Mahler v. Szucs

• Decision Date: 04 June 1998
• Docket Number: Nos. 64344-0,65014-4,s. 64344-0
• Citation: 135 Wn.2d 398,957 P.2d 632
• Court: Washington Supreme Court
• Parties: Elaine MAHLER and Jack Mahler, wife and husband, Respondents, v. George G. SZUCS, Defendant, and State Farm Mutual Automobile Insurance Company, Petitioner. Monica FISHER, Petitioner, v. ALDI TIRE, INC., a Washington corporation; Douglas Krie; Don and Laura Tinsley, husband and wife, Defendants, and State Farm Mutual Automobile Insurance Company, an Illinois corporation, Respondent.

Page 398

135 Wn.2d 398

957 P.2d 632

Elaine MAHLER and Jack Mahler, wife and husband, Respondents, v. George G. SZUCS, Defendant, and State Farm Mutual Automobile Insurance Company, Petitioner.

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

Don and Laura Tinsley, husband and wife, Defendants,

and

State Farm Mutual Automobile Insurance Company, an Illinois

corporation, Respondent.

Nos. 64344-0, 65014-4.

Supreme Court of Washington,

En Banc.

June 4, 1998.

As Amended on Denial of Reconsideration Sept. 11, 1998.

Reed McClure, by William R. Hickman and Michael S. Rogers, Seattle, Todd & Wakefield, by Scott C. Wakefield, Seattle, and Julin, Fosso, Sage, McBride & Mason, by Harold C. Fosso, Seattle, for petitioner/respondent State Farm Mutual Automobile Insurance Co

Law Offices of Patrick H. LePley, Inc., P.S., by Patrick H. LePley, Bellevue, and Charles K. Wiggins, Bainbridge Island, for petitioner Fisher.

Law Offices of Patrick H. LePley, Inc., P.S., by Patrick H. LePley; Richard B. Kilpatrick, P.S., by Richard B. Kilpatrick, Bellevue, Charles K. Wiggins, Bainbridge Island, and Fury Bailey, by William S. Bailey, Seattle, for respondents Mahler.

Bryan P. Harnetiaux, Gary N. Bloom, and Debra L. Stephens on behalf of Washington State Trial Lawyers Association, Spokane, amicus curiae.

Daniel P. Mallove and Michael L. Schrenk on behalf of Grange Insurance Association, Seattle, amicus curiae.

Alan L. Bunge and Kathryn A. Majnarich on behalf of United Services Automobile Association, Seattle, amicus curiae.

Sidney R. Snyder, Jr., and Ronald S. Dinning on behalf of Washington Insurers, Seattle, amicus curiae.

Robert H. Madden, Carol J. Molchior, and J. Richard Crockett on behalf of Arbitration Forums, Inc., Seattle, amicus curiae.

TALMADGE, Justice.

In this case we analyze an insurer's right to recover payments made to an insured pursuant to a Personal Injury Protection (PIP) provision in a liability insurance

policy when an insured recovers against a tortfeasor. Specifically, we are asked to determine the extent to which the insurer, State Farm Mutual Automobile Insurance Company (State Farm), must pay the insured a share of the expenses the insured incurred to recover from the tortfeasor. We hold State Farm's policy required it to pay its insureds a portion of their expenses necessary to obtain a recovery from the tortfeasors. State Farm was not obligated to pay prejudgment interest on Mahler's expenses, but it was obligated to pay Mahler's attorney fees to enforce this sharing of expenses. We remand the case to the trial court for entry of findings of fact and conclusions of law with respect to the reasonable amount of such fees.

ISSUES

1. Does State Farm's policy require it to pay a share of its insured's expenses required to secure a recovery from a tortfeasor when such recovery is the basis for State Farm's PIP reimbursement?

2. Did the trial court err in awarding prejudgment interest to Mahler?

3. Did the trial court in Mahler err in allowing Mahler to recover attorney fees incurred in this action?

FACTS

A. Mahler

On January 4, 1993, Dr. George Szucs pulled out into traffic from a driveway and hit Elaine Mahler's car. He was cited for failure to yield right of way. Mahler sustained cervical and thoracic sprains, and contusions of her forehead, chest, and right knee. She later suffered from muscle inflammation and spasm, neck, low back, and hip pain, and persistent headaches for which she received chiropractic and physical therapy treatments. Although she claimed to have incurred $8,680 in medical expenses, State Farm paid only $4,173.32 under her PIP coverage, refusing Three days after the accident, State Farm sent her a letter that stated: "If you should recover our interest from the responsible party or their [sic] insurance carrier, you must protect our reimbursement rights." Mahler Clerk's Papers at 32. Two months later, Mahler's attorney notified State Farm he was representing Mahler and acknowledged State Farm's "lien for PIP benefits extended in this matter." Mahler Clerk's Papers at 206. State Farm replied it intended to arbitrate the question of its reimbursement with the defendant's insurer and asked Mahler's attorney to "take no action whatsoever in connection with the recovery of State Farm's claim against the adverse party or insurance company." Mahler Clerk's Papers at 34. State Farm subsequently did not assist Mahler in her claim against Szucs.

further payments after an examination by a physician State Farm hired concluded no further active treatment was indicated.

Mahler, in the meantime, prosecuted her case against Szucs. She filed a complaint; she submitted interrogatories; she prepared for and attended a mediation hearing; she negotiated and entered into a settlement agreement. Szucs defended Mahler's claims vigorously. In his brief for the mediation hearing, he said:

Liability is an open question.... It seems likely that a jury will find that both parties are partially responsible for this accident.... We anticipate that a jury will relate at least a third of the claimed treatment to pre-existing or unrelated problems and that the general damages award will be rather moderate. Defendant believes that the injuries sustained by Mrs. Mahler in the accident of January 4, 1993 were an aggravation of a long-standing, pre-existing problem.

Mahler Clerk's Papers at 20-21. Despite the assertion of these defenses, Szucs eventually agreed to settle with Mahler for $24,250. As is typical in settlement and release agreements, Mahler agreed to hold Szucs and American States, Szucs' insurer, harmless from all claims growing out of the accident. From the settlement proceeds, Mahler's A week before the parties executed the settlement agreement, Mahler's attorney informed State Farm it was obligated to give Mahler a credit for expenses necessary to obtain the recovery of State Farm's PIP benefits advanced. State Farm responded negatively: "We will not accept having your services unilaterally forced upon us for a fee that we have not agreed to." Mahler Clerk's Papers at 262.

                attorney placed the full amount of State Farm's PIP benefits advanced into his trust account, reciting in his settlement statement to Mahler this amount would be "[r]eserved until amount of subrogation is resolved."   Mahler Clerk's Papers at 431. 1
                

Until Mahler settled her case on May 13, 1995, State Farm had not attempted to recover its PIP payments from American States, and only on June 20, 1995, more than a month after the settlement agreement, did State Farm finally file a claim against American States for the $4,173.32. American States responded by denying liability. Ultimately, a private arbitration panel under the auspices of the insurance companies' intercompany arbitration agreement met and decided in favor of State Farm, against American States, commenting: "Respondent [American States] did not protect the Applicant's [State Farm's] interest." Mahler Clerk's Papers at 272.

In the meantime, Mahler proceeded with a series of motions in the trial court to obtain a declaration State Farm owed her a credit against the recovered PIP payments retained in Mahler's attorney's trust account. Ultimately, a mandatory arbitration hearing occurred, and the arbitrator awarded Mahler an attorney fee credit of $1,391.10 against the PIP funds in the trust account.

State Farm requested a trial de novo. Once back in superior court, Mahler and State Farm both filed cross-motions for summary judgment. The trial court entered a judgment in Mahler's favor, awarding Mahler $1,612.59 as Both Mahler and State Farm sought direct review, RAP 4.2(a), which we accepted, consolidating the case with Fisher. Amici briefs have been submitted by the Washington State Trial Lawyers Association (WSTLA), six auto insurers doing business in Washington, and by Arbitration Forums, Inc., a firm that conducts the intercompany arbitrations at issue here and in Fisher.

an offset for her expenses in recovering State Farm's PIP payments, ² and also awarded Mahler attorney fees for having to litigate her rights to obtain the benefits of her insurance policy, but the trial court did not enter findings of fact or conclusions of law supporting the award.

B. Fisher

Defendant Aldi Tire's truck crashed into Monica Fisher's car when she was stopped on a state highway south of the city of Snohomish waiting to make a left turn into a residential driveway. Her car was a total loss and she suffered cervical and lumbar injuries. She missed a month of work. State Farm paid part of her medical expenses and wage loss under its PIP coverage provision. Fisher retained an attorney to pursue an action for general damages against the tortfeasor.

Six months before Fisher filed a complaint against the tortfeasor, State Farm wrote her a letter, with a copy to her attorney, saying, "If you should recover our [First Party Benefit payments] from the responsible party or their [sic] insurance carrier, you must protect our reimbursement rights." Fisher Clerk's Papers at 309. There is nothing in Fisher's attorney exerted significant efforts to establish liability. He took the deposition of the state trooper who investigated Fisher's accident, and prepared an 18-page memorandum of law and supporting affidavits for a summary judgment motion. After putting Fisher through the expense of preparing the motion, the attorney for the defendant's insurance carrier, Federated Service Insurance Company (Federated), advised Fisher's attorney the defendant would not contest liability, and asked him to prepare a stipulated order granting partial summary judgment as to liability.

the record to indicate State Farm asked Fisher not to attempt to recover State Farm's PIP payments to Fisher.

Two years later, with the case set for trial, Fisher's attorney informed State Farm that after doing everything "but hammer at the gates of hell," he was close to...