Opinion ID: 874300
Heading Depth: 2
Heading Rank: 2

Heading: Did the District Court Err in Granting Summary Judgment to the Lopezes?

Text: This Court first recognized the common fund doctrine in Cedarholm v. State Farm Mutual Insurance Cos., 81 Idaho 136, 338 P.2d 93 (1959). Under that doctrine, when an insured hires an attorney in order to pursue a claim against the tortfeasor and the eventual settling of that claim results in the creation of a fund from which the insurance company benefits, the insurance company must pay a proportionate amount of the cost incurred in the creation of that fund. Wensman v. Farmers Ins. Co. of Idaho, 134 Idaho 148, 151, 997 P.2d 609, 612 (2000). The insurer can be liable under the common fund doctrine even if it does not consent to its insured's attorney seeking to collect the insurer's subrogated interest. [1] Id. at 152, 997 P.2d at 613. In Seiniger Law Office, P.A. v. North Pacific Insurance Co., 145 Idaho 241, 178 P.3d 606 (2008), we stated, [f]or guidance purposes, how an insurer could avoid application of the common fund doctrine: In cases such as this, the insurer that wishes to avoid application of the common fund doctrine in cases may do so by the simple act of refusing to accept the benefits of a settlement in which it did not participate. Id. at 249, 178 P.3d at 614. The district court below rejected our guidance in Seiniger as merely being dicta, preferring instead to follow the decision of the Washington Supreme Court in Mahler v. Szucs, 135 Wash.2d 398, 957 P.2d 632 (1998). To avoid any confusion, we reiterate, [T]he insurer that wishes to avoid application of the common fund doctrine in cases may do so by the simple act of refusing to accept the benefits of a settlement in which it did not participate. Seiniger, 145 Idaho at 249, 178 P.3d at 614. In this case, Farm Bureau followed our guidance in Seiniger and refused to accept its subrogated interest from the Lopezes' settlement. Instead, it pursued its claim in arbitration, recovering its subrogated interest there. It offered evidence of liability and damages in the arbitration. It therefore did not accept the benefits of the Lopezes' settlement, and is not liable under the common fund doctrine. The district court also held that Farm Bureau was liable pursuant to a provision in the insurance policy stating as follows: 22. SubrogationOur Right to Recover Payment. a. If we make payment under this policy and the person to or for whom payment was made has a right to recover damages, we will be subrogated to that right (have that right transferred to us). That person must do whatever is necessary to enable us to exercise our rights and must do nothing after the loss to prejudice our rights. b. If we make a payment under this policy, and the person to or for whom payment was made recovers damages from another, that person must hold the proceeds of the recovery in trust for us and must reimburse us to the extent of our payment. c. We may prosecute in the name of any insured for the recovery of these payments. Relying upon subsection b above, the district court held that where the Lopezes were required to hold Farm Bureau's subrogated interest in trust for Farm Bureau and reimburse it to the extent of its payment, Farm Bureau received a benefit the moment that Lopezes settled their claims and held Farm Bureau's subrogated interest in trust. The district court reasoned, Although the Idaho Supreme Court set forth dicta to guide future common fund cases, the situation at hand is a case in which that guidance does not apply. Refusing to accept a check is not enough to `avoid' the common fund doctrine in a case where the insurance contract requires the insured to reimburse the insurer from any damages collected. There is nothing in the above-quoted policy provision that requires Farm Bureau to accept payment from the insured of its subrogated interest. It can avoid liability under the common fund doctrine by the simple act of refusing to accept the benefits of a settlement in which it did not participate. Id. We therefore reverse the judgment of the district court.