Government Employees Ins. Co. v. Capulli

• Decision Date: 24 May 2002
• Citation: 859 So.2d 1115
• Parties: GOVERNMENT EMPLOYEES INSURANCE COMPANY v. Jane CAPULLI.
• Court: Alabama Court of Civil Appeals

859 So.2d 1115

GOVERNMENT EMPLOYEES INSURANCE COMPANY v. Jane CAPULLI.

2000869.

Court of Civil Appeals of Alabama.

May 24, 2002.

Rehearing Denied September 20, 2002.

Certiorari Denied April 11, 2003.

Thomas R. Jones, Jr., and Randal Kevin Davis of Davidson, Wiggins, Jones & Coleman, P.C., Tuscaloosa, for appellant.

Thomas E. Parker, Jr., and Jonathan W. Pippin of Ables, Baxter, Parker & Hall, P.C., Huntsville, for appellee.

Alabama Supreme Court 1020035.

CRAWLEY, Judge.

Government Employees Insurance Company ("GEICO") appeals from a judgment requiring it to pay a pro rata share of the attorney fee Jane Capulli incurred in settling her personal-injury claim against Carolyn Zavala. We affirm.

On July 1, 2000, Capulli was injured in a motor-vehicle accident with Zavala. Capulli was a passenger in a vehicle owned and driven by James Griffith, GEICO's insured. Zavala's vehicle was insured by Alfa. Capulli retained an attorney to represent her in a personal-injury claim against Zavala; she agreed to pay her attorney a one-third contingency fee. Within 30 days of the accident, Alfa admitted liability and paid a property-damage claim made by Griffith. GEICO paid Capulli's medical expenses of $2,767.18, pursuant to the medical-payments provision of the policy it had issued to Griffith. The record does not contain the insurance policy GEICO issued to Griffith. GEICO states, however, that Capulli is an additional insured under the policy by virtue of her being a passenger in Griffith's vehicle. Capulli did not deny that GEICO had a subrogation interest in her recovery to the extent of the medical payments it made on her behalf.

On September 21, GEICO contacted Alfa regarding payment of its subrogation claim. On September 27, Alfa advised GEICO that Capulli was represented by an attorney and that, upon settlement of Capulli's claim, it would contact GEICO regarding its subrogation interest. On October 12, Alfa agreed to settle Capulli's claim against Zavala for $6,400. That figure included payments for medical expenses, pain, suffering, and mental anguish. Capulli's attorney informed Alfa that he would be responsible for paying GEICO's subrogation claim. Alfa agreed to disburse the settlement proceeds to Capulli's attorney if the attorney would provide Alfa with a hold-harmless letter regarding GEICO's subrogation interest. Alfa paid the settlement proceeds to Capulli's attorney, who then paid GEICO $1,844.79 (two-thirds of its subrogation claim of $2,767.18), and retained $922.39 (one-third of GEICO's subrogation claim) as an attorney fee, pursuant to the "common-fund" doctrine.

Contending that the common-fund doctrine did not apply, GEICO objected to the attorney's withholding one-third of its subrogation interest as his fee. Capulli then filed a declaratory-judgment action seeking a ruling that the sum withheld by the attorney be paid to her under the common-fund doctrine. GEICO answered and counterclaimed, alleging breach of contract/subrogation, money had and received, and intentional interference with business relations. Capulli moved for a summary judgment, and GEICO filed a response in opposition to the motion, along with a cross-motion for a partial summary judgment. The trial court denied GEICO's motion for a partial summary judgment and granted Capulli's motion for a summary judgment. GEICO appeals, arguing that the common-fund doctrine is inapplicable.

The pertinent facts in this case are undisputed. Therefore, we review the circuit court's application of the law to the facts to determine whether Capulli was entitled to a judgment as a matter of law. See Carpenter v. Davis, 688 So.2d 256, 258 (Ala.1997). No presumption of correctness attaches to the decision of a trial court on a summary judgment motion, and our review is de novo. See Gossett v. Twin County Cable T.V., Inc., 594 So.2d 635 (Ala.1992).

The general, or "American," rule is that attorney fees may be recovered from a source other than the attorney's client, or the one who contracted to pay the fee, only when "authorized by statute, when provided in a contract, or by special equity, such as in a proceeding where the efforts of an attorney create a fund out of which fees may be paid." Eagerton v. Williams, 433 So.2d 436, 450 (Ala.1983). There is no statutory authorization for awarding Capulli an attorney fee from GEICO's subrogation interest, and there is no contract between Capulli or her attorney and GEICO that provides for the payment of attorney fees. Therefore, the only basis for an exception to the general rule is the "special equity" exception. "The `common fund' [doctrine] is merely a particular instance of the `special equity' exception to the rule that attorney fees may not ordinarily be recovered." Mitchell v. Huntsville Hosp., 598 So.2d 1358, 1361 (Ala.1992).

The common-fund doctrine in insurance-subrogation cases is based on the equitable notion that, because an insurer is entitled to share, to the extent of its subrogation interest, in any recovery its insured achieves against a tortfeasor, the insurer should bear a proportionate share of the burden of achieving that recovery—including a pro rata share of the insured's attorney fee. See generally Johnny Parker, The Common Fund Doctrine: Coming of Age in the Law of Insurance Subrogation, 31 Ind. L.Rev. 313, 320-25 (1998); Annot., Right of Attorney for Holder of Property Insurance to Fee out of Insurer's Share of Recovery from Tortfeasor, 2 A.L.R.3d 1441 (1965).

The United States Supreme Court created the common-fund doctrine over 100 years ago in two decisions that did not involve insurance subrogation, see Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1881), and Central R.R. & Banking Co. v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885). The landmark decision extending the doctrine to insurance-subrogation cases is United Services Automobile Association v. Hills, 172 Neb. 128, 109 N.W.2d 174 (1961). See John P. Dawson, Lawyers and Involuntary Clients: Attorney Fees From Funds, 87 Harv. L.Rev. 1597, 1622 23 (1974). In 1983, this court, citing the Nebraska decision in Hills, applied the common-fund doctrine to an insurance-subrogation case for the first time in Alabama. See Blue Cross & Blue Shield of Alabama v. Freeman, 447 So.2d 757 (Ala. Civ.App.1983).

In Freeman, the plaintiffs were injured in an automobile collision with State Farm's insured. Blue Cross, the plaintiffs' medical insurer, had paid the plaintiffs' medical expenses of $1,550.20. The plaintiffs sued State Farm's insured, the alleged tortfeasor, seeking compensation for, among other things, their medical expenses. Blue Cross notified the plaintiffs' attorney that it was subrogated to the plaintiffs' right to recover their medical expenses from the tortfeasor and that it expected to be paid from any recovery from the tortfeasor. Blue Cross also notified State Farm of its subrogation claim and demanded payment. State Farm suggested that Blue Cross intervene in the plaintiffs' lawsuit. The plaintiffs' attorney wrote to Blue Cross, stating that he assumed Blue Cross was abandoning the claim to be paid its subrogation interest from the plaintiffs' recovery and was, instead, pursuing its subrogation interest directly with State Farm. Blue Cross intervened in the lawsuit, and the trial court entered a conditional summary judgment in its favor.

"The conditional judgment was not against the [tortfeasor], nor was it based upon a determination of liability of [the tortfeasor] nor upon the amount of damages plaintiffs were due to recover. The judgment was solely in favor of Blue Cross for the amount of $1,585.40 and against any funds recovered by plaintiffs from [the tortfeasor]."

Freeman, 447 So.2d at 758.

The plaintiffs and the tortfeasor settled on the day of trial. The plaintiffs moved to assess Blue Cross a pro rata share of their attorney fee, and the trial court granted the motion. Blue Cross appealed, arguing that its intervention and obtaining of a conditional judgment precluded the application of the common-fund doctrine, pursuant to the "active-participation" exception or defense to the doctrine. This court affirmed, stating the following:

"As has been previously shown, Blue Cross appeared after pleadings and principal discovery had been completed. It did not join as a subrogee of a part of plaintiffs' cause of action to aid plaintiffs in the prosecution of the suit. It appeared only to secure judgment against the insured for return of funds paid to its insured in the event the insureds were successful in their prosecution of the entire cause of action. It then retired from the field of battle, declining to assist or give aid at trial. The effect of the summary judgment against plaintiffs' recovery was to force the insured to represent the interest of Blue Cross at trial or in settlement after having told Blue Cross they would not do so. Thereafter, recovery of the fund, including the amount due Blue Cross, was obtained solely through the effort of counsel for [plaintiffs] without the active or passive participation of Blue Cross.

"It is the opinion of this court that the mere appearance or intervention in the case by counsel for Blue Cross solely for the purpose of reducing its claim for subrogation to a judgment or lien against the recovery of the plaintiff-insureds, does not satisfy the requirement of active participation or assistance in the prosecution [of] the case. The facts in the case are clear that Blue Cross did nothing to assist in the recovery of the common fund from which it claimed $1,585.20. Rather than aid and assist plaintiffs, Blue Cross elected to collect its subrogation claim from the avails of the litigation and settlement secured solely by the efforts and expense of counsel for plaintiffs. Equity and justice require it to pay its proportionate share of attorney fees and expenses incurred by plaintiff."

Freeman, 447 So.2d at 759-60.

Since 1983, this court has...