an agreement between the insurer and the insured, (2) a right created by 

statute, or (3) a judicial device of equity to compel the ultimate discharge of an obligation 

by the one who in good conscience ought to pay it. (pp. 10-12)

2. Under the made-whole doctrine, an insurer cannot assert a subrogation right until the 

insured has been fully compensated for his or her injuries. The doctrine applies when the 

amount recoverable from the responsible third party is insufficient to satisfy both the total 

loss sustained by the insured and the amount the insurer pays on the claim. New Jersey

courts have long recognized and utilized the made-whole doctrine. In Culver v. 

Insurance Co. of North America, however, the Court stressed that courts must not only 

turn for guidance to equitable principles, but must also “consider the contractual 

relevance of the specific subrogation agreement.” 115 N.J. 451, 456 (1989). Thus, 

courts must consider both the equitable principles of subrogation, such as the madewhole doctrine, as well as the rights agreed upon in the contract. Ibid. (pp. 12-16)

3. While the made-whole doctrine generally applies in this state, New Jersey courts have 

never addressed the question of whether the doctrine applies to first-dollar risk, such as 

deductibles and self-insured retentions, borne by insureds. The Court reviews cases from 

other jurisdictions. (pp. 16-21)
3

4. Considering the equitable principles that guide the doctrine of subrogation alongside 

insurance policies that allocate first-dollar risk to the insured, the Court finds that the 

made-whole doctrine does not apply to first-dollar risk allocated to the insured. A selfinsured retention or deductible is an amount of risk that the insured has agreed to assume 

in exchange for a lower premium cost for the insurance policy. Where the award from a 

subrogation action against a third party is insufficient to reimburse both the insured’s 

self-insured retention and the carrier’s loss in excess of the self-insured retention, to place 

priority of recovery with the insured would, in effect, convert the policy into one without 

a self-insured retention. Such interference with the contract would essentially write a 

better policy for the insured than the one purchased. The Court declines to find “that 

equity dictates a departure from the terms of the insurance contract into which the parties 

voluntarily entered under such circumstances.” See Fireman’s Fund Ins. Co. v. TD 

Banknorth Ins. Agency, Inc., 72 A.3d 36, 46 (Conn. 2013). (pp. 21-22)

5. The Court’s view of the made-whole doctrine requires a close examination of an 

insurance contract’s provisions to determine whether the doctrine will apply, including 

the effect of reading together provisions relating to self-insured retentions or deductibles 

and subrogation rights. Read together, if the policy at issue unambiguously provides Star 

with all of the City’s rights to recovery against third-party tortfeasors in the event that 

Star makes a payment under the policy, the made-whole doctrine would not apply in this 

case -- it would not override the parties’ agreement. (pp. 22-23)

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, PATTERSON, 

SOLOMON, and TIMPONE join in JUSTICE FERNANDEZ-VINA’S opinion.
1

SUPREME COURT OF NEW JERSEY

A-20 September Term 2019

083371

City of Asbury Park,

Plaintiff-Appellant,

v.

Star Insurance Company,

Defendant-Respondent.

On certification of question of law from the

United States Court of Appeals for the Third Circuit.

Argued

March 31, 2020

Decided

June 29, 2020

Denise M. DePekary argued the cause on behalf of 

appellant (Weber Gallagher Simpson Stapleton Fires 

& Newby, attorneys; Denise M. DePekary, Andrew L. 

Indeck, and Kenneth E. Sharperson, on the briefs).

Thomas E. Hastings argued the cause on behalf of 

respondent (Dilworth Paxson, attorneys; Thomas E. 

Hastings, of counsel and on the brief).

JUSTICE FERNANDEZ-VINA delivered the opinion of the Court.

In this case, we address a question of law certified by the United States 

Court of Appeals for the Third Circuit arising from a dispute between a 

workers’ compensation insurance carrier and its insured, a public employer. 
2

Both plaintiff, the City of Asbury Park (the City), and its workers’ 

compensation carrier, defendant Star Insurance Company (Star), seek 

reimbursement of monies paid toward an injured firefighter’s workers’ 

compensation claim from funds he recouped through settlement with a thirdparty tortfeasor. The funds available for reimbursement will not cover the full 

amount paid collectively by the City and Star. The question is whether, under

the equitable “made-whole” or “make-whole” doctrine, the City has priority to 

recover what it paid before Star may recover any of its losses. 

Here, that question turns on the interplay between the made-whole 

doctrine and a particular provision of the contract between Star and the City

under which the City “shall retain, as a self-insured retention,” a peroccurrence deductible for workers’ compensation claims. By virtue of that 

self-insured retention, the City bears what is known as the “first-dollar risk” --

making it responsible for the first $400,000 of any workers’ compensation 

claim, with Star bearing responsibility for sums exceeding that amount.

The certified question is:

Whether, under equitable principles of New Jersey law, 

the made-whole doctrine applies to first-dollar risk that 

is allocated to an insured under an insurance policy, i.e., 

a self-insured retention or deductible.

We answer the certified question in the negative.
3

I.

A.

From February 2010 to February 2011, the City held an insurance policy 

(the Policy) with Star that provided coverage for workers’ compensation 

claims against the City pursuant to the Workers’ Compensation Act, N.J.S.A. 

34:15-1 to -146. The Policy included a “self-insured limit retention for 

workers’ compensation” losses against the City in the amount of $400,000 per 

occurrence. In turn, Star agreed to indemnify the City for its workers’ 

compensation losses that exceeded the self-insured retention. In the event of 

such a loss, Star also agreed to indemnify the City for claim expenses, such as 

investigation and legal expenses, “in the proportion that the insurer’s portion 

of the loss bears to the total amount of such final award, verdict or judgment 

against the insured.”

The Policy further contained a subrogation provision which provided:

In the event of any payment under this insurance 

contract, the insurer shall be subrogated to all of the 

insured’s rights of recovery therefore against any 

person or organization, and the insured and the service 

company shall execute and deliver instruments and 

papers and do whatever else is necessary to secure such 

rights. No person or organization shall do anything to 

prejudice such a right.
4

B.

1. 

In January 2011, John Fazio, an employee of the Asbury Park Fire 

Department, suffered life-threatening injuries while fighting a fire. Fazio filed 

a workers’ compensation claim against the City, which in turn paid Fazio 

$400,000, the full amount of its self-insured retention limit; Star paid

$2,607,227.50, the amount exceeding the City’s self-insured retention limit. 

Pursuant to N.J.S.A 34:15-40, the payments by the City and Star created a 

workers’ compensation lien in the amount of $3,007,227.50, entitling the City 

and Star to reimbursement on any recovery by Fazio against a third party.

On December 28, 2012, Fazio filed suit against a third party for the 

injuries he suffered in the 2011 fire. Fazio and the third party reached a 

settlement agreement for $2,700,000. Subsequently, Fazio, the City, and Star 

agreed that $935,968.25 of the settlement proceeds would be set aside in 

partial satisfaction of all liens held by the City and Star. The $935,968.25 is 

being held in escrow by the City’s workers’ compensation defense counsel, 

who agreed to distribute the funds only as directed by the City and Star, or 

court order.

Star issued a demand to recover the entire $935,968.25 held in escrow, 

contending that pursuant to the Policy, it was entitled to be reimbursed in full 
5

before the City could recover amounts paid on the self-insured retention. The 

City asserted that under the made-whole doctrine, it was entitled to be 

reimbursed in full before Star could assert its subrogation right. Star 

responded that the made-whole doctrine does not apply to self-insured 

retentions, as application of that doctrine in this case would unjustly enrich the 

City. 

The City filed a declaratory judgment action against Star in Superior 

Court asserting that it “has subrogation rights arising out of its payment of its 

self-insured retention of $400,000.00 and is entitled to be reimbursed out of 

the” escrow account before Star may recover anything. Star removed the 

matter to the United States District Court for the District of New Jersey. The 

district court denied the City’s motion to remand the case to state court. Star 

then filed for a declaratory judgment claiming that it is “entitled to be 

reimbursed in full before any reimbursement of the City’s self-insured 

retention.” 

2. 

Both parties moved for summary judgment pursuant to Fed. R. Civ. P. 

56. The district court granted Star’s motion and denied the City’s motion. 

Relying on the plain language of the Policy, the court found that “the City has 

no insurance coverage for the first $400,000.00,” and the parties expressly 
6

agreed under the subrogation provision that “Star has the right to substitute 

itself for the City and is subrogated to all of the City’s rights of recovery.” 

Moreover, the court rejected the City’s contention that the made-whole 

doctrine applies to this case. First, the court reasoned that an insured’s right to 

be made whole before the insurer can recover anything from a third-party 

tortfeasor can be altered by the insurance contract. Here, the court found that 

the Policy’s subrogation provision altered the City’s right to be made whole. 

Second, the court determined that the made-whole doctrine does not apply to 

first-dollar coverage such as deductibles or self-insured retentions, because to 

hold otherwise “would convert [the Policy] to an insurance policy without a 

deductible,” allowing the City “to gain an unbargained-for windfall at the 

expense of [Star].”

The City appealed the district court’s judgment. After briefing, the 

Third Circuit determined that the appeal raised an important and unresolved 

matter of New Jersey law. Pursuant to Rule 2:12A-3, the Third Circuit 

certified its question to this Court. We accepted the question as posed by the 

Third Circuit. 240 N.J. 45 (2019).
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II.

A.

The City primarily relies on Providence Washington Insurance Co. v. 

Hogges, 67 N.J. Super. 475 (App. Div. 1961), in support of its contention that 

in New Jersey, the insured is to be “made whole” before an insurer may 

recover proceeds from a third-party tortfeasor, even if the insured’s only 

remaining loss is from the policy’s deductible or self-insured retention. The 

City points out that in Hogges, the policy at issue contained a subrogation 

provision that is essentially identical to the subrogation provision in this case. 

(discussing Hogges, 67 N.J. Super. at 476).

The City stresses that the Appellate Division in Hogges labeled the 

subrogation provision as a “general clause” and determined that, under such a 

clause, “the interests of the insured come first. In the absence of express terms 

in the contract to the contrary, he must be made or kept whole before the 

insurer may recover anything from him or from a third party under its right of 

subrogation.” (quoting Hogges, 67 N.J. Super. at 482). Thus, the City 

contends that, in this case, the subrogation provision in the Policy does not 

contain “express terms” that run contrary to its rights as an insured under the 

made-whole doctrine. 
8

Further, the City points out that in Hogges the insured sued a third-party 

tortfeasor in part for $900 in property damage caused to his vehicle without 

notifying his carrier, which paid for this loss minus a $50 deductible. 

(discussing Hogges, 67 N.J. Super. at 476-78). In finding that the insured did 

not violate the subrogation provision by filing the third-party suit and alleging 

property damage, the Appellate Division determined that the insured “still had 

a prior right to $50 of any sum recovered for property damage from the 

tortfeasors, and to any surplus over $900,” while the carrier would have been 

indemnified up to the $850 paid on the policy. (quoting Hogges, 67 N.J. 

Super. at 479). On that basis, the City contends that the Appellate Division 

endorsed the made-whole doctrine and “required reimbursement of an 

insured’s insurance deductible prior to the insurer receiving any monies by 

way of subrogation.” The City asserts that this result was “cited favorably” by 

this Court in Culver v. Insurance Co. of North America, 115 N.J. 451, 458

(1989), in which we stated that the Hogges court “allowed the insured to be 

paid its $50 deductible from the third party award before the insurer could be 

reimbursed for its insurance payment.” 

B.

Star contends that applying the made-whole doctrine to deductibles or 

self-insured retentions would circumvent “the bargain made by the parties” of 
9

an insurance policy “and unjustly enrich insureds who had agreed to bear 

financial responsibility for first-dollar loss.” Star emphasizes that the City 

agreed to bear the first $400,000 of each workers’ compensation loss. By 

agreeing to the Policy, Star asserts that “[t]he City did not pay for first-dollar 

coverage, [yet] that is what it would get if its self-insured retention were 

reimbursed before the payments made by Star.” Star further points out that 

insureds receive lower premiums in return for retaining first-dollar risk, thus 

Star contends that an insured’s reimbursement for those funds before the 

carrier’s payment results in a windfall for the insured.

Star asserts the Policy’s subrogation provision gives Star all rights of 

recovery whenever it pays for a loss. Star contends there “was no occasion for 

[the] subrogation provision to address the priority of recovery” because the 

“Policy does not specify an upper limit on workers’ compensation coverage.” 

With “no prospect that the City could incur a workers’ compensation loss in 

excess of an upper limit of its coverage,” Star contends there is no 

“circumstance in which the made-whole doctrine could apply” under this 

Policy.

Star further contends that the Appellate Division’s statements in Hogges

relied upon by the City were dictum and not relevant to the court’s holding. 

Star points out that the carrier in Hogges sued the insured for reimbursement 
10

of its $850 payment after the insured filed a third-party lawsuit without 

notifying the carrier and lost. Star asserts that the issue before the Appellate 

Division in that case “was about whether the insured had to reimburse the 

insurer for the entire payment made by the insurer, not whether the insured 

was entitled to reimbursement of his deductible.” Thus, Star contends that the 

Hogges court’s statement “that the ‘insured had a prior right to $50 of any sum 

recovered for property damage from the tortfeasors’” “was not essential, or 

even relevant, to the issue before the court.” (quoting Hogges, 67 N.J. Super.

at 479). Moreover, Star argues that the Hogges “court’s comments relating to 

the priority of recovery are at best ambiguous, because the court also observed 

that [the insured] would have held any recovery from the tortfeasor in trust for 

the benefit of the insurer ‘up to’ $850.” (quoting Hogges, 67 N.J. Super. at 

479). 

III.

A.

To answer the Third Circuit’s certified question, we begin with the 

doctrine of subrogation. “It has long been appreciated that ‘[s]ubrogation is a 

device of equity to compel the ultimate discharge of an obligation by the one 

who in good conscience ought to pay it [and] . . . to serve the interests of 

essential justice between the parties.” Culver, 115 N.J. at 455-56 (alterations 
11

in original) (quoting Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 171 

(1954)). 

In the insurance context, subrogation is a doctrine 

allowing the insurer to seek recovery from the party at 

fault, exercised after the insurer has indemnified its 

insured under the terms of an insurance policy. The 

doctrine is based on the principle that a benefit has been 

conferred upon the insured at the expense of the insurer 

and vests in the latter any rights the former may have 

had against a third party who is liable for the damages. 

[Kenny & Lattal, N.J. Insurance Law § 8-2, at 231-32 

(2019 ed.) (citations omitted).]

In subrogation cases, the insured’s right to recovery against a third party 

tortfeasor vests in the insurer, and the insurer “steps into the shoes of the

insured,” Pellecchia, 15 N.J. at 172, and files suit against the tortfeasor subject 

to any “defenses which would defeat recovery by the [insured].” Hartford Fire 

Ins. Co. v. Riefolo Constr. Co., Inc., 81 N.J. 514, 524 (1980).

It is important to understand that subrogation rights do 

not arise spontaneously nor are they free-floating or 

open-ended. Subrogation rights are created in one of 

three ways: (1) an agreement between the insurer and 

the insured, (2) a right created by statute, or (3) a 

judicial device of equity to compel the ultimate 

discharge of an obligation by the one who in good 

conscience ought to pay it. While the doctrine has an 

equitable foundation, the attitude of courts toward 

subrogation has been described as one of allowing 

complete freedom of contract and trying to determine 
12

and enforce the expressed intention of contracting 

parties. 

[Culver, 115 N.J. at 456 (quotation marks and citations 

omitted).]

“Although [subrogation is] highly favored in the law, ‘it is not an 

absolute right but rather is applied under equitable standards with due regard 

to the legal and equitable rights of others . . . .’” Weinberg v. Dinger, 106 N.J. 

469, 489-90 (1987) (quoting Pellecchia, 15 N.J. at 171-72). “When . . . an 

insurance carrier which has satisfied a loss it was paid to cover, seeks to 

recoup by asserting a claim its insured has against another with respect to that 

loss, the final question must be whether justice would be furthered by that 

course.” Id. at 490 (quoting A. & B. Auto Stores of Jones St., Inc. v. City of 

Newark, 59 N.J. 5, 23 (1971)).

B.

“Under the make-whole doctrine, an insurer cannot assert a subrogation 

right until the insured has been fully compensated for his or her injuries.” 44A 

Am. Jur. 2d Insurance § 1780. The doctrine applies “when the injured party’s 

damages exceed a limited pool of funds from which recovery may be had,” 

ibid., or, in other words, “[w]hen the amount recoverable from the responsible 

third party is insufficient to satisfy both the total loss sustained by the insured 

and the amount the insurer pays on the claim,” Fireman’s Fund Ins. Co. v. TD 
13

Banknorth Ins. Agency, Inc., 72 A.3d 36, 40 (Conn. 2013). Under such 

circumstances, the made-whole doctrine holds that “the injured party should be 

the first to tap into the limited pool of funds and recover on any loss, and when 

someone cannot be fully paid, the loss should be borne by the subrogee, the 

insurer.” 44A Am. Jur. 2d Insurance § 1780. 

Our courts have long recognized and utilized the made-whole doctrine. 

See, e.g., Hogges, 67 N.J. Super at 482 (“In the absence of express terms in the 

[insurance] contract to the contrary, [the insured] must be made or kept whole 

before the insurer may recover anything from him or from a third party under 

its right of subrogation.”); see also McShane v. N.J. Mfrs. Ins. Co., 375 N.J. 

Super. 305, 313-15 (App. Div. 2005) (applying the made-whole doctrine to a 

subrogation action involving underinsured motorist coverage); Werner v.

Latham, 332 N.J. Super. 76, 84 (App. Div. 2000) (finding a health insurance 

carrier “entitled to reimbursement of its medical payments only to the extent 

that the settlement proceeds [from the third-party suit] exceed the full amount 

of plaintiff’s damages for all damage claims other than medical payments”). 

In Culver, the plaintiffs sustained a fire loss, and their homeowners’ 

coverage was insufficient to fully compensate them for their loss. 115 N.J. at 

453. The plaintiffs and the defendant carrier entered into a subrogation 

agreement under which the parties would proceed jointly in an action against 
14

the third-party tortfeasors that caused the fire. Ibid. The parties “agreed to 

share any recovery[,] 80% for [the carrier] and 20% for the [plaintiffs]”; the 

carrier “would bear all costs of litigation and be entitled to legal fees.” Ibid. 

After the action against the tortfeasors settled, the plaintiffs refused to accept 

their share of the proceeds on the grounds that the defendant was to “receive 

from the proceeds of the settlement more than it had paid out to [the plaintiffs] 

on the policy coverage and that [the plaintiffs’] total recovery, both by way of 

the policy limit and the settlement proceeds, would be substantially less than 

[their] loss.” Culver v. Ins. Co. of N. Am., 221 N.J. Super. 493, 498 (App. 

Div. 1987), rev’d, 115 N.J. 451 (1989).

In the pending subrogation action between the parties, the carrier moved

to enforce the agreement. Culver, 115 N.J. at 454. The plaintiffs opposed the 

motion and cross-moved for a different allocation, alleging fraud and a breach 

of fiduciary duty by the carrier and its counsel. Ibid. The trial court ruled in 

favor of the carrier’s motion and against the plaintiffs’ motion, and the 

plaintiffs failed to appeal the trial court’s order. Ibid. Instead, the plaintiffs 

commenced a new action four months later, proffering the same allegations 

from the prior cross-motion against the carrier. Ibid. The defendant “moved 

for summary judgment on the grounds that the issues raised in the complaint 

were res judicata, which the trial court granted.” Ibid. 
15

On appeal, the Appellate Division reversed, ruling that

the subrogation agreement between the [parties] was 

not enforceable. It determined that [the carrier, as] the 

subrogating insurer, had “a trust obligation to the 

insured in respect of the difference between the 

insurance payment and the insured’s actual loss,” and 

[the carrier] was therefore obligated to hold from the 

settlement an amount equal to the uninsured portion of 

their loss in trust for the [plaintiffs]. [Culver,] 221 N.J. 

Super. at 502. The appellate court concluded that “the 

[subrogation] agreement,” calling for a different result, 

“appears to be unconscionable, violative of public 

policy and in abrogation of [the carrier’s] trust 

obligation to its insureds.” Id. at 504. This conclusion, 

according to the Appellate Division, obviated the 

application of the doctrine of res judicata.

[Culver, 115 N.J. at 455 (sixth alteration in original).]

The Appellate Division’s finding that the carrier had such a “trust obligation to 

the insured” was based on the “equitable principle [that] the right of 

subrogation does not arise until the injured party has been made whole.” 

Culver, 221 N.J. Super. at 500-03. 

This Court in turn determined that “[t]he appellate court appropriately 

turned for guidance initially to equitable principles under the standard 

subrogation clause of the insurance policy” but that “it failed then to consider 

the contractual relevance of the specific subrogation agreement.” Culver, 115 

N.J. at 456. We observed that even in Hogges -- a primary authority on which 

the appellate court relied -- the court expressly stated that the made-whole 
16

doctrine is subject to the express terms and provisions of the insurance 

contract. Id. at 457-59. Thus, we determined that in these cases, courts must 

consider both the equitable principles of subrogation, such as the made-whole 

doctrine, as well as the rights agreed upon in the contract. Ibid.

C.

While the made-whole doctrine generally applies in New Jersey, our 

courts have never addressed the question of whether the doctrine applies to 

first-dollar risk, such as deductibles and self-insured retentions,

1 borne by 

insureds. Contrary to the City’s assertion, the Appellate Division in Hogges

did not address this question, as the issue there was whether the insured 

violated the policy by filing an unsuccessful suit against a third-party 

tortfeasor without notifying his carrier. 67 N.J. Super. at 477-78.

Other states have addressed whether the made-whole doctrine applies to 

deductibles. In Fireman’s Fund, for example, the Supreme Court of 

Connecticut was asked by the Second Circuit whether “insurance policy 

deductibles [are] subject to Connecticut’s made whole doctrine.” 72 A.3d at 

38. There, a construction company retained the defendant, TD Banknorth, to 

1

 Under the circumstances of this case, there is no material distinction between 

self-insured retentions and deductibles. See generally IMO Indus., Inc. v. 

Transam. Corp., 437 N.J. Super. 577, 622 (App. Div. 2014) (outlining the 

differences between self-insured retentions and deductibles); Kenny & Lattal, 

app. A, at 831, 865 (defining “deductible” and “self-insured retention”).
17

arrange insurance for its work on a housing development. Ibid. To protect 

itself against any negligence, TD Banknorth purchased errors and omissions 

insurance coverage from the plaintiff, Fireman’s Fund Insurance Company, 

subject to a $150,000 deductible on each claim. Ibid. After a fire occurred on 

a lot that was part of the housing development but not included in the policies 

arranged by TD Banknorth, the construction company filed suit against TD 

Banknorth for its negligent omission of the lot. Ibid. Fireman’s Fund and TD 

Banknorth settled with the construction company for $354,000, of which “TD 

Banknorth contributed $150,000 (its single claim deductible) and Fireman’s 

Fund contributed the $204,000 remainder.” Ibid. 

TD Banknorth and Fireman’s Fund then proceeded to file a claim against 

the insurers that denied the construction company’s underlying claim, and the 

ensuing combined settlements equaled $208,000, which was deposited into an 

escrow account. Id. at 38-39. As in the matter before us, a dispute arose

between Fireman’s Fund, which sought to recover the full $208,000, and TD 

Banknorth, which contended that “under Connecticut’s make whole doctrine, it

was entitled to recover its $150,000 deductible from the escrow funds.” Id. at 

39.

In determining that Connecticut’s made-whole doctrine does not apply to 

deductibles, the court stated that,
18

[i]f the insured were to be reimbursed for its deductible 

before the insurer is made whole, the insured would be 

receiving an unbargained for, unpaid for, windfall. 

Under the terms of the insurance policy, it was agreed 

that, as a condition precedent to the insurer being out of 

pocket for even one dollar, the insured had to first be 

out of pocket the amount of the deductible. The [make] 

whole doctrine deals with situations in which the 

combination of the amount of the deductible and the 

amount of the insurance payment is a sum that was 

insufficient to make the insured whole, and a recovery 

is made from a third party (typically, the insurer for the 

tortfeasor [who] injured the insured).

[Id. at 42 (second and third alterations in original) 

(quoting 2 A. Windt, Insurance Claims and Disputes: 

Representation of Insurance Companies and Insureds

§ 10:6, at 10-42 through 10-43 (6th ed. 2013)).]

The Fireman’s Fund court further observed that “[a] deductible

represents the level of risk that the insured has agreed to assume, ordinarily in 

exchange for a lower premium cost for the insurance policy,” id. at 46, a fact 

other courts have noted as well, see, e.g., Jones v. Nationwide Prop. & Cas. 

Ins. Co., 32 A.3d 1261, 1263 (Pa. 2011) (“Not surprisingly, if an insured is 

willing to bear the risk of paying a higher deductible, her premiums will be 

reduced to reflect that the insurer will be responsible for covering less risk.”). 

The Fireman’s Fund court added that it is “not of the opinion that equity 

dictates a departure from the terms of the insurance contract into which the 

parties voluntarily entered under such circumstances.” 72 A.3d at 46. The 
19

court determined that to apply the made-whole doctrine to the deductible at 

issue “would effectively disturb the contractual agreement into which TD 

Banknorth and Fireman’s Fund entered, thereby creating a windfall for TD 

Banknorth for a loss that it did not see fit to insure against in the first instance 

when it contracted for lower premium payments in exchange for a deductible.” 

Id. at 47. 

In Jones, the Supreme Court of Pennsylvania reached a similar result 

when it addressed “whether the made[-]whole doctrine . . . applies to cases 

where the underlying collision coverage policy includes a deductible.” 32 

A.3d at 1271. The named plaintiff, Brenda Jones, filed a class action against 

her carrier for its practice of reimbursing, on a pro rata basis, its insureds’ 

deductibles from funds obtained in the carrier’s subrogation actions against 

third-party tortfeasors. Id. at 1264-65. The class action sought full 

reimbursement of the deductibles pursuant to the made-whole doctrine. Id. at 

1265.

The court determined in part that applying the made-whole doctrine to a 

collision coverage policy’s deductible would run contrary to the state’s Motor 

Vehicle Financial Responsibility Law. Id. at 1271. It also found that 

application of the doctrine, “when considering the inherent nature of 

deductibles, would run counter to the equitable principles underlying the 
20

made[-]whole doctrine and subrogation.” Ibid. The court observed that the 

state’s collision policies require the insured to “accept the risk of the first 

portion of any loss by way of the deductible[,] and to pay the insurer premiums 

to assume the risk of the entire amount of the loss above the deductible up to 

the fair market value of the vehicle.” Id. at 1272. The court contrasted this to 

other policies where carriers provide “coverage up to the policy limits, but any 

amount above the policy limits is an uninsured risk not attributable to the 

insurer.” Ibid. In this case, the court determined that the carrier 

accepted only the risk of paying if the loss exceeded the 

amount of the deductible, with premiums calculated 

based upon the amount of first dollar liability accepted 

by the insured. Application of the made whole doctrine 

in such a case would force the insurer essentially to 

cover the risk of the deductible where the insured has 

not paid premiums to cover that risk. It follows that the 

insured should not get preferential treatment in a 

collision coverage case, when he or she accepted the 

risk of paying the deductible in the event of an accident.

[Ibid.]

Thus, the court concluded “that the practice of pro rata reimbursement of the 

insured’s deductible from the insurer’s subrogation recovery does not violate 

the made whole doctrine, and therefore is a valid practice for . . . insurers to 

use.” Ibid.
21

The Supreme Court of Washington reached a different conclusion in 

response to the question of “whether a first-party insurer, upon obtaining a 

partial recovery in a subrogation action, is required to reimburse its fault-free 

insureds for the full amount of their deductibles before any portion of the 

subrogation proceeds can be allocated to the insurer.” Daniels v. State Farm 

Mut. Auto. Ins. Co., 444 P.3d 582, 584 (Wash. 2019). Observing that “an 

insured pays a higher premium for a lower deductible to make up for the 

increased administrative costs that come with the insurer having to cover 

smaller claims,” the Daniels court held that “[r]equiring that an insurer 

reimburse insureds for deductibles as part of the made whole doctrine does not 

interfere with this purpose and does not rewrite the policy to one with no 

deductible.” Id. at 588. The court explained that, “[w]here insureds sustain a 

loss that does not exceed the amount of their deductible, they will still receive 

no benefits under the policy.” Ibid.

IV.

Considering the equitable principles that guide the doctrine of 

subrogation alongside insurance policies that allocate first-dollar risk to the 

insured, see Culver, 115 N.J. at 457-59, we find that the made-whole doctrine 

does not apply to first-dollar risk allocated to the insured. 
22

A self-insured retention or deductible is an amount of risk that the 

insured has agreed to assume in exchange for a lower premium cost for the 

insurance policy. See Fireman’s Fund, 72 A.3d at 46; Jones, 32 A.3d at 1263. 

Where the award from a subrogation action against a third party is insufficient 

to reimburse both the insured’s self-insured retention and the carrier’s loss in 

excess of the self-insured retention, to place priority of recovery with the 

insured would, in effect, convert the policy into one without a self-insured 

retention. Such interference with the contract would essentially “write a better 

policy for the insured than the one purchased.” See Templo Fuente, 224 N.J. 

at 200 (quoting Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 

231, 238 (2008)). The result would be “an unbargained for, unpaid for, 

windfall” to the insured. See Fireman’s Fund, 72 A.3d at 42 (quoting Windt, § 

10:6, at 10-42 through 10-43). We decline to find “that equity dictates a 

departure from the terms of the insurance contract into which the parties 

voluntarily entered under such circumstances.” See id. at 46.

Here, because we are answering a certified question of law, we do not 

apply that legal conclusion to the contract at issue. Instead, we observe that 

our view of the made-whole doctrine requires a close examination of an 

insurance contract’s provisions to determine whether the doctrine will apply, 

including the effect of reading together provisions relating to self-insured 
23

retentions or deductibles and subrogation rights. Read together, if the Policy 

unambiguously provides Star with all of the City’s rights to recovery against 

third-party tortfeasors in the event that Star makes a payment under the Policy,

that conclusion means that, under our decision today, the made-whole doctrine 

would not apply in this case. Under such circumstances, the made-whole 

doctrine would not override the parties’ agreement.

V.

In sum, we conclude that under equitable principles of New Jersey law, 

the made-whole doctrine does not apply to first-dollar risk, such as a selfinsured retention or deductible, that is allocated to an insured under an 

insurance policy.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, 

PATTERSON, SOLOMON, and TIMPONE join in JUSTICE FERNANDEZVINA’S opinion.