W.H.“Dub” Arnold, Chief Justice.
This case involves a dispute between an insured, Curtis Lee Franklin, and his insurer, Healthsource of Arkansas, over allocation of the proceeds of a policy limit settlement in a personal-injury action; both parties claim exclusive right to the proceeds. The trial court ruled that as a matter of law pursuant to Higginbotham v. Ark. Blue Cross & Blue Shield, 312 Ark. 199, 849 S.W.2d 464 (1993), Healthsource was entitled to receive the proceeds because its conventional right of subrogation, which arose from a subrogation agreement, took priority over Franklin’s legal right of subrogation. Franklin appeals requesting that this court overrule Higginbotham.
On March 31, 1994, Franklin was injured in an automobile accident involving James Arlen Ray, Jr. Franklin sustained injuries that were substantial, and he was hospitalized. After being released from the hospital, on May 9, 1994, Franklin was presented with a document from his medical insurance carrier, Healthsource of Arkansas, which was entitled “Right of Recovery/Subrogation Questionnaire.” This document contained general questions regarding the accident and, at the bottom, a section entitled “Assignment of Benefits.” After consulting with his attorney, Franklin answered the questions and signed the document.
Franklin filed suit alleging negligence by Ray. Defendant Ray filed an answer, and later his insurance carrier offered Franklin the liability policy limit of $25,000 in settlement of the claim. After discovery revealed that Ray had no appreciable assets, Franklin accepted the setdement offer.
Ray then filed a third-party complaint requesting that the court allocate the $25,000 among potential claimants, including several medical care providers, Healthsource, and the Jefferson County Child Support Enforcement Unit. All third parties except Healthsource were dismissed by order of the trial court.
The trial court held a hearing to dispose of the $25,000. Healthsource claimed it was entided to the entire $25,000 policy limit because of the subrogation agreement with Franklin. Healthsource, pursuant to the medical insurance policy provided by Franklin’s employer, had paid medical bills incurred by Franklin for the sum of $71,120.65.
Franklin contended that he was entitled to the $25,000 because he had incurred damages for which he had not been compensated. It is undisputed that Franklin incurred medical bills of at least $124,000. Expert testimony was presented at the hearing regarding the potential value of Franklin’s claims; the total value was valued in excess of $400,000.
The trial court ruled that Franklin’s attorneys were entitled to attorney fees to be paid from the settlement and that Health-source was entitled to the remainder pursuant to the subrogation agreement between Healthsource and Franklin. The trial court based this ruling upon this court’s opinion in Higginbotham. In supporting this finding, the trial court ruled that there was a valid contract in the subrogation agreement because Franklin signed the document after consulting counsel which made his consent a “knowing and informed act.” Franklin appeals the trial court ruling requesting that this court overrule Higginbotham.1
The Higginbotham decision was a plurality opinion that illustrates the division on this court concerning the allocation of proceeds of policy-limit settlements through conflicting rights of subrogation. Like the case before us, Higginbotham involved a dispute over whether the insured or the insurer was entitled to the proceeds from a policy-limit settlement when both parties had claims exceeding the amount of the settlement.
In Higginbotham, a three-justice plurality concluded that conventional subrogation rights of an insurer created by contract prevail over an insured’s equitable right of subrogation arising as an operation of law. Specifically, these justices reasoned: “Without discounting the equitable properties of subrogation, we can conceive of no sound reason why broad principles of equity should be imbued with dominance over clear and specific provisions of a contract agreed to by the parties, at least where public policy considerations are wanting.” Id. at 203.
The three dissenting justices in Higginbotham cited Shelter Mut. Ins. Co. v. Bough, 310 Ark. 21, 834 S.W.2d 637 (1992), as the controlling rule. They determined that “subrogation is recognized or denied upon equitable principles without differentiation between ‘legal subrogation’ which arises by application of principles of equity and ‘conventional subrogation’ arising from contract or the acts of the parties.” Id. at 205, citing Garrity v. Rural Mut. Ins. Co., 253 N.W.2d 512 (Wis. 1977).
The deciding vote in Higginbotham was cast by a concurring opinion, which supported the ultimate conclusion reached by the plurality, but departed from the rule espoused by those three justices by expressing an alternative theory of recovery. The concurring opinion closely follows the rule set forth in Bough.
In Bough, we addressed a dispute regarding the subrogation rights of an insurer versus those of an insured for the proceeds of a poHcy-hmit settlement; those factual elements closely resemble both the case before us and the facts in Higginbotham. In this court’s unanimous decision in Bough, this court recited the following rule:
the general rule is that an insurer is not entitled to subrogation unless the insured has been made whole for his loss, [however], the insurer should not be precluded from employing its right of subrogation when the insured has been fully compensated and is in a position where the insured will recover twice for some of his or her damages.
Id. at 641.
In reviewing our decisions Bough and Higginbotham, We take this opportunity to clarify our position on the priority given to subrogation rights of insureds versus those of insurers in instances where both parties have claims against a partial recovery from a third party. It is our determination that Bough is the better rule. A contrary rule relying upon the dominance of one type of subrogation over another is arbitrary and inconsistent with theories of equity. The same facts give rise to both legal and conventional subrogation. In a situation where recovery from the wrongdoer is large enough to make both parties “whole,” no issue exists over which party’s rights prevail or which type of subrogation is controlling. However, it is often the case that it is not possible for one party, or even both parties, to be made “whole.”
In such situations, the equitable principles and objectives of subrogation are controlling. According to Couch, subrogation has dual objectives: “(1) preventing the insured from recovering twice for the one harm, as would be the case if he could recover from both the insurer and from a third person who caused the harm, and (2) reimbursing the surety for the payment which was made.” Couch on Insurance 2d (Rev. ed 1983 and Supp. 1996) Subrogation § 61:18, citing, Shipley v. Northwestern Mut. Ins. Co., 244 Ark. 1159, 428 S.W.2d. 268 (1968).
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W.H.“Dub” Arnold, Chief Justice.
This case involves a dispute between an insured, Curtis Lee Franklin, and his insurer, Healthsource of Arkansas, over allocation of the proceeds of a policy limit settlement in a personal-injury action; both parties claim exclusive right to the proceeds. The trial court ruled that as a matter of law pursuant to Higginbotham v. Ark. Blue Cross & Blue Shield, 312 Ark. 199, 849 S.W.2d 464 (1993), Healthsource was entitled to receive the proceeds because its conventional right of subrogation, which arose from a subrogation agreement, took priority over Franklin’s legal right of subrogation. Franklin appeals requesting that this court overrule Higginbotham.
On March 31, 1994, Franklin was injured in an automobile accident involving James Arlen Ray, Jr. Franklin sustained injuries that were substantial, and he was hospitalized. After being released from the hospital, on May 9, 1994, Franklin was presented with a document from his medical insurance carrier, Healthsource of Arkansas, which was entitled “Right of Recovery/Subrogation Questionnaire.” This document contained general questions regarding the accident and, at the bottom, a section entitled “Assignment of Benefits.” After consulting with his attorney, Franklin answered the questions and signed the document.
Franklin filed suit alleging negligence by Ray. Defendant Ray filed an answer, and later his insurance carrier offered Franklin the liability policy limit of $25,000 in settlement of the claim. After discovery revealed that Ray had no appreciable assets, Franklin accepted the setdement offer.
Ray then filed a third-party complaint requesting that the court allocate the $25,000 among potential claimants, including several medical care providers, Healthsource, and the Jefferson County Child Support Enforcement Unit. All third parties except Healthsource were dismissed by order of the trial court.
The trial court held a hearing to dispose of the $25,000. Healthsource claimed it was entided to the entire $25,000 policy limit because of the subrogation agreement with Franklin. Healthsource, pursuant to the medical insurance policy provided by Franklin’s employer, had paid medical bills incurred by Franklin for the sum of $71,120.65.
Franklin contended that he was entitled to the $25,000 because he had incurred damages for which he had not been compensated. It is undisputed that Franklin incurred medical bills of at least $124,000. Expert testimony was presented at the hearing regarding the potential value of Franklin’s claims; the total value was valued in excess of $400,000.
The trial court ruled that Franklin’s attorneys were entitled to attorney fees to be paid from the settlement and that Health-source was entitled to the remainder pursuant to the subrogation agreement between Healthsource and Franklin. The trial court based this ruling upon this court’s opinion in Higginbotham. In supporting this finding, the trial court ruled that there was a valid contract in the subrogation agreement because Franklin signed the document after consulting counsel which made his consent a “knowing and informed act.” Franklin appeals the trial court ruling requesting that this court overrule Higginbotham.1
The Higginbotham decision was a plurality opinion that illustrates the division on this court concerning the allocation of proceeds of policy-limit settlements through conflicting rights of subrogation. Like the case before us, Higginbotham involved a dispute over whether the insured or the insurer was entitled to the proceeds from a policy-limit settlement when both parties had claims exceeding the amount of the settlement.
In Higginbotham, a three-justice plurality concluded that conventional subrogation rights of an insurer created by contract prevail over an insured’s equitable right of subrogation arising as an operation of law. Specifically, these justices reasoned: “Without discounting the equitable properties of subrogation, we can conceive of no sound reason why broad principles of equity should be imbued with dominance over clear and specific provisions of a contract agreed to by the parties, at least where public policy considerations are wanting.” Id. at 203.
The three dissenting justices in Higginbotham cited Shelter Mut. Ins. Co. v. Bough, 310 Ark. 21, 834 S.W.2d 637 (1992), as the controlling rule. They determined that “subrogation is recognized or denied upon equitable principles without differentiation between ‘legal subrogation’ which arises by application of principles of equity and ‘conventional subrogation’ arising from contract or the acts of the parties.” Id. at 205, citing Garrity v. Rural Mut. Ins. Co., 253 N.W.2d 512 (Wis. 1977).
The deciding vote in Higginbotham was cast by a concurring opinion, which supported the ultimate conclusion reached by the plurality, but departed from the rule espoused by those three justices by expressing an alternative theory of recovery. The concurring opinion closely follows the rule set forth in Bough.
In Bough, we addressed a dispute regarding the subrogation rights of an insurer versus those of an insured for the proceeds of a poHcy-hmit settlement; those factual elements closely resemble both the case before us and the facts in Higginbotham. In this court’s unanimous decision in Bough, this court recited the following rule:
the general rule is that an insurer is not entitled to subrogation unless the insured has been made whole for his loss, [however], the insurer should not be precluded from employing its right of subrogation when the insured has been fully compensated and is in a position where the insured will recover twice for some of his or her damages.
Id. at 641.
In reviewing our decisions Bough and Higginbotham, We take this opportunity to clarify our position on the priority given to subrogation rights of insureds versus those of insurers in instances where both parties have claims against a partial recovery from a third party. It is our determination that Bough is the better rule. A contrary rule relying upon the dominance of one type of subrogation over another is arbitrary and inconsistent with theories of equity. The same facts give rise to both legal and conventional subrogation. In a situation where recovery from the wrongdoer is large enough to make both parties “whole,” no issue exists over which party’s rights prevail or which type of subrogation is controlling. However, it is often the case that it is not possible for one party, or even both parties, to be made “whole.”
In such situations, the equitable principles and objectives of subrogation are controlling. According to Couch, subrogation has dual objectives: “(1) preventing the insured from recovering twice for the one harm, as would be the case if he could recover from both the insurer and from a third person who caused the harm, and (2) reimbursing the surety for the payment which was made.” Couch on Insurance 2d (Rev. ed 1983 and Supp. 1996) Subrogation § 61:18, citing, Shipley v. Northwestern Mut. Ins. Co., 244 Ark. 1159, 428 S.W.2d. 268 (1968). Couch further states that “[e]quity will require that the insured be made whole before the insurer’s right to subrogation will arise.” Couch, Subrogation § 61:20.
Following Bough, an insurer is entitled to enforce its contractual right of subrogation after the insured has been folly compensated, or “made whole,” for his total loss. This precludes the insured from recovering twice for some of his or her damages; therefore, insurer is entitled to reimbursement from funds received by the insured from the third party when the insured receives more than the total of his or her loss. As stated by Professor Freedman, “the precise measure of reimbursement is the amount by which the sum received by the insured from the [third party], together with the insurance proceeds, exceeds the loss sustained and the expense incurred by the insured in realizing on his claim.” Warren Freedman, Freedman’s Richards on the Law of Insurance, v.2 § 12.6 (6th ed. 1990).
In the case at bar, it is undisputed that Franklin incurred over $124,000 in medical expenses, and Healthsource paid only $71,120.65 of those bills. Before the issue of double recovery could arise, Franklin would have to recover in excess of $50,000 to be “made whole” for his medical expenses alone — this does not consider the amount of additional damages Franklin incurred that have been valued at over $400,000. Based upon these facts, there is no possibility that Franklin could enjoy a double recovery.
To allow the literal language of an insurance contract to destroy an insured’s equitable right to subrogation ignores the fact that this type of contract is realistically a unilateral contract of insurance and overlooks the insured’s total lack of bargaining power in negotiating the terms of these types of agreements. See generally, Warren Freedman, Freedman’s Richards on the Law of Insurance, v. 2 § 12.6 (6th ed. 1990) citing Patterson, Essentials of Ins. Law (1935), p. 122. Moreover, the proposition that the rule in Bough would result in higher insurance premiums disregards the fundamental principle that insurers have been compensated through premiums paid in consideration their assuming these very risks. As Professor Patterson notes, “[s]ub rogation is a windfall to the insurer [which] plays no part in rate schedules (or only a minor one). ...” Id.
It is our conclusion that the equitable nature of subrogation requires that no distinction need be made between equitable and conventional rights of subrogation. An insured’s right to subrogation takes precedent over that of an insurer, so the insured must be wholly compensated before an insurer’s right to subrogation arises; therefore, the insurer’s right to subrogation arises only in situations where the recovery by the insured exceeds his or her total amount of damages incurred. For the foregoing reasons, we reverse and remand for proceedings not inconsistent with this opinion.
Reversed and remanded.
Newbern, Brown, and Imber, JJ., dissent.