Opinion ID: 221953
Heading Depth: 3
Heading Rank: 4

Heading: Reduction for Attorneys' Fees

Text: Finally, Leprino contends that, in the event we allow a setoff, the judgment should include the amount of attorneys' fees it incurred in litigating its claim against Gress and obtaining the resulting $2.4 million settlement. We agree. Ordinarily, parties bear the expense of their attorneys. Hawes v. Colo. Div. of Ins., 65 P.3d 1008, 1015 (Colo.2003). Several exceptions exist, including the common fund doctrine  an equitable remedy originating in fiduciary law and grounded in the principles of quantum meruit and unjust enrichment. Id. The common fund doctrine permits an apportionment of attorneys' fees under circumstances where a party has been successful in creating a fund from which other passive beneficiaries derive monetary advantage. County Workers Comp. Pool v. Davis, 817 P.2d 521, 526 (Colo.1991). It can only apply when, but for the plaintiff's actions, the beneficiaries would have been forced to institute the litigation themselves to achieve any benefits. 6 COLO. PRAC., CIVIL TRIAL PRACTICE § 13.4 (2d ed.). The common fund doctrine is designed to prevent unjust enrichment by requiring beneficiaries to bear a fair share of the cost of litigation. Trevino v. HHL Fin. Servs. Inc., 928 P.2d 766, 769 (Colo.App.1996). Colorado courts have applied the common fund doctrine in cases where a subrogation relationship exists among the parties, such as when an injured employee's claim against a tortfeasor is settled for an amount greater than the insurer's subrogation claim for workers compensation benefits. See id. The Colorado Supreme Court has held that not permitting apportionment in such circumstances would result[] in a substantial pecuniary benefit to the insurer at the expense of the employee, particularly where the insurer has not actively participated in the tort litigation. County Workers, 817 P.2d at 526. The equitable principles underlying the application of the common fund doctrine in subrogation cases are applicable here. Leprino's settlement with Gress created a fund from which Factory Mutual alone derived a monetary advantage, in the form of a reduction of its contractual liability. Leprino gains no benefit from having pursued the costs and risks of litigation. Not reducing the setoff by attorneys' fees would put Leprino in a worse position than it would be if it had not sought compensation from Gress and instead relied on its insurance policy. As the Sixth Circuit concluded based on similar facts, [i]f [an insurer] wrongfully denies coverage, even in good faith, it must pay its proper share of expenses reasonably incurred by the insured in recovering from a third party when the benefits of the recovery also inure to the insurer. Louisville & Jefferson Cnty. Metro. Sewer Dist. v. Travelers Ins. Co., 753 F.2d 533, 540 (6th Cir.1985). The same principle governs here. In sum, it is equitable for Factory Mutual to shoulder the cost of Leprino's litigation against Gress because Factory Mutual alone bears the benefit of the resulting settlement. Consequently, the setoff should be reduced by Leprino's attorneys' fees and associated litigation costs.