Maxwells Pharmacy v. Mmg Ins Co

7ermont Superior Court
Filed 12/17/25
Chittenden Unit

VERMONT SUPERIOR COURT CIVIL DIVISION
Chittenden Unit Case Nos. 22-CV-2256/2270
175 Main Street
Burlington VT 05402
802-863-3467
.vermontjudiciary.org

MAXWELL'S PHARMACY, INC.,
Plaintiff

V. DECISION ON MOTION

MMG INSURANCE COMPANY,
Defendant

RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT REGARDING
SUBROGATION AND THE "MADE WHOLE" DOCTRINE

This action arises from a March 2020 fire that caused damage to Plaintiff Maxwell's
Pharmacy, Inc. (dba Lakeside Pharmacy). Plaintiff now seeks summary judgment on its
declaratory judgment claim against its insurer, MMG Insurance Company, regarding
subrogation. Plaintiff Maxwell's is represented by Attorney Russell D. Barr, Esq. and Defendant
MMG is represented by Attorney Susan J. Flynn, Esq. For the reasons discussed below, the
motion for summary judgment is granted.

Background and Undisputed Facts

Maxwell's suffered damages in March 2020 from a fire in a neighboring property. It
subsequently sued the business at that neighboring property (Pearl Street Beverage), the property
owner (Lakeside Pharmacy Holdings), and its insurer (MMG). In its original complaint,
Maxwell's alleged negligence against both Pearl Street Beverage and Lakeside Pharmacy
Holdings, and claims for breach of contract and bad faith against MMG. The property owner
also brought a counterclaim against Maxwell's related to certain financial obligations under its
lease agreement. The insurer commenced a separate subrogation action against Pearl Street
Beverage (22-CV-2270). The pertinent subrogation provision in the insurance contract between
Maxwell's and MMG provides:

If any person or organization to or for whom we make payment
under this policy has right to recover damages from another, those
rights are transferred to us to the extent of our payment. That
person or organization must do everything necessary to secure our
rights and must do nothing after loss to impair them.

Pl.'s Ex. 2 (p. 58 of PDF, under heading "Transfer Of Rights Of Recovery Against Others To
Us").
In July 2024, the parties partially settled their dispute. According to the settlement
agreement, the property owner’s insurer (also MMG) paid Maxwell $25,000, and Pearl Street
Beverage’s insurer, Acadia Insurance Company, deposited its full policy limit of $1 million into
an escrow account. In return, Maxwell’s dismissed its negligence claims against Pearl Street
Beverage and the property owner, and the property owner agreed to drop its counterclaim against
Maxwell’s. Additionally, MMG agreed to dismiss its subrogation claim against Pearl Street
Beverage in case number 25-CV-2270, and “to continue litigating its subrogation claim directly
with Maxwell’s.” Settlement Agreement at 1 (Pl.’s Ex. 1) (filed Sept. 25, 2025). 1 With respect
to the escrow funds, the agreement provides:

Maxwell and MMG will continue subrogation litigation with
respect to the $1,000,000 being held in escrow. Ultimately, to
determine whether MMG can take any portion of such $1,000,000
in subrogation considering the amount of Maxwell’s total damages;

...

Maxwell preserves any and all claims and defenses as to MMG’s
subrogation claims including, without limitation, all uninsured loss
claims and damages beyond the period specified in its insurance
contract with MMG.
...

Maxwell and MMG agree to first submit their first-party insurance
contract claims at trial including Maxwell’s uninsured loss
damages specified . . . above. At the conclusion of such trial,
Maxwell and MMG agree to submit their subrogation arguments
(i.e. their equitable distribution of the $1,000,000 policy
arguments) to the trial judge to ultimately decide on the
distribution of the $1,000,000 contemplated . . . above.

Id. ¶ 5. Thus, “per the Settlement, the parties anticipate submitting both Maxwell’s breach of
contract-based damages/losses and Maxwell’s damages/losses that occurred outside the
contractual policy limits and term to the jury at trial.” Pl.’s Stmt. of Facts ¶ 5. According to the
parties, after “receiving the jury’s determination of Maxwell’s total, non-contractual,
uncompensated losses, Maxwell and MMG would then present their competing arguments for
who should receive the escrowed PSB Funds to the trial judge.” Id. ¶ 6.

In May 2025, Maxwell’s amended its complaint to add a declaratory judgment claim.
That claim seeks a declaration “that Vermont applies the common law Made Whole Doctrine and
that the Insurance Contract does not modify or abrogate the Made Whole Doctrine.” Am.
Compl. ¶ 85. Maxwell’s now seeks summary judgment on that claim.

1
Pursuant to the Settlement Agreement, and by Order of the Court on October 23, 2024 in
Case No. 22-CV-2270, that case was consolidated with this matter for purposes of further
litigation.
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Discussion

“[I]t is widely held that in the absence of contrary statutory law or valid contractual
obligations to the contrary, the general rule under the doctrine of equitable subrogation is that
when an insured is entitled to receive recovery for the same loss from more than one source, e.g.,
the insurer and the tortfeasor, it is only after the insured has been fully compensated for all of the
loss that the insurer acquires a right to subrogation, or is entitled to enforce its subrogation
rights.” 16 Couch on Ins. § 223:134 (footnotes omitted). This rule also applies “to instances in
which the insured has recovered from the third party and the insurer attempts to exercise its
subrogation right by way of reimbursement against the insured’s recovery.” Id. The purpose of
this “made whole” rule is that “the burden of loss should rest on the party paid to assume the
risk, and not on an inadequately compensated insured, who is the least able to shoulder the loss.”
Id. § 223:136.

Vermont appears to have adopted this general rule: “The right of a party secondarily
liable to be subrogated does not attach unless all the principal obligations are discharged.”
Vermont Indus. Dev. Auth. v. Setze, 157 Vt. 427, 434, 600 A.2d 302, 307 (1991) (quoting Walker
Process Equip. Co. v. Cooley Bldg. Corp., 129 Vt. 333, 340, 278 A.2d 714, 718 (1971)). While
MMG complains that Setze did not literally use the language “made whole,” the quoted sentence
in fact defines the “made whole” doctrine. Moreover, in further support of that proposition, the
Setze Court also cited an Alabama case that describes the “made whole” doctrine. See Int’l
Underwriters/Brokers, Inc. v. Liao, 548 So. 2d 163, 164 (Ala. 1989) (“[C]ourts have generally
held that no right of subrogation exists until the insured has recovered an amount in excess of his
or her loss.”); see also Lombardi v. Merchants Mut. Ins. Co., 429 A.2d 1290, 1291-92 (R.I. 1981)
(same) (also cited in Setze).

There are “two special circumstances” where “a party secondarily liable may be
subrogated even though the principal creditor has not recovered in full.” Setze, 157 Vt. at 435,
600 A.2d at 307. These two exceptions are: “(a) where the principal creditor does not object to
subrogation, and (b) where a contract specifically provides that the party secondarily liable will
be allowed to subrogate to the extent he or she reimburses the creditor.” Id. Maxwell’s requests
a declaratory judgment that the language of the insurance contract here does not modify or
abrogate the “made whole” doctrine.

The Court agrees with Maxwell’s that the contractual language does not explicitly
provide that MMG is entitled to subrogation regardless of whether Maxwell’s has fully recovered
its losses. Rather, it includes essentially a boilerplate subrogation clause:

If any person or organization to or for whom we make payment
under this policy has right to recover damages from another, those
rights are transferred to us to the extent of our payment. That
person or organization must do everything necessary to secure our
rights and must do nothing after loss to impair them.

Pl.’s Ex. 2 (p. 58 of PDF). “[A]n insurance contract providing generally that the insurer is
subrogated to the rights of the insured does not itself permit an insurer to recover from a third-

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party tortfeasor until the insured has been made whole by the combination of insurance payments
and the amount recovered from the tortfeasor, and there must be specific language to the contrary
to avoid the make whole rule.” 16 Couch on Ins. § 223:145. There is no such specific language
to avoid the “made whole” rule here.

Thus, while Maxwell’s is entitled to summary judgment on its declaratory judgment
claim, it is not clear that this will have any significant effect at this stage of the litigation.
Obviously, Maxwell’s and MMG do not agree as to the extent of Maxwell’s damages and
whether Maxwell’s has been fully compensated for its losses. “The factors considered in
determining whether an insured has been made whole depend on the circumstances of a
particular case[,] . . . [including] the ability of parties to prove liability, the comparative fault of
all the parties involved in the accident, the complexity of legal . . . issues, . . . the nature of the
injuries, and the assets or lack of assets available above and beyond the insurance policy.” 16
Couch on Ins. § 223:152. It will be up to the jury and/or the Court to determine both the amount
of damages and whether Maxwell’s has been “made whole” for purposes of resolving the
subrogation claim. See generally 16 Couch on Ins. §§ 223:149-50; see also id. § 223:161 (“[A]
jury verdict constitutes full recovery for purposes of determining whether an insurer is entitled to
subrogation.”).

Order

For the foregoing reasons, Plaintiff’s Motion for Partial Summary Judgment on its
declaratory judgment claim (Mot. # 20) is GRANTED. Having considered Defendant MMG’s
sur-reply in deciding the summary judgment motion, the Court also GRANTS Defendant’s
motion to file a sur-reply (Mot. # 22).

Electronically signed on December 17, 2025 at 3:08 PM pursuant to V.R.E.F. 9(d).

________________________________
Megan J. Shafritz
Superior Court Judge

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