Court Opinion

ID: 4712917
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:38:47.406808+00
Date Added: 2024-06-11T08:07:14.559432
License: Public Domain

Sweeney, J.*
(dissenting) —
[A] common fund of this sort does not include the PZP[12] payments themselves. By definition, it is limited to money from which the PIP payments may be reimbursed.[13]
There may be a reason in equity to require State Farm Mutual Automobile Insurance Co. to pay a portion of Rebecca Hamm’s contingent fee here. But the equitable doctrine of the “common fund” is not one of them simply because the parties here never created a “common fund.”
It is certainly permissible to treat insurance companies differently from other litigants. Insurance agreements are, after all, generally contracts of adhesion. Mendoza v. Rivera-Chavez, 140 Wn.2d 659, 681, 999 P.2d 29 (2000). So the courts justifiably look at them in a light most favorable to the insured. Panorama Vill. Condo. Owners Ass’n Bd. of Dirs. v. Allstate Ins. Co., 144 Wn.2d 130, 137-38, 26 P.3d 910 (2001). And both the courts and the legislature have articulated public and legal policies that insurance affects the common good,14 and for that reason is viewed by the courts differently. So if Ms. Hamm had had to sue State Farm to *324recover her PIP benefits, she might well have been entitled to fees despite the American Rule to the contrary. Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 52-53, 811 P.2d 673 (1991). But to summon up the common fund doctrine to accommodate payment of this fee does violence to this equitable doctrine. This is not a common fund. And the court should not say that it is.
The question here ultimately is whether Ms. Hamm’s lawyer created a fund from which State Farm could recover PIP payments made to her—payments made without contest. And the answer is that he did not. And for this reason I respectfully dissent.
Facts
Ms. Hamm was covered by a single State Farm policy, Policy No. 343139047. That policy included both PIP and uninsured motorist (UIM)15 coverages. Ms. Hamm was injured in an automobile accident. Neither the other car nor its driver was insured. A panel of arbitrators ultimately concluded that her special and general damages (her total damages) amounted to $16,000. And State Farm paid all of that $16,000—$8,669.71 from the PIP coverage and $7,330.29 from the UIM coverage. No one collected anything from any other insurance company, the State, or any third party. The only money in this pot came from State *325Farm Policy No. 343139047—this single policy with multiple coverages presumably paid periodically in a single billing statement. Ms. Hamm does not contest the policy’s standard prohibition against nonduplication of benefits. It provides 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 coverage [UIM]. This does not reduce the limits of liability of this coverage.” Clerk’s Papers at 143.
Terminology
Terms like “setoff,” “offset,” “deduction,” or whatever term the court wants to ascribe to this transaction should not obscure what is actually going on here. Winters v. State Farm Mut. Auto. Ins. Co., 144 Wn.2d 869, 885, 31 P.3d 1164, 63 P.3d 764 (2001) (Alexander, C.J., dissenting). State Farm is paying the totality of Ms. Hamm’s damages—period. It paid part under the PIP coverage well before arbitration and apparently without contest. And it paid part under the UIM coverage (following an arbitration for which her attorney charged a fee, a contingent fee). State Farm does not have to pay any portion of her damages twice under the terms of this policy or in equity.
The American Rule
Washington still subscribes to the American Rule for the payment of attorney fees. And so the imposition of attorney fees must be based upon some agreement (contract), a statute, or some recognized ground in equity. Dayton v. Farmers Ins. Group, 124 Wn.2d 277, 280, 876 P.2d 896 (1994). There is no contract or statute which would obligate State Farm to pay a portion of Ms. Hamm’s lawyer fees. So the only exception under which State Farm would be obligated to pay a portion of her fees must be a recognized ground in equity. The one advanced here is the “common fund,” and for the following reasons it is inapplicable.
*326The Common Fund as an Equitable Doctrine
The purpose for the court’s crafting equitable remedies, any equitable remedy, has not changed over the centuries. It is now and has always been to mitigate the perceived harshness of some legal rule.16 And while courts have only recently applied the equitable doctrine of the common fund to insurance disputes in Washington, that doctrine has a long and well-developed legacy outside of the insurance context. It is a doctrine grounded in the dictates of a specific public policy—fairness.17
Like other equitable doctrines, the “common fund” is calculated to achieve equity. Johnny Parker, The Common Fund Doctrine: Coming of Age in the Law of Insurance Subrogation, 31 Ind. L. Rev. 313, 323 (1998). In that connection, the common fund is grounded in the proposition that “equity does not favor the position of one who sits idly by and allows another, who obviously expects to be paid, to perform valuable services for him, to escape with the value of those services without compensating the same.” Id. at 332-33. So like the genesis of many equitable doctrines, the doctrine of the common fund arises out of the notion that *327one party (here an insurance company) is being enriched through the efforts of another (the plaintiff’s lawyer). And to put it in the vernacular, “that ain’t right,” or said more eloquently:
“It is grossly inequitable to expect an insured, or other claimant, in the process of protecting his own interest, to protect those of the [insurer] as well and still pay counsel for his labors out of his own pocket, or out of the proceeds of the remaining funds. And this is precisely the view taken by the overwhelming majority of decisions, in that a proportionate share of fees and expenses must be paid by the insurer or may be withheld from its share.”
Mahler v. Szucs, 135 Wn.2d 398, 425 n.17, 957 P.2d 632, 966 P.2d 305 (1998) (quoting 8A John Alan Appleman & Jean Appleman, Insurance Law and Practice § 4903.85, at 335 (rev. vol. 1981)).
There is no magic about the equitable theory of the common fund doctrine in the insurance context. If the plaintiff’s lawyer works to build and prosecute a damage case, and prevails, then he or she is entitled to be paid by all who benefit from his or her efforts. But to spell out the rationale is to describe the problem here. By the terms of this policy, Ms. Hamm was never entitled to recover in a UIM arbitration the PIP benefits State Farm already had irrevocably paid her. All she could additionally recover under the terms of the policy (terms which were uncontested) were the damages over and above the PIP payment—her UIM benefits.
The term common fund should not be used to describe something other than an equitable common fund. There is nothing here being “reimbursed” to anyone. State Farm is paying (as it is obligated to do) under two separate coverages—PIP and UIM. It has recovered nothing. It should not have to pay a portion of Ms. Hamm’s fees for that privilege.

Mahler v. Szucs; Winters v. State Farm; Safeco v. Woodley

In Mahler v. Szucs, this Supreme Court held for the first time that recovery of medical special damages against a *328third party which included the medical specials paid under the PIP portion of a policy created an equitable common fund, which was an exception to the American Rule on payments of fees in civil cases. Mahler, 135 Wn.2d 398. The plaintiff’s lawyer there generated a fund State Farm shared in and recovered its PIP payments. Id. at 426-27.
In Winters v. State Farm, the court further refined the doctrine. Winters, 144 Wn.2d 869. The question there was whether adding UIM benefits to the moneys recovered from the third party changed the equitable nature of the fund. It did not: “[i]n each case, the insured secured the proceeds from the at-fault driver or the driver’s insurer and then recovered from his or her respective UIM carrier. These pooled funds became a common fund from which the PIP insurer was able to recoup payments it had made.” Id. at 881 (emphasis added).
And recently in Safeco Insurance Co. v. Woodley, the court again refined the Mahler doctrine by holding that it did not make any difference whether the UIM proceeding preceded or followed a recovery against the third party tortfeasor. Safeco Ins. Co. v. Woodley, 150 Wn.2d 765, 771-72, 82 P.3d 660 (2004). The point was that a common fund had been created with UIM and third party moneys from which the first party carrier, there Safeco, could recover its PIP payments.
So ultimately whether the PIP carrier recovers from a fund which includes only moneys from a third party defendant or a combination of UIM and third party moneys, it makes no difference, a common fund has been created. These holdings are consistent with the purpose originally articulated for the common fund doctrine. See Parker, supra, at 321-23.
But no money has been recovered here which would create a common fund. State Farm has simply paid out all that it was obligated to pay out under two separate provisions of its policy, PIP and UIM. State Farm has not recovered or been “reimbursed” for anything. It simply did not have to pay for the special damages incurred by Ms. *329Hamm twice—again a proposition which is not contested here.
Attorney Fees
Much of Ms. Hamm’s discussion of fees here is bolstered by various hypothetical scenarios set out in a number of charts, all calculated to show that she pays more to her attorney and gets less, unless State Farm pays for a portion of her fees. Of course she does. But these arguments are all based on the assumption that her lawyer had the right to collect a fee for her PIP benefits in the first place. He did not.
The insurer paid Ms. Hamm’s PIP benefits when she presented her medical bills. There was no need to sue, show liability, or demand arbitration. These funds were never at risk. The only service (an important service) for which she needed to pay a lawyer was to recover the remaining and disputed UIM coverage.
Ms. Hamm’s PIP payments remained untouchable. Is she then obligated to pay a percentage of PIP sums already received? Moreover, if State Farm elects to assert a subrogation claim against the responsible tortfeasor here for its PIP moneys, it will ultimately wind up paying a lawyer twice for the same thing.
Nor does the fact that Ms. Hamm’s lawyer had to introduce evidence of special damages in the UIM arbitration proceeding change the analysis here. The question is whether the lawyer is entitled to a fee based on medical specials, not whether medical specials were a necessary part of Ms. Hamm’s case. Of course, medical special damages were an important part of Ms. Hamm’s case. Evidence of special damages is necessary to maximize Ms. Hamm’s recovery of noneconomic damages. Mahler, 135 Wn.2d at 426. But introducing medical specials for the purpose of maximizing non-economic losses does not necessarily mean the plaintiff is entitled to recover them again. It is just that—evidence used to support a claim of noneconomic damages.
*330The common fund doctrine is grounded in subrogation principles. The doctrine does not, and should not, apply when fees are sought from the assets of the losing party. Savoie v. Merchants Bank, 84 F.3d 52, 56 (2d Cir. 1996). These concepts apply here because State Farm was in essence the losing party in the UIM arbitration.
Conclusion
Division One of the Court of Appeals got this right. It appropriately distinguished this court’s decision in Winters'.
Winters is distinguishable from the situation presented by this case because State Farm as PIP carrier did not receive reimbursement, and therefore received no benefit.
Hamm v. State Farm Mut. Auto. Ins. Co., 115 Wn. App. 773, 777, 60 P.3d 640 (2002).
I agree with Mahler (common fund created by contributions solely from a third party recovery). Mahler, 135 Wn.2d at 426-27. I agree with Winters (recovery from a combination of UIM and third party). Winters, 144 Wn.2d at 878-79, 881. And I signed this court’s unanimous opinion in Woodley (again, combination of UIM and third party recovery). Woodley, 150 Wn.2d at 771-72. But I respectfully dissent here. This is not a common fund. And there is no principled way to call it one. State Farm should not have to pay a portion of Ms. Hamm’s fees.
Ms. Hamm’s insurer fully compensated her through a combination of PIP coverage and UIM coverage. Not only was there no benefit conferred here, but State Farm is also put in the unfair position of possibly having to pay a fee twice for simply paying PIP benefits. And unlike the companies in Mahler, Winters, and Woodley, State Farm did not recover a thing here. And no amount of legal argument can *331make it otherwise. I would not extend the equitable common fund doctrine to the facts of this case.
Alexander, C.J., concurs with Sweeney, J. Pro Tern.
Reconsideration denied July 30, 2004.

 Judge Dennis J. Sweeney is serving as a justice pro tempore of the Supreme Court pursuant to Const, art. IV, § 2(a).

 Personal injury protection (PIP).

 Winters v. State Farm Mut. Auto. Ins. Co., 99 Wn. App. 602, 612 n.32, 994 P.2d 881 (2000) (emphasis added), aff’d, 144 Wn.2d 869, 31 P.3d 1164, 63 P.3d 764 (2001).

 RCW 48.01.030; e.g., Fluke Corp. v. Hartford Accident & Indem. Co. 145 Wn.2d 137, 144 n.4, 34 P.3d 809 (2001); State Farm Gen. Ins. Co. v. Emerson, 102 *324Wn.2d 477, 481-82, 687 P.2d 1139 (1984); Thiringer v. Am. Motors Ins. Co., 91 Wn.2d 215, 219-20, 588 P.2d 191 (1978).

PIP coverage and underinsured motorist coverage protect against two different risks. The PIP coverage guaranteed payment of certain special damages following an automobile accident, regardless of whether the insured or the other driver was at fault. The underinsured motorist coverage, on the other hand, guaranteed payment of both special and general damages, but only if the other driver was at fault. The two coverages overlap at one point-payment of certain special damages when the other driver was at fault. Only at this point does the PIP reimbursement clause operate to deny the plaintiff recovery under both coverages.
Keenan v. Indus. Indem. Ins. Co. of N.W. 108 Wn.2d 314, 322, 738 P.2d 270 (1987), overruled on other grounds by Price v. Farmers Ins. Co. of Wash. 133 Wn.2d 490, 946 P.2d 388 (1997).

 Kingery v. Dep’t of Labor & Indus., 132 Wn.2d 162, 173, 937 P.2d 565 (1997) (“ ‘[EJquitable doctrines grew naturally out of the humane desire to relieve under special circumstances from the harshness of strict legal rules.’ ” (quoting Ames v. Dep’t of Labor & Indus., 176 Wash. 509, 513, 30 P.2d 239 (1934))); Leschner v. Dep’t of Labor & Indus., 27 Wn.2d 911, 925, 185 P.2d 113 (1947) (“The decision was rested on broad equitable principles, upon the theory that the legislature has always been well advised of the uses and purposes of equity to afford relief, under special circumstances, from the harshness of strict legal rules . ...”); Lundberg ex rel. Orient Found. v. Coleman, 115 Wn. App. 172, 180, 60 P.3d 595 (2002) (“The purpose of equity is to permit a trial court to fashion remedies when the law does not provide adequate remedies.”), review denied, 150 Wn.2d 1010 (2003).

 Miotke v. City of Spokane, 101 Wn.2d 307, 339, 678 P.2d 803 (1984) (“‘By eliminating the need for a specific monetary fund, we did not eliminate the need for accumulating, preserving, or creating a common fund.’ ” (emphasis omitted) (quoting Seattle Sch. Dist. No. 1 v. State, 90 Wn.2d 476, 543, 585 P.2d 71 (1978))); Weiss v. Bruno, 83 Wn.2d 911, 912, 523 P.2d 915 (1974) (“However, it has long been the rule that equity may allow reimbursement of attorneys’ fees from a fund created or preserved by a litigant for the benefit of others as well as himself. This ‘common fund’ doctrine has its roots in English law.”); Grein v. Cavano, 61 Wn.2d 498, 506, 379 P.2d 209 (1963) (“The party whose participation in the litigation brings benefit to the common fund is entitled to an award of reasonable attorneys’ fees regardless of his success in litigation.”).