Court Opinion

ID: 5452542
Source: CourtListenerOpinion
Date Created: 2022-01-08 19:19:24.83134+00
Date Added: 2024-06-11T08:32:31.428656
License: Public Domain

KENNARD, J.,
Concurring. — The majority holds that an automobile insurer’s contractual right of reimbursement for medical payment benefits is subject to the equitable common law “made-whole” rule, and that the rule is satisfied when the insurer has contributed its pro rata share of the litigation costs that the insured has incurred to recover personal injury damages from a third party tortfeasor.
I agree with the majority’s conclusions; I write separately to explain why. In brief, the position urged by the insured in this case is contrary to established California law, it is inconsistent not only with the “American rule” that parties normally bear their own litigation costs but also with the scheme for reimbursement of workers’ compensation benefits, it would convert medical payment coverage into legal expense coverage, and it would result in higher premiums for California purchasers of automobile insurance coverage.
I
In December 2003, plaintiff Silvia Quintana was injured in an automobile accident with a third party. Her automobile insurer, defendant 21st Century Insurance Company (21st Century), paid her $1,000 under the policy’s no-fault medical payment coverage. Plaintiff then settled her personal injury tort claim against the third party. Under that settlement, the third party paid plaintiff $6,000 as full compensation for all personal injury damages she sustained in the automobile accident. In pursuing her claim against the third party, plaintiff incurred $2,000 in attorney fees and $106.50 in other litigation costs. When 21st Century learned of the full-compensation settlement with the third party, it invoked the automobile insurance policy’s reimbursement provision, seeking reimbursement of the medical payment benefits it had *529provided. Plaintiff repaid $600, which 21st Century accepted as full reimbursement after deduction of its pro rata share ($400) of plaintiff’s litigation expenses.
Plaintiff then brought this class action lawsuit against 21st Century, alleging causes of action for unfair competition, conversion, unjust enrichment, and declaratory relief. She claimed that under the common law made-whole rule, 21st Century was not entitled to any reimbursement because, when litigation costs were taken into account, she had not been fully compensated for her personal injury loss caused by the car accident. She reasoned that her total loss was $6,000, as evidenced by the settlement, and that she had received a total of $7,000 — $1,000 from 21st Century as medical payment benefits and $6,000 from the third party as tort damages. From this $7,000, plaintiff deducted the $2,106.50 in litigation costs she had incurred, leaving her a net recovery of $4,893.50, which was less than her $6,000 personal injury loss. Plaintiff argued that because her net recovery after deduction of litigation expenses was less than her personal injury loss, she had not been “made whole” and therefore was not required to pay any reimbursement to 21st Century. She sought to represent a class of similarly situated 21st Century policyholders.
21st Century demurred to the complaint. It argued that, under settled California law, litigation costs are not deducted from a third party recovery when calculating whether an insured has been made whole, but instead those litigation costs are equitably apportioned between the insurer and the insured. 21st Century argued that plaintiff was made whole when she accepted $6,000 from the third party tortfeasor as full compensation for her personal injury damages, and that the litigation costs had been appropriately and equitably apportioned between 21st Century and plaintiff by deducting $400 from the $1,000 in medical payment benefits, resulting in a net reimbursement to 21st Century of $600.
When the trial court overruled its demurrer, 21st Century sought and obtained writ review from the Court of Appeal, which ruled in its favor. This court granted plaintiff’s petition for review.
II
Plaintiff Quintana contends that, because her litigation costs exceed the $1,000 that 21st Century paid to her under the medical payment coverage, 21st Century cannot obtain any reimbursement from plaintiff under the insurance policy’s reimbursement provision. This court properly rejects plaintiff’s contention, concluding instead that the litigation expenses she incurred in pursuing her tort claim against the third party should be equitably *530apportioned between plaintiff and 21st Century, so that 21st Century pays only those expenses attributable to recovery of the insured portion of the loss, while plaintiff bears the expenses attributable to recovery of the uninsured portion of the loss. Here, plaintiff’s litigation expenses were equitably apportioned when 21st Century agreed to accept $600 as full reimbursement of the $1,000 it paid to plaintiff under the medical payment coverage.
Equitable apportionment (also called pro rata sharing) of litigation expenses between insurer and insured has been settled law in California for more than 30 years. In Lee v. State Farm Mut. Auto. Ins. Co. (1976) 57 Cal.App.3d 458 [129 Cal.Rptr. 271], an automobile insurance policy included a provision requiring reimbursement of medical payments. The Court of Appeal there held that the reimbursement provision was valid but also that the insurer was required “to pay a pro rata share of attorney’s fees incurred by [the insureds] in securing a settlement or recovery out of which the reimbursement was required.” (Lee v. State Farm Mut. Auto. Ins. Co., supra, at p. 460.) In reaching that result, the Court of Appeal relied in part on Quinn v. State of California (1975) 15 Cal.3d 162 [124 Cal.Rptr. 1, 539 P.2d 761], in which an injured employee, after receiving workers’ compensation benefits, had recovered a judgment against a third party tortfeasor. This court held that the workers’ compensation insurer was entitled to reimbursement from the proceeds of the judgment, but also that it was required “to bear a fair share of the litigation costs.” (Quinn v. State of California, supra, at p. 167; see also Summers v. Newman (1999) 20 Cal.4th 1021, 1030 [86 Cal.Rptr.2d 303, 978 P.2d 1225].)
The settled California law on this point has been described in these words: “[A]n insurance company that does not participate in the underlying action must pay a pro rata share of the insured’s attorney fées and costs when it seeks reimbursement from its insured out of funds obtained by the insured from the responsible third party. [Citation.] That is, the insurance company’s reimbursement must be reduced proportionately to reflect the attorney fees paid by the insured. [Citation.]” (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 276 [37 Cal.Rptr.3d 434].)
There is nothing to the contrary in Plut v. Fireman’s Fund Ins. Co. (2000) 85 Cal.App.4th 98 [102 Cal.Rptr.2d 36]. The Court of Appeal’s decision there cited with approval Lee v. State Farm Mut. Auto. Ins. Co., supra, 57 Cal.App.3d 458, for the proposition that an insurer may obtain reimbursement “only after the insured has recouped his loss and some or all of his litigation expenses incurred in the action against the tortfeasor.” (Plut v. Fireman’s Fund Ins. Co., supra, at p. 105.) This is an accurate, albeit imprecise, description of California law on this point. When the insured portion of the loss comprises only part of the damages that the insured recovers from the tortfeasor, the *531insured is entitled to recoup some of the litigation expenses. To state the rule more precisely, in that situation the insured is entitled to recoup the litigation expenses attributable to recovery of the insured portion of the loss. When the entire loss is covered by insurance, by comparison, the insured would be entitled to recoup all of the litigation expenses incurred in the action against the tortfeasor.1
The settled law requiring pro rata sharing of litigation costs by insurer and insured is consistent with the theory underlying the “American rule,” which is that full compensation for a wrongful injury ordinarily does not include reimbursement of litigation costs. “Embodied in Code of Civil Procedure section 1021, the ‘American rule’ states that except as provided by statute or agreement, the parties to litigation must pay their own attorney fees.” (Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1257 [45 Cal.Rptr.3d 362, 137 P.3d 192]; accord, Musaelian v. Adams (2009) 45 Cal.4th 512, 516 [87 Cal.Rptr.3d 475, 198 P.3d 560].) Although by statute a personal injury victim has a right to recover from a tortfeasor “the amount which will compensate for all the detriment proximately caused” by the tort (Civ. Code, § 3333), that amount ordinarily does not include attorney fees incurred in bringing the lawsuit against the tortfeasor. (See Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 506 [198 Cal.Rptr. 551, 674 P.2d 253] [noting that, subject to certain narrow exceptions, there is “a consistent line of cases decided since 1872 . . . which . . . deny attorney fees to the prevailing party in an action for tort”].) If the burden of attorney fees incurred to obtain a personal injury recovery for a tort claim may not be shifted to the party who caused the injury and is legally obligated to fully compensate the victim, what justification is there for shifting all of that burden to an insurance carrier that agreed to provide medical benefits coverage for only a small portion of the loss (here, $1,000 of the total of $6,000 in personal injury damages)? Equitably apportioning attorney fees between insurer and insured, so that the insurer pays only the litigation expenses attributable to recovery of the benefits it was contractually obligated to provide, more appropriately complies with the dictate of the American rule that parties must bear their own litigation expenses.
Settled California law requiring pro rata sharing of litigation costs by insurer and insured in the context of automobile insurance is also consistent with the law applied in the analogous workers’ compensation situation. As I have already mentioned, when an injured employee who has received workers’ compensation benefits obtains a judgment against a third party tortfeasor, a workers’ compensation insurer seeking reimbursement from the judgment *532proceeds must bear a pro rata share of litigation costs. (Quinn v. State of California, supra, 15 Cal.3d 162, 167; see Lab. Code, § 3600, subd. (b).) The equitable sharing approach that this court has determined to be fair and appropriate for litigation expenses in the context of workers’ compensation benefits is equally fair and appropriate here in the context of medical payment benefits under an automobile insurance policy.
As a practical matter, the rule proposed by plaintiff Quintana would in most cases preclude, as it would here, any insurer reimbursement for medical payment benefits provided under an automobile insurance policy. This is because the policy limits of medical payment coverage, which “generally rang[e] from $5,000 to $10,000” (Nager v. Allstate Ins. Co. (2000) 83 Cal.App.4th 284, 289 [99 Cal.Rptr.2d 348]), are less than the average litigation costs for a personal injury action. The net effect of adopting plaintiff’s proposed rule, therefore, would be to convert automobile insurance medical payment coverage into litigation expense coverage, thereby giving insureds a benefit for which they have not paid and forcing automobile insurers to bear a risk they did not contractually agree to assume.
Plaintiff’s proposed rule, which would deny any reimbursement to the insurer in this case, and which hereafter would deny any reimbursement to other automobile insurers in similar cases, would increase the cost of providing medical payment coverage. To recoup that increased cost, automobile insurers would need to raise the premiums they charge for this coverage. (See Mercury Casualty Co. v. Maloney (2003) 113 Cal.App.4th 799, 801 [6 Cal.Rptr.3d 647] [automobile insurer offered “more expensive” medical payment coverage that did not include a reimbursement provision].) In this way, the ultimate effect of plaintiff’s proposed rule would be to make medical payment coverage more costly for California purchasers of automobile insurance.
To sum up, in the medical payment situation the made-whole rule is satisfied when the insured has received an amount that compensates for all the personal injury damages to which the insured is entitled under California law. Here, in accepting the $6,000 third party settlement amount, plaintiff acknowledged that she had received that full recovery, and the made-whole rule required nothing more. After deducting the $400 in litigation expenses attributable to the recovery of the $1,000 insured portion of plaintiff’s damages, 21st Century was entitled, under the automobile insurance policy’s reimbursement provision, to the balance of $600. This means that as to the $1,000 insured portion of the loss, plaintiff retained the entire amount, and 21st Century paid all of the litigation expenses attributable to its recovery. As to the $5,000 uninsured portion of the loss, plaintiff has paid the litigation expenses attributable to the recovery of that amount, but that payment put her in no worse position than any other uninsured personal injury plaintiff.
*533For the reasons I have given above, I join in affirming the Court of Appeal’s judgment.

 Chong v. State Farm Mut. Auto. Ins. Co. (S.D.Cal. 2006) 428 F.Supp.2d 1136 is contrary to the settled law as I have described it, but it is merely an interlocutory ruling by a federal trial court attempting to interpret California law, and thus it has no significant value as precedent.