Mitchell v. State Farm Mut. Auto. Ins. Co. (Ex parte State Farm Mut. Auto. Ins. Co.)

• Decision Date: 21 September 2012
• Docket Number: 1110088.
• Citation: 105 So.3d 1199
• Parties: Ex Parte State FARM MUTUAL AUTOMOBILE INSURANCE COMPANY. (In re Tracy Mitchell v. State Farm Mutual Automobile Insurance Company).
• Court: Alabama Supreme Court

105 So.3d 1199

Ex Parte State FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.(In re Tracy Mitchell

v.State Farm Mutual Automobile Insurance Company).

1110088.

Supreme Court of Alabama.

Sept. 21, 2012.

Background: After being injured in traffic accident with motorist, insured brought action against automobile insurer, alleging various claims, including a claim of conversion, arising from insurer's refusal to agree to reduction, pursuant to common fund doctrine, of a portion of insurer's subrogation interest in insured's settlement with motorist to compensate insured's attorney for time spent in obtaining settlement. The Circuit Court, Lauderdale County, No. CV–09–900191, Michael T. Jones, J., entered summary judgment in favor of insurer, and insured appealed. The Court of Appeals, ––– So.3d ––––,Pittman, J., held that insurer's interest in settlement was subject to reduction pursuant to common fund doctrine, and reversed and remanded. Further review was sought.

Holdings: The Supreme Court, Main, J., held that:

(1) in a matter of first impression, application of the common-fund doctrine was warranted, and insurer was required to pay a pro-rata share of insured's attorney fees;

(2) limited appearance by insurer to protect its subrogation interest did not constitute active participation, as required to avoid application of the common-fund doctrine; and

(3) language “to the extent of our payment” in insurance policy did not expressly modify the established equitable principles of subrogation such that it abrogated the common-fund doctrine.

Affirmed.A. David Fawal of Butler, Snow, O'Mara, Stevens & Cannada, PLLC, Birmingham; and Michael B. Beers of Butler, Snow, O'Mara, Stevens & Cannada, PLLC, Montgomery, for petitioner.

Thomas W. McCutcheon of McCutcheon & Hamner, PC, Florence, for respondent.

MAIN, Justice.

Following an automobile accident in which Tracy Mitchell was injured when the vehicle in which she was an occupant was struck by a vehicle being driven by Amy Kirk, State Farm Mutual Automobile Insurance Company (“State Farm”), Mitchell's insurer, paid Mitchell's medical expenses, among other coverage payments, and then sought, through subrogation, reimbursement from Kirk's insurer, Cotton States Mutual Insurance Company (“Cotton States”). Mitchell filed a personal-injury action against Kirk, State Farm, and fictitiously named defendants, alleging as to State Farm, among other things, that State Farm's right to recover from any damages awarded its payment of Mitchell's medical expenses was subject to a reduction,pursuant to the common-fund doctrine, for attorney fees incurred by Mitchell in pursuing the personal-injury action.

The circuit court granted State Farm's summary-judgment motion, holding that the common-fund doctrine did not obligate State Farm to pay a pro rata share of Mitchell's attorney fees. Mitchell appealed the circuit court's decision to the Court of Civil Appeals. The Court of Civil Appeals reversed the circuit court's summary judgment, concluding that a common fund was created requiring State Farm to contribute to Mitchell's attorney fees; that the common-fund doctrine had not been contractually abrogated; and that the common-fund doctrine was not negated by State Farm's “active participation” in pursuing subrogation recovery. Mitchell v. State Farm Mut. Auto. Ins. Co., [Ms. 2100184, Oct. 7, 2011] ––– So.3d –––– (Ala.Civ.App.2011). This Court granted certiorari review to determine, as a matter of first impression, the narrow question whether, under the common-fund doctrine, the subrogated insurance carrier is responsible for a pro rata share of the injured insured's attorney fees incurred in the process of obtaining an award against which the carrier has asserted a right of reimbursement. We affirm the Court of Civil Appeals' judgment.

I. Factual Background and Procedural History

The factual background and procedural history of this case are set forth in detail in the Court of Civil Appeals' opinion:

“In the case giving rise to this appeal, Tracy Mitchell (‘the insured’), who was insured under an automobile-insurance policy issued by State Farm Mutual Automobile Insurance Company (‘State Farm’), was injured, and her property was damaged, in a December 2008 automobile collision when the vehicle she was occupying was struck by a second automobile operated by Amy Kirk (‘the driver’). The insured then retained counsel to represent her, who, after having agreed to a contingent fee of one-third of any recovery by the insured (plus expenses), interviewed the insured, investigated the scene of the collision, gathered the insured's medical records, and reviewed those records with the insured.

“The insured also made an insurance claim to State Farm, her own insurer, with respect to the collision; pursuant to the medical-payments, collision, and rental-car coverage provisions in its policy, State Farm paid certain sums on behalf of the insured, including $5,000 (the pertinent coverage limit) in medical payments and $7,992.90 in other payments. State Farm further ascertained that the driver was responsible for having caused the collision, and State Farm sent two letters to the driver's liability insurer, Cotton States Mutual Insurance Company (‘Cotton States'), in which State Farm asserted subrogation rights arising under the insured's policy and demanded from Cotton States a total payment of $12,992.90. Cotton States acceded to State Farm's demand as to the $7,992.90 sought with respect to payments made under coverages other than for medical payments, but Cotton States notified State Farm that ‘[t]he balance of the subrogation for medical payments coverages remains outstanding pending the settlem[e]nt of the Bodily Injury claim with [the insured] and her attorney.’ State Farm then notified the insured's attorney by letter that it ‘intend[ed] to pursue a subrogation claim, without the need for you to represent State Farm, for the’ $5,000 medical payment; State Farm further requested the attorney not to ‘take any action which may jeopardize [its] subrogation rights' and advised that if it ‘retain[ed] an attorney to represent [its] interests,’ it would advise the insured's counsel of that retention.

“The insured's attorney, in September 2009, prepared and sent a demand-for-settlement letter to Cotton States seeking a payment of the limits of the driver's insurance policy. The insured's attorney's demand-for-settlement letter acknowledged awareness of potential subrogation claims and liens and assured Cotton States that if a settlement was reached, the insured would satisfy all such demands. The insured's attorney also sent a copy of that demand letter to State Farm and notified State Farm of the insured's intent to make a claim under the underinsured-motorist coverage of the State Farm policy.

“In October 2009, the insured initiated her multicount civil action against the driver, State Farm, and various fictitiously named defendants, stating tort claims stemming from the collision against the driver and the fictitiously named defendants, asserting claims for underinsured-motorists (‘UIM’) benefits against State Farm, and, in a tort count against State Farm, alleging the existence of both a fraudulent, bad-faith refusal to pay an insurance claim and a conversion of funds stemming from State Farm's rejection of the proposition that its subrogation interest was subject to a reduction under the common-fund doctrine. State Farm moved to dismiss the claims against it; as to the tort count, State Farm averred both that the common-fund doctrine was inapplicable and that the individual theories pleaded (i.e., conversion, bad-faith refusal, and fraud) did not state valid claims. The trial court denied that motion after a hearing.

“The insured and Cotton States, on behalf of the driver, reached a tentative agreement with the insured regarding a settlement of all actual and potential claims against the driver in exchange for a payment of $35,000. The insured notified State Farm of the proposed settlement, and State Farm, through its counsel, gave the insured its consent to enter into the settlement, but it requested full reimbursement of its $5,000 payment for the insured's medical expenses. Thereafter, the driver filed an unopposed motion seeking to pay the disputed $5,000 into court pursuant to Rule 22, Ala. R. Civ. P., governing interpleader, and to thereafter be dismissed as a party; the trial court granted that motion, leaving State Farm as the only named defendant.

“In June 2010, the insured filed a motion for a partial summary judgment, contending that, as a matter of law, State Farm's right to recover its $5,000 medical-expense payment was subject to a pro rata reduction for attorney fees based upon the common-fund doctrine, State Farm filed a response in opposition to the insured's motion, a cross-motion seeking a partial summary judgment in its favor on the tort count asserted against State Farm, and a motion to sever the insured's UIM-benefits claims against State Farm from the action pursuant to Rule 21, Ala. R. Civ. P. After a hearing, the trial court denied the insured's motion and granted State Farm's cross-motion on the basis of that court's conclusion that the common-fund doctrine did not apply; in the view of that court, State Farm took sufficient affirmative action on its own behalf to avoid the application of the doctrine by virtue of its statement to counsel for the insured that State Farm would protect its own interests. The trial court further directed the entry of a final judgment pursuant to Rule 54(b), Ala. R. Civ. P.; it did not rule on the motion to sever.”

Mitchell, ––– So.3d at –––– (footnote omitted).

II. Standard of Review

[1][2][3][4] “ ‘ “Alabama follows the ‘American rule,’ whereby attorney fees may be recovered if they are provided for by statute or by contract or if they are called for by special equity, such as in proceedings where the attorney's efforts create...