From the desk of Kyle Riley: When a person is injured in a car accident and they recover both PIP and liability coverage from the driver’s insurer, is a common fund created such that the insurer is required to pay a pro rata share of the claimant’s legal expenses when offsetting PIP payments? Until February 9, 2012, the answer was no. Read on to find out what the Supreme Court of Washington decided when it reviewed the Washington Court of Appeals’ decisions in Matysuk and Weismann.
Claims Pointer: When an injured party is insured under a tortfeasor’s PIP policy and also recovers from the tortfeasor’s liability policy, a common fund is created which triggers the pro rata fee sharing rule. Because the fee sharing rule is an equitable rule, specific policy language does not come into play.
Matsyuk v. State Farm Fire & Casualty Co., in the Supreme Court of the State of Washington (Case No. 84686-3 (consolidated with Case No. 85012-7), February 9, 2012).
Olga Matsyuk was a passenger in a car driven by Omelyan Stemditskyy when they were involved in a car accident that was Stemditskyy’s fault. Matysuk received $1,874 in PIP benefits from Stemditskyy’s State Farm policy and then sought to recover under Stemditskyy’s State Farm liability policy. Matsyuk reached a settlement with Stemditskyy and State Farm and State Farm indicated it would seek reimbursement of the PIP payment through an offset to the liability payment. State Farm refused to pay a pro rata share of the legal expenses incurred by Matsyuk in obtaining the liability recovery, including the PIP offset. Matsyuk sued State Farm and the trial court granted summary judgment in State Farm’s favor. The Court of Appeals affirmed the trial court and Matsyuk petitioned the Supreme Court for review.
The other case before the Supreme Court involved similar circumstances. In that case, Weismann was a pedestrian who was struck by a car and injured. She received $9,012.95 in PIP benefits under the tortfeasor’s Safeco policy and then sued the tortfeasor under her Safeco liability policy. Safeco offered Weismann $35,508.24 which represented an offset between the damages under the liability policy and the PIP amount. Safeco refused to pay a pro rata share of Weismann’s attorney fees.
The Supreme Court reversed the Court of Appeals’ decisions in Matsyuk v. State Farm Fire & Casualty Co., 229 P.3d 893 (2010) and Weismann v. Safeco Ins. Co., 236 P.3d 240 (2010) and clarified the pro rata fee sharing rule. The Court reasoned that PIP and UIM policies are separate and distinct policies even when provided by the same insurer. The same is true of liability coverage. An insured’s recovery of liability funds provides a benefit to the PIP insurer and creates a common fund. The “common fund doctrine” is an exception to the American rule that litigants must bear their own legal expenses.
The Court reviewed its prior case law and held when an injured person recovers under a tortfeasor’s liability coverage after having recovered under a PIP policy issued by the same insurer, a common fund is created, thus triggering the pro rata fee sharing rule: the “Mahler rule requires equitable fee sharing between an insured and insurer across the range of scenarios involving PIP reimbursement, including when the insured (1) recovers from the tortfeasor’s liability policy provided by a different carrier than the PIP carrier (Mahler), (2) recovers from the insured’s underinsured motorist policy provided by the same carrier as the PIP carrier (Winters), or (3) recovers from the insured’s uninsured motorist policy provided by the same carrier as the PIP carrier (Hamm).”
The Court also expressed its disapproval of Young v. Teti, 16 P.3d 1275 (2001), allowed Weismann attorney fees under Olympic Steamship, and held Matsyuk’s bad faith claim was improperly dismissed and remanded it to the trial court.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.