Court Opinion

ID: 4712123
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:37:51.855075+00
Date Added: 2024-06-11T08:07:12.205844
License: Public Domain

Alexander, C. J.
(dissenting) — The central issue before us is whether an automobile insurer is obligated to pay a portion of the legal expenses an insured incurs in obtaining a settlement from a tortfeasor, when: (1) the settlement is for less than the insured’s total damages, and (2) the insurer does not recoup personal injury protection (PIP) benefits it previously paid to the insured, but does, pursuant to its policy with the insured, offset the PIP payments against its underinsured motorist liability. Because the majority concludes that an insurer must pay a pro rata share of its insured’s attorney fees in such circumstances, I dissent.
For simplicity sake I will discuss only the facts in the Perkins case. I do so because the two cases before us have similar facts and involve insurance policies with identical language. Kyle Perkins was injured when an automobile he was driving was involved in an accident with another automobile. The accident was the fault of the driver of the other automobile. State Farm was the insurer of the vehicle Perkins was driving. The insurance policy provided Perkins with personal injury protection coverage (PIP) and underinsured motorist coverage (UIM). State Farm paid Perkins *884$18,480 in PIP benefits. Perkins then settled his claim against the party at fault for $25,000, the tortfeasor’s policy limits. Because Perkins did not consider himself fully compensated after reaching the settlement, he filed a UIM claim against State Farm. An arbitrator thereafter determined that Perkins’ total damages were $48,000.
The policy at issue provided that State Farm could recover its PIP payments from the insured’s recovery, provided the “insured has been fully compensated for the bodily injury, property damage or loss.” Clerk’s Papers (CP) at 101. The policy also stated that “[a]ny amount paid or payable for damages under the first party benefits coverage [PIP] will not be paid again as damages under this [UIM] coverage.” CP at 89. Finally, it provided that State Farm would pay its share of the legal expenses of obtaining a recovery “[i]f the insured recovers from the party at fault and we share in the recovery.” CP at 101.
State Farm tendered $4,520 to Perkins intending to fully discharge its obligation under the policy to pay Perkins for the total damage he had sustained. State Farm computed its obligation by offsetting the sum of the $25,000 policy limits of the tortfeasor and the $18,480 in PIP benefits it previously paid to Perkins against the amount of Perkins’ total damages of $48,000. Perkins rejected State Farm’s tender, claiming that the insurer was required to reduce the amount of the PIP offset by one-third to compensate him for attorney fees he incurred in recovering the PIP payments.
The majority concludes that State Farm should have to pay a pro rata share of the attorney fees incurred by Perkins and Winters on the basis that the UIM arbitration created a common fund from which State Farm reimbursed itself for the PIP benefits it had paid to the insured. I disagree. I do so because State Farm has never been reimbursed for the PIP benefits it paid to its insureds.
As the majority correctly notes, the common fund doctrine provides that when a person creates or preserves a fund from which another then takes, the two should share, *885pro rata, the fees and costs reasonably incurred to generate that fund. See Covell v. City of Seattle, 127 Wn.2d 874, 891, 905 P.2d 324 (1995). The settlements with the tortfeasors in the two cases before us did not, however, create or preserve a fund from which State Farm benefited. As noted above, State Farm was not entitled under its policy to recover its PIP payments until its insureds had been fully compensated. A PIP carrier can “recover only the excess which the insured has received from the wrongdoer, remaining after the insured is fully compensated for his loss.” Thiringer v. Am. Motors Ins. Co., 91 Wn.2d 215, 219, 588 P.2d 191 (1978). Here, although the insureds were fully compensated after they received their UIM benefits, there was no “excess” from which State Farm could reimburse itself for all or any part of the PIP payments it had previously made. Thus, State Farm did not benefit from the recovery from the underinsured tortfeasors.
The majority contends that the PIP offset served to reimburse State Farm for the PIP payments it had paid. Although State Farm was able to offset the PIP payments it previously paid to Perkins and Winters against its UIM obligation, thus reducing the amount of UIM benefits it had to pay, this cannot be considered a reimbursement. I say that because State Farm has never recovered the PIP benefits it previously paid to Perkins and Winters. Thus, it has not been restored to its pre-accident position. An offset is not a reimbursement nor a recoupment. It simply prevents an insured from receiving a double recovery. In sum, the insurer’s offset of the PIP payment against its UIM obligation is not a reimbursement or recoupment of the PIP payment.
The majority relies on Mahler v. Szucs, 135 Wn.2d 398, 957 P.2d 632, 966 P.2d 305 (1998) for the proposition that the common fund doctrine applies in these cases. I disagree. In Mahler, we did not rely upon the common fund doctrine to award fees, but rather focused on a policy provision that was identical to the provision in the policies that are before *886us in these consolidated cases. Furthermore, the Mahler case is distinguishable in that the injured insureds were each fully compensated by the party at fault. Thus, unlike the circumstances in the instant cases, the insurer received reimbursement for the PIP payments it had made.
In Mahler, this court interpreted an identical State Farm policy provision that required the insurance company to share pro rata the legal expenses of an insured who recovered from the tortfeasor. There, State Farm paid a portion of each injured insured’s medical expenses under the PIP coverage. Each insured then sued the tortfeasor and a settlement was reached. The insureds agreed that State Farm should share in the settlement to the extent of the PIP benefits it had paid, provided State Farm shared in the legal expenses incurred by them in recovering from the tortfeasor. We agreed with the insureds and concluded that State Farm was required under the policy to contribute to each insured’s legal expenses if it received reimbursement for its PIP payments.
In my view, the Mahler decision does not control here and applies only in a situation where the insured is fully compensated by the tortfeasor. As I have observed, the insureds in Mahler were fully compensated for their damages from the tortfeasors after their insurer paid them PIP benefits. Because the insureds were fully compensated by the parties at fault and their settlement included the PIP benefits previously paid by their insurer, the PIP carrier in Mahler was entitled to reimbursement for the PIP benefits it had paid to the insureds. This is so because even after the PIP carrier was reimbursed, the insured remained fully compensated. Moreover, the insurer in Mahler was not “out of pocket” anything except for the fees it owed its insureds pursuant to our holding in Mahler.
It is significant also that the insurance policies in question here do not provide that State Farm should have to pay a pro rata share of the insured’s legal expenses because State Farm did not, in the words of the contract, “share in *887the recovery” from the tortfeasor. After all is said and done, State Farm is still “out of pocket” the PIP payments it made to Perkins and Winters. It has never recovered that money. Although in each of the cases before us, State Farm offset its PIP payment against its UIM obligation, that is permissible under the insurance contract provided that the insured is “fully compensated.” This is because the policies provide that the UIM coverage would not pay twice for any amount it paid under the PIP coverage. If State Farm had not been allowed to offset the PIP payment against the UIM obligation, the insured would have received a double recovery.
While the policy language before us here states that State Farm is “to be repaid our [PIP] payments .. . out of any recovery[,]” that “right to recover our [State Farm] payments applies only after the insured has been fully compensated for the bodily injury, property damage or loss.” CP at 101. In construing identical policy language in Mahler, we stated, “This policy language reflects our rule requiring full compensation to insureds before an insurer becomes entitled to reimbursement for a loss.” Mahler, 135 Wn.2d at 421 n.11. It is clear that the policy language only requires State Farm to share the insured’s legal expenses if State Farm actually shares in the insured’s recovery from the party at fault.
Arguably, under the majority’s approach, anytime an insurer reduces its UIM payment to offset its prior PIP payments, the insurer will have to pay a share of attorney fees on the basis that it has “shared in the recovery.” The more reasonable interpretation of the insurance policies in question here is that State Farm is required to pay a pro rata share of the attorney fees only when the insured receives full compensation from the tortfeasor which reimburses the insurer.
My view that State Farm should not have to pay a portion of the insured’s legal expenses appears consistent with our cases holding that an insured must bear her own legal *888expenses for a UIM arbitration. See Dayton v. Farmers Ins. Group, 124 Wn.2d 277, 281, 876 P.2d 896 (1994), a case in which, we were presented with the question of whether attorney fees are recoverable in a UIM arbitration to determine the amount of damages. In answering this question in the negative, we reasoned:
When a tortfeasor carries insurance, the claimant insured bears his or her own attorney fees in the arbitration proceeding. Thus, when the UIM insurer stands in the shoes of the uninsured tortfeasor, the claimant insured should likewise bear his or her own attorney fees. Recovery of attorney fees in a UIM arbitration constitutes an amount greater than that available from an insured tortfeasor. This is not consistent with the purpose of UIM insurance, or the statutes governing UIM coverage.
Id. at 281 (citation omitted).
Dayton appears to control the similar scenario that is presented in these cases and answers the majority’s public policy concerns that insureds would not receive full compensation under UIM coverage if they were responsible for paying legal costs. As the majority observes, we follow the American rule in awarding attorney fees. Under that rule, a court has no power to award attorney fees as a cost of litigation in the absence of contract, statute, or recognized ground of equity providing for fee recovery. State ex rel. Macri v. City of Bremerton, 8 Wn.2d 93, 113-14, 111 P.2d 612 (1941). The UIM and PIP statutes do not, in my judgment, authorize an award of attorney fees. Neither are fees available under the provisions of the policies at issue here or under the common fund doctrine. There is in the final analysis no legal basis for requiring State Farm to pay a pro rata share of Winters’ and Perkins’ legal expenses.
In sum, I would hold that because State Farm never recovered its PIP payments, it is not required to pay a pro rata share of the legal costs Winters and Perkins incurred in reaching settlements with their tortfeasors. I would, *889therefore, reverse the Court of Appeals. Accordingly, I respectfully dissent.
Smith and Madsen, JJ., concur with Alexander, C.J.
Reconsideration denied January 11, 2002.