Our law firm was not involved in the lawsuit described in this article.
Generally each side in a lawsuit must its own attorney fees unless there is fee shifting by contract or a legal exception.
Under some circumstances an insurance company may have to pay part of an injury victim’s attorney fees and legal expenses.
In a recent decision the Washington Court of Appeals considered whether this applies to a passenger in a vehicle who is injured as a result of the fault of the driver of the same vehicle. The Court ruled in a published decision that under such circumstances the driver’s insurance company is not liable for a pro-rata share of attorney fees.[1]Generally, the American rule requires civil litigants to pay their own legal expenses. A recognized exception to this rule allows fee sharing in cases where litigants preserve or create a common fund for the benefit of others as well as themselves.
If the injury victim’s insurance company paid medical expenses that were the fault of a third party and the injury victim recovers from the at fault third party, the insurance company has the right, with certain exceptions, to be reimbursed under its right of subrogation.
An insurer may have a subrogation right in law, equity, or contract to the extent of payments to its insured. The insurer may seek reimbursement from the recovery its insured obtains from the party at fault, subject to limitations.
This reimbursement is a benefit to the insurer and makes the insured’s recovery a common fund. The insurer being reimbursed from that fund must pay a pro rata portion of the fees incurred in obtaining it.
The purpose of this rule is to ensure equity: “‘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.’” [2]
The insurance company in this case had no contractual right of reimbursement from the passenger’s recovery fund for the PIP payments it made. Nor did it have a right of subrogation to exercise. Any subrogation right would have been against the tortfeasor, its own insured. But, an insurer has no right of subrogation against its own insured.
There was no right of reimbursement to effectuate and no subrogation litigation cost to avoid.
[1] Matsyuk v. State Farm Fire & Casualty Co., No. 64151-4-I (March 29, 2010).
[2] Mahler, 135 Wn.2d at 425 n.17 (alteration in original) (quoting 8A John A. Appleman & Jean Appleman, Insurance Law & Practice § 4903.85, at 335 (1981)).