Fisher v. Aldi Tire, Inc.

• Decision Date: 07 August 1995
• Docket Number: No. 35271-7-I,35271-7-I
• Citation: 78 Wn.App. 902,902 P.2d 166
• Court: Washington Court of Appeals
• Parties: Monica FISHER, Appellants, v. ALDI TIRE, INC., a Washington corporation; Douglas Krie; Don and Laura Tinsley, husband and wife, Defendants, v. STATE FARM MUTUAL FIRE AND AUTO INSURANCE COMPANY, an Illinois corporation, Respondents.

Page 902

78 Wn.App. 902

902 P.2d 166

Monica FISHER, Appellants, v. ALDI TIRE, INC., a Washington corporation; Douglas Krie;

Don and Laura Tinsley, husband and wife, Defendants, v. STATE FARM MUTUAL FIRE AND AUTO INSURANCE COMPANY, an

Illinois corporation, Respondents.

No. 35271-7-I.

Court of Appeals of Washington,

Division 1.

Aug. 7, 1995.

Reconsideration Denied Sept. 20, 1995.

Patrick H. LePley, Bellevue, for appellants.

Michael John Gainer, Harold C. Fosso, Seattle, for respondents.

Brian Patrick Harnetiaux, Gary N. Bloom, Spokane, for amicus curiae.

COLEMAN, Judge.

In this case we are asked to decide whether a provision in an automobile insurance policy, which defines the insurer's responsibility for expenses incurred in recovering subrogated amounts, overrides the test developed in equity for when attorney fees must be shared by the insurer. On the record before us, we find that the contract provision controls to the exclusion of the common law standard. Because interpretation of the provision requires further factual inquiry, however, we reverse the order of summary of judgment.

After the vehicle she was driving was rear-ended in December 1991, Monica Fisher received $12,224 under her personal injury protection (PIP) coverage from State Farm. When Fisher applied for PIP benefits, State Farm notified her that "[a]ll First Party Benefit payments we make to or for you are subject to State Farm's right of reimbursement. If you should recover our interest from the responsible party or [his] insurance carrier, you must protect our reimbursement rights." ¹ Fisher retained an attorney under a contingent fee agreement and filed a lawsuit against the alleged tortfeasors. The defendants, who were insured by Federated Service Insurance Company, contested liability for the accident.

After extensive discovery, Federated offered to settle with Fisher based on the assumption that a jury would find her 30 percent responsible for the accident. Fisher rejected that offer by filing a motion for summary judgment regarding liability. The parties subsequently stipulated that the driver who rear-ended Fisher was negligent, that his negligence was the proximate cause of the accident, and that Fisher was neither contributorily nor comparatively negligent. Fisher's attorney notified State Farm, which was not a party to the suit, of an anticipated settlement and requested that State Farm reduce its subrogation claim by one-third as its share of attorney fees. State Farm responded that it would collect its subrogation interest directly from Federated.

State Farm and Federated are parties to an agreement for inter-company arbitration of disputes regarding PIP claims. After the accident, State Farm notified Federated of its subrogation right in payments made to Fisher and updated that information as additional benefits were paid. On August 3, 1993, several months before the parties to the personal injury action established liability, State Farm offered to explore settlement of the subrogation claim with Federated. Federated replied 8 months later, on the day before liability was established, telling State Farm that if settlement occurred in the tort action as Federated anticipated, it would send the subrogated funds to State Farm through Fisher's attorney. Before the parties to the tort action finalized their settlement on April 28, 1994, State Farm initiated inter-company arbitration with Federated.

Federated and Fisher's settlement included State Farm's subrogation interest. The subrogated funds were paid into the registry of the court pending resolution of the dispute over attorney fees. Fisher filed a complaint in interpleader against State Farm (1) asking that the insurer pay a pro rata share of attorney fees and costs and (2) seeking damages for the insurer's alleged breach of contract and bad faith refusal to share legal expenses. Both parties moved for summary judgment. The trial court denied Fisher's motion, granted State Farm's motion, and ordered the subrogated funds released to State Farm.

We review a summary judgment by engaging in the same inquiry as the trial court. To merit summary judgment, the moving party must demonstrate that it is entitled to judgment as a matter of law and that there are no genuine issues of material fact. CR 56(c). A defendant may move for summary judgment by either (1) pointing out the absence of competent evidence to support the plaintiff's case or (2) establishing through affidavits that no genuine issue of material fact exists. Guile v. Ballard Comm'ty Hosp., 70 Wash.App. 18, 27, 851 P.2d 689, review denied, 122 Wash.2d 1010, 863 P.2d 72 (1993).

We first address whether the common law test for determining when an insurer must share attorney fees for recovering subrogated funds applies when the insurance policy incorporates a different test. An insurance company's right to subrogation can arise in two ways, by operation of law or by contract. Developed in the absence of contractual agreement, legal subrogation (also referred to as equitable subrogation) applies to prevent unjust enrichment of the insured when an insurer fulfills its obligation pursuant to an insurance policy and the insured recovers that amount from the tortfeasor. Conventional, or contractual, subrogation is created by agreement of the parties. Elaine M. Rinaldi, Apportionment of Recovery Between Insured and Insurer in a Subrogation Case, 29 Tort & Ins.L.J. 803, 804 (1994); Mark S. Rhodes, Couch: Cyclopedia of Insurance Law, § 61:2 (2d ed. 1983).

The insurance policy at issue here creates a contractual right to subrogation that parallels the equitable right. The policy further provides that the insurer will share responsibility for attorney fees and costs incurred in recovering subrogated funds, but only in certain situations.

If the insured recovers from the party at fault and we share in the recovery, we will pay our share of the legal expenses. Our share is that per cent of the legal expenses that the amount we recover bears to the total recovery. This does not apply to any amounts recovered or recoverable by us from any other insurer under any inter-insurer arbitration agreement.

(Italics ours.) Thus, under this provision, State Farm will not share attorney fees for any sum that it is able to recover through intercompany arbitration.

In the absence of policy language addressing attorney fees, the courts developed a different standard for determining when an insurer must share the expense of recovering subrogated funds. Under the common law rule, "an insurer who makes a recovery from a third party for moneys paid its insured is only required to pay attorney fees which were 'reasonably and necessarily incurred' to make the recovery. Absent an agreement to the contrary, an insurer is only obligated for attorney fees if it is benefited." Pena v. Thorington, 23 Wash.App. 277, 281, 595 P.2d 61, review denied, 92 Wash.2d 1019 (1979) (quoting Ridenour v. Nationwide Mut. Ins. Co., 273 Or. 514, 541 P.2d 1377, 1378 (1975)). Relating this common law standard to policy language essentially identical to the provision at issue here, Division Three of the Court of Appeals concluded that the contract constitutes an "agreement to the contrary" and, as such, replaces the common law inquiry into the necessity or benefit of an attorney's services. Richter, Wimberley & Ericson v. Honore, 29 Wash.App. 507, 510-11, 628 P.2d 1311 (1980), review denied, 95 Wash.2d 1012 (1981). See also Desmond v. Liberty Northwest Ins. Corp., 63 Wash.App. 81, 88, 817 P.2d 872 (1991) (Forrest, J., concurring). Thus, under Honore, an insurance contract is determinative when it expressly defines the circumstances in which attorney fees will be shared.

Fisher and amicus ² assert that an insured's attorney benefits a PIP insurer by establishing the tortfeasor's liability, whenever it is initially contested, notwithstanding the existence of an arbitration agreement between the insurance carriers. Fisher and amicus contend that, in this situation, PIP insurers generally delay initiating arbitration until liability is established in a personal injury action and rely on that...