Opinion ID: 2620664
Heading Depth: 3
Heading Rank: 1

Heading: Application of the Common-Fund Doctrine

Text: Missouri recognizes the equitable common-fund doctrine which holds that if one or more parties take on the risk and bear the expense of creating a common fund of recovery for additional parties to share, those additional parties must then compensate the original parties for a portion of those expenses before sharing in the 3 KCPL's fees resulted largely from a contingency fee agreement with its attorneys, and Travelers does not appear to challenge the factual basis of the KCPL attorney fees. National Union presented amounts based upon affidavits from counsel, and the affidavits purported to quote conservative or low estimates citing to billing records that counsel described as not encompassing all amounts billed. -9- common fund. See Keisker v. Farmer, 90 S.W.3d 71, 75 (Mo. 2002) (en banc). A common-law equitable doctrine, however, is not an option 'where it would be inconsistent with the terms of the contract.' Messner v. Am. Union Ins. Co., 119 S.W.3d 642, 649 (Mo. Ct. App. 2003) (quoting Anison v. Rice, 282 S.W.2d 497, 503–04 (Mo.1955)). Travelers, therefore, must share in at least a portion of the expense that the parties to the Allocation Agreement incurred in pursuit of subrogation claims unless Travelers's policy precludes application of the common-fund doctrine. The operative language of Travelers's policy is as follows: The Travelers shall be entitled to priority of recovery against any such third party (including interest) to the extent payment has been made to the Insured, plus attorney's fees, expenses or costs incurred by The Travelers. Based on this policy language, Travelers argues that a contractual right of priority over National Union extends not only to the $10 million Travelers paid to KCPL, but also excuses Travelers from having to pay any fees associated with the common fund. According to Travelers, this subrogation provision entitles Travelers to recover its own fees for the present contract dispute and defeats application of the common-fund doctrine. National Union argues the language is not sufficient to preclude application of the equitable common-fund doctrine. Travelers I held this language was unambiguous as to the two insurers' relative priority in the underlying recoveries. Travelers I did not address the insurers' relative rights as to fees and expenses nor did it resolve any outstanding questions regarding the common-fund doctrine. We now hold that the language of this subrogation provision reasonably can be interpreted as leaving the common-fund doctrine intact, and as such, the common-fund doctrine applies. -10- In general, subrogation provisions: (1) may be entirely silent as to fees and expenses; (2) may declare relative priority as to fees and expenses but not specifically reference the common-fund theory; or (3) may declare relative priority as to fees and expenses and also specifically address priority in the context of the common fund or related theories. Regarding the first possibility, a subrogation provision's silence as to fees and expenses generally does not provide grounds for rejecting the commonfund doctrine where it would otherwise apply. The common-fund doctrine is wellestablished in Missouri, and it serves as the default rule in the absence of evidence that parties have sought to preclude its application. See, e.g., Jourdan v. Gilmore, 638 S.W.2d 763, 769 (Mo. Ct. App. 1982) (The rule . . . is in harmony with the general rule that courts of equity have power to charge funds realized from, or preserved by, litigation with costs and expenses of litigation.) (citations and internal quotation marks omitted). Regarding the final possibility, courts have recognized that parties may, by specific reference, contract around application of the common-fund doctrine. See, e.g., Longaberger Co. v. Kolt, 586 F.3d 459, 472 (6th Cir. 2009) (rejecting an argument that an ERISA plan must share in the expenses of creating a subrogation fund where the plan language stated, The Plan's rights shall not be subject to reduction under any common fund or similar claims or theories.) (emphasis added). Regarding the second possibility, any number of additional details may be present in the language of a policy to expand or limit the scope of priority in fees in a way that may impact the common-fund analysis. Such is the case with the policy language at issue in the present case. The language of the present subrogation provision is not an unadorned reference to fees and expenses. Moreover, we are not called upon to determine whether a bare reference to fees and expenses might in some contexts be sufficient to defeat application of Missouri's common-fund doctrine. Here, the language is inherently limited in scope, and as such, we find it appropriate to interpret that language as being non-expansive and insufficient to defeat application of the default equitable rule. -11- The language of the quoted provision applies to fees . . . incurred by The Travelers. (Emphasis added). It is reasonable to interpret this language as limiting priority over fees and expenses to only those fees and expenses actually incurred through Travelers's own acceptance of risk and participation in subrogation litigation. Use of the phrase incurred by The Travelers suggests an outlay of funds and expenditure of effort. While this contractual provision reasonably might be interpreted as extending to common-fund fees, such an interpretation is not sufficiently clear to defeat the equitable obligation imposed by the common-fund doctrine. In Leggett v. Missouri State Life Insurance Company, the Missouri Supreme Court described and applied the common-fund doctrine, stating, [W]here one goes into a court of equity and takes the risk of litigation on himself to create a common fund, others will not be allowed to lie back and share the results of the successful labors without contributing their proportionate part of counsel fees. 342 S.W.2d 833, 936 (Mo. 1961) (en banc) (emphasis added). The purpose of the doctrine, then, is to defeat the inequitable result of putting expense and risk on the party who incurs fees but to allow another party to share in recovery without sharing such risk. The fees, expense and risk associated in the subrogation litigation in this matter were born entirely by KCPL and National Union. No such expense or risk was incurred by Travelers. This interpretation, therefore, is fully consistent with the purposes behind the common-fund doctrine. Further, to the extent the language at issue is ambiguous, we follow Missouri law in this instance and construe the language against the drafter. See Mendenhall v. Prop. and Cas. Ins. Co. of Hartford, 375 S.W.3d 90, 92 (Mo. 2012) (en banc). Here, the doctrine is sufficiently well-established that a party seeking to contract around its application reasonably may be expected to specifically address the doctrine. Cf. Longaberger, 586 F.3d at 472. The failure to do so resulted in an ambiguity, and we will not construe it in the drafter's favor to defeat application of the common-fund -12- doctrine.4 The common-fund doctrine applies, and Travelers must share in the expense of the common fund.