Case Name: KROLL v. HYSTER COMPANY
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1976-12-07
Citations: 398 Mich. 281
Docket Number: Docket No. 55239
Parties: KROLL v HYSTER COMPANY
Judges: Levin, J., concurred with Kavanagh, C. J.
Reporter: Michigan Reports
Volume: 398
Pages: 281–302

Head Matter:
KROLL v HYSTER COMPANY
Docket No. 55239.
Argued September 12, 1974
(Calendar No. 15).
Decided December 7, 1976.
Leslie Kroll and Louise Kroll brought an action in Wayne Circuit Court, Charles S. Farmer, J., against Hyster Corporation and Joseph A. Ratonetti for damages for injuries sustained while Leslie Kroll was operating a forklift truck manufactured by Hyster during the course of his employment with Superior Sliding Door Frame Company. Liberty Mutual Insurance Company, the workmen’s compensation carrier for Kroll’s employer, intervened. Verdict and judgment of $175,000 for Leslie Kroll and $50,000 for Louise Kroll, and of the recovery of Leslie Kroll, $32,337.39 was ordered to be paid to the insurer to reimburse it for compensation paid with the provision that the insurer must pay Kroll’s lawyer 33-1/3% as attorney fees, and nothing was allowed as a fee for the insurer’s attorneys. The Court of Appeals, Fitzgerald, P. J., and T. M. Burns and Adams, JJ., reversed and remanded for a hearing to determine the value of the services of the insurer’s attorney (Docket No. 13887). Leslie Kroll appealed. Liberty Mutual Insurance Company cross-appealed, contending that the Court of Appeals erred in concluding that the trial court’s award of attorney fees was reasonable. Held:
The decision of the Court of Appeals is affirmed, and the case is remanded to circuit court for a hearing to determine the value of the services of the insurer’s attorney. The decision of the Court of Appeals did not offer guidance to the circuit court on the method it should use in calculating the attorney fees, and that part of the decision of the Court of Appeals is affirmed by an equally divided Supreme Court.
Chief Justice Kavanagh, with whom Justice Levin concurred, agreed that failure to award a fee to the attorney of the insurer was erroneous. Complete denial of any share to a party’s attorney would have been supported only by a showing that the attorney’s services were not necessary to the adequate representation of his client. He would hold that the provision in the judgment ordering the insurer to pay Kroll periodically amounts of the attorney fee allocable to future compensation should be deleted. The insurer should pay that portion of the expenses of recovery which bears the same relationship to the total expenses of recovery as the amount of the reimbursement for benefits previously paid (before reduction on account of such portion) bears to the amount of the recovery (before reduction on account of such expenses).
References for Points in Headnotes
[1-9] 82 Am Jur 2d, Workmen’s Compensation §§ 437, 644-647.
Compensation of attorneys for services in connection with claims under workmen’s compensation act. 159 ALR 912.
Justice Williams, with whom Justice Coleman concurred, agreed that compensation of the insurer’s attorney from the employee’s recovery is allowed by statute where the attorney has contributed to the preparation and trying of the suit. Expenses of recovery are to be shared by the insurer and the employee, and these expenses include attorney fees. He would hold that in making this determination, the trial court shall be guided by GCR 1963, 928, which establishes reasonable limits of the fees that may be charged in a suit for personal injury or wrongful death. The trial court should also review the reasonableness of the fee agreement between the insurer and its attorney. If the attorneys have agreed upon a division of the reasonable total fees, the trial court should abide by the agreement. The court should consider the value of the services performed by the attorneys, the fee agreement each attorney had with his client, and the amount of work each attorney did, and protection of the incentive to take third-party actions on a contingent-fee basis. The interest of the insurer at the time of the recovery includes its ascertainable reduced liability for future compensation benefits as well as the amount of compensation already paid to the employee. Monthly payments by the insurer to the employee to cover its fair share of the expenses of recovery as its credit for advance payment of compensation takes effect is a reasonable method of appropriating the expense of recovery.
Justice Fitzgerald, Justice Lindemer, and Justice Ryan took no part in the decision of this case.
48 Mich App 753; 211 NW2d 81 (1973) affirmed.
Decision of the Court
1. Workmen’s Compensation — Third-Party Action — Expenses—Attorney Fees.
The fees of a workmen’s compensation carrier’s attorney are a reasonable cost of recovery where an employee covered by the Workmen’s Compensation Act and injured during the course of his employment institutes suit and recovers or settles his claim against a third party causing the injuries and where the attorney engaged by the carrier contributes services toward the successful result; the attorney representing the carrier is entitled to be paid for those services out of the settlement or judgment obtained against the third-party tortfeasor, and the trial court is charged by statute with determining the reasonable expenses of recovery, including attorney fees (MCL 418.827; MSA 17.237[827]).
Opinion by Kavanagh, C. J.
Levin, J.
2. Workmen’s Compensation — Third-Party Action — Attorney Fees —Apportionment.
A reasonable attorney fee, in an action by a workmen’s compensation beneñciary against a third-party tortfeasor in which the workmen’s compensation insurance carrier has intervened, should be divided between the attorney for the workman and the attorney for the insurer; complete denial of any share to one party’s attorney can be supported only by a showing that that attorney’s services were not necessary to the adequate representation of his client (MCL 418.827[5] 418.827[6]; MSA 17.237[827] [5] 17.237[827] [6]).
3. Workmen’s Compensation — Third-Party Action — Expenses—Apportionment.
A trial court erred in requiring a workmen’s compensation carrier which intervened in an employee’s action against a third-party tortfeasor to pay the employee periodically amounts of attorney fees allocable to future payments of workmen’s compensation beneñts; the statute provides for apportionment of expenses of recovery, including attorney fees, as the interests of the parties appear at the time of recovery (MCL 418.827[B] 418.827[6]; MSA 17.237[827][5] 17.237[827][6]).
4. Workmen’s Compensation — Third-Party Action — Expenses—Apportionment.
Expenses of recovery in an action against a third-party tortfeasor by a workmen’s compensation beneñciary are to be apportioned between the employee and the employer or the employer’s workmen’s compensation carrier as their interests appear at the time of the recovery without regard to whether future workmen’s compensation beneñts may or in fact do become payable (MCL 418.827[6]; MSA 17237[827][6]).
5. Workmen’s Compensation — Third-Party Action — Expenses—Apportionment.
A workmen’s compensation carrier which intervenes in an employee’s action against a third-party tortfeasor shall pay that portion of the expenses of recovery which bears the same relationship to the total expenses as the amount of the reimbursement for workmen’s compensation beneñts previously paid, before reduction on account of such portion, bears to the amount of the recovery, before reduction on account of such total expenses.
Opinion by Williams, J.
Coleman, J.
6. Workmen’s Compensation — Third-Party Action — Expenses—Attorney Fees.
The expenses of recovery in an action by a workmen’s compensation beneñciary against a third-party tortfeasor in which the workmen’s compensation insurance carrier has intervened include reasonable attorney fees for the insurer’s attorney where he has participated in preparing and trying the suit (MCL 418.827[5] 418.827[6]; MSA 17.237[827][5] 17.237[827][6]).
7. Workmen’s Compensation — Third-Party Action — Attorney Fees —Apportionment.
The trial court is charged by statute with determining reasonable expenses of recovery, including attorney fees, of a workmen’s compensation carrier which intervened in an action by a workmen’s compensation beneñciary against a third-party tortfeasor; in making the determination of the reasonable total attorney fees, the trial court should be guided by the court rule which establishes reasonable limits of the contingency fees that may be charged in a suit for personal injury or wrongful death, and should review the reasonableness of the fee agreement between the insurer and its attorney; if the attorneys have agreed upon a division of fees, the trial court should abide by the agreement (MCL 418.827[6j; MSA 17.237[827][6J; GCR1963, 928).
8. Workmen’s Compensation — Third-Party Action — -Attorney Fees —Apportionment.
Division of attorney fees between the plaintiff’s attorney and the attorney for a workmen’s compensation insurance carrier which intervened in an action by a workmen’s compensation beneñciary against a third-party tortfeasor is made by the trial court which is to consider (1) the value of the services per formed by the attorneys, (2) the agreement each attorney had with his client, (3) the amount of work each attorney did, and (4) protection of the incentive to take third-party actions on a contingent-fee basis (MCL 418.827[6]; MSA 17.237[827][6]).
9. Workmen’s Compensation — Third-Party Action — Expenses—Apportionment.
Expenses of recovery in an action against a third-party tortfeasor by a workmen’s compensation beneñciary are to be apportioned between the employee and the employer or the employer’s workmen’s compensation carrier as their interests appear at the time of the recovery which includes the insurer’s ascertainable reduced liability for future compensation beneñts as well as the amount of compensation already paid to the beneñciary (MCL 418.827[6]; MSA 17.237[827][6]).
Kelman, Loria, Downing, Schneider & Simpson for plaintiffs.
Johnson, Campbell & Moesta for intervenor.

Opinion:
Kavanagh, C. J.
Leslie Kroll wras injured while operating a forklift truck during the course of his employment with Superior Sliding Door Frame Company. He commenced an action against Hyster Company, the manufacturer of the forklift truck. Louise Kroll, his wife, joined in the action seeking damages for loss of her husband's services, society, advice and affection. Liberty Mutual Insurance Company, the workmen's compensation insurer for Kroll's employer, intervened.
The jury returned a verdict for Leslie Kroll in the amount of $175,000 and for Louise Kroll in the amount of $50,000. The judgment was satisfied.
A post-judgment hearing was held before the circuit court to apportion the costs of Leslie Kroll's recovery between Kroll and the insurer and to determine what amount the insurer was to receive as reimbursement for compensation benefits it had paid and what amount was to be paid to Kroll.
Kroll's attorney did most of the legal work in the lawsuit. The insurer's attorney did some preparation and was present throughout the trial.
Section 827 of the Workmen's Compensation Act of 1969, MCLA 418.827; MSA 17.237(827), sets forth the procedure to be followed in third-party workmen's compensation actions. Subsections 5 and 6 prescribe how the recovery is to be divided.
"(5) Any recovery against the third party for damages resulting from personal injuries or death only, after deducting expenses of recovery, shall first reimburse the employer or carrier for any amounts paid or payable under this act to date of recovery and the balance shall forthwith be paid to the employee or his dependents or personal representative and shall be treated as an advance payment by the employer on account of any future payments of compensation benefits.
"(6) Expenses of recovery shall be the reasonable expenditures, including attorney fees, incurred in effecting recovery. Attorney fees, unless otherwise agreed upon, shall be divided among the attorneys for the plaintiff as directed by the court. Expenses of recovery shall be apportioned by the court between the parties as their interests appear at the time of the recovery."
The judgment entered by the circuit court directed that $32,337.39 be paid to the insurer to reimburse it for compensation benefits it had paid Kroll, with the proviso that the insurer shall pay Kroll's lawyer one-third of said sum, i.e., $10,779.13, "as the proportionate share of the plaintiffs attorney fees". The judgment provides that the amount received by Kroll as his share of the recovery is "a credit against" future compensation and medical expenses which the insurer is obliged to pay under the Workmen's Compensation Act and that since the insurer "shall hereafter receive the benefit" of the amount paid Kroll, it shall pay Kroll, monthly, one-third of any compensation or medical or other expenses compensable under the Workmen's Compensation Act which the insurer, but for the third-party recovery, would be obligated to pay until such time as the amount of the credit against future compensation and benefits has been consumed.
The Court of Appeals held that the circuit court erred in failing to award compensation to the attorney for the insurer and remanded this case to the circuit court for a hearing to determine the value of the services rendered by the insurer's attorney. The Court of Appeals did not address the question whether the circuit court properly required the insurer to pay Kroll one-third of any compensation or other benefits the insurer would be obliged to pay but for the third-party recovery and resulting "advance payment".
We affirm the Court of Appeals and additionally conclude that the circuit court erred in requiring the insurer to pay Kroll amounts in respect to attorney fees periodically as the insurer realizes the benefit of the advance payment resulting from the third-party recovery.
In Banoski v Moto-Crane Service, Inc, 35 Mich App 487; 192 NW2d 555 (1971), the majority, relying on Potter v Vetor, 355 Mich 328; 94 NW2d 832 (1959), held that the insurer had to pay its share of the plaintiffs attorney fees, but also held that the insurer was not entitled to reimbursement of its attorney fees because its attorney did not assist in preparing or trying the case. Justice Levin, who was on the panel in Banoski, dissented, saying that it was the trial court's responsibility to determine what constitutes a reasonable expenditure for attorney fees and then divide that figure between the attorney for the insurer and the attorney for the employee. Justice Levin maintained that complete denial of any share to a party's attorney would have only been supported by a showing that that attorney's services were not necessary to the adequate representation of his client.
In the instant case the Court of Appeals panel adopted Justice Levin's reasoning. We also find Justice Levin's reasoning to be persuasive. On remand the circuit court shall determine what constitutes a reasonable expenditure for attorney fees for counsel for Kroll and counsel for the insurer and shall, as the statute provides, "divide" that amount among counsel for Kroll and counsel for the insurer.
Injured workmen who obtain third-party recoveries argue that the employer or his insurance carrier may obtain the benefit of the entire third-party recovery either in the form of reimbursement for benefits paid to the date of recovery or as an "advance payment" on account of any future compensation benefits and contend that the employer/insurer should accordingly pay the expenses of recovery allocable to the "advance payment": In this case the circuit court accepted that argument in part by requiring the insurer to reimburse Kroll periodically, as benefits would have become due but for the advance payment, for one-third of such benefits in respect of "plaintiffs attorney fees".
The statute provides that "[ejxpenses of recovery shall be apportioned by the court between the parties as their interests appear at the time of the recovery". The "expenses of recovery" are "the reasonable expenditures, including attorney fees, incurred in effecting recovery".
The third-party recovery is a benefit to the employer/insurer and to the injured employee. After deducting the expenses of recovery, the recovery first reimburses the employer/insurer for benefits already paid. The balance is paid to the employee — an immediate benefit to the employee. That balance is also treated as an advance payment by the employer on account of future compensation benefits — a potential benefit to the employer and his insurance carrier. Whether the employer/insurer in fact realizes a benefit depends on whether future compensation benefits are payable; recovery from disability, death, or termination of dependency status may result in termination of the employer/insurer's obligation.
Since the amount paid to the injured employee (and the amount of the advance payment) are reduced by the expenses of recovery, in a sense the employee and the employer/insurer both, at the same time, "pay" the expenses of recovery.
We have considered the decisions of the Court of Appeals and of courts in other jurisdictions construing other statutes and have concluded that the expenses of recovery are to be apportioned, as our statute clearly provides, between the injured employee on the one hand and the employer/insurer on the other "as their interests appear at the time of the recovery" (emphasis supplied), i.e., without regard to whether future compensation benefits may or in fact do become payable.
We remand to the circuit court for determination of a reasonable attorney fee and for division of that amount between counsel representing the parties. The provision in the judgment ordering the insurer to pay Kroll periodically amounts in respect of the attorney fee allocable to future compensation benefits is deleted.
The insurer shall pay that portion of the ex penses of recovery which bears the same relationship to the total expenses as the amount of the reimbursement for benefits previously paid (before reduction on account of such portion) bears to the amount of the recovery (before reduction on account of such expenses).
Affirmed. No costs as neither party prevailed in full.
Levin, J., concurred with Kavanagh, C. J.
Fitzgerald, Lindemer, and Ryan, JJ., took no part in the decision of this case.