Osborne v. State Farm Mut. Auto. Ins. Co., 94CA1788

• Decision Date: 25 January 1996
• Docket Number: No. 94CA1788,94CA1788
• Parties: Corinne OSBORNE and Jack Osborne, Individually and as Parents and Guardians of Garrett Osborne, a Minor, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee. . II
• Court: Colorado Court of Appeals

Page 304

923 P.2d 304

Corinne OSBORNE and Jack Osborne, Individually and as Parents and Guardians of Garrett Osborne, a Minor, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee.

No. 94CA1788.

Colorado Court of Appeals,

Div. II.

Jan. 25, 1996.

Rehearing Denied March 14, 1996.

Certiorari Denied Sept. 23, 1996.

Salmon, Godsman & Nicholson, P.C., John G. Salmon and William P. Godsman, Englewood, for Plaintiffs-Appellants.

Bayer, Carey & McGee, P.C., Gary L. Palumbo, Denver, for Defendant-Appellee.

Opinion by Judge HUME.

Plaintiffs, Corinne and Jack Osborne, individually, and as parents and guardians of Garrett Osborne, appeal the trial court's denial of their motion for attorney fees and costs. We affirm.

On January 14, 1993, Garrett and his mother, Corinne, were injured in a collision involving their car and a front-end loader. Defendant, State Farm Mutual Automobile Insurance Company (State Farm), as plaintiffs' insurance carrier, paid personal injury protection (PIP) benefits pursuant to Colorado's No-fault Act. See § 10-4-701, et seq., C.R.S. (1994 Repl.Vol. 4A).

Plaintiffs filed a personal injury suit against both the driver of the front-end loader and his employer (tortfeasors). Plaintiffs' attorney notified State Farm of the suit and offered to represent its subrogated interest claim. State Farm declined the offer, expressing its intent to pursue its claim independently under an arbitration agreement with the liability carrier for the tortfeasors in that action.

On December 7, 1993, plaintiffs' suit was settled by an agreement with the tortfeasors' liability carrier. As a condition of the settlement, plaintiffs signed a release and agreed to indemnify the tortfeasors' liability carrier against all other claims resulting from the collision, including any subrogation claims held by other insurance carriers.

Thereafter, on December 21, 1993, plaintiffs filed a stipulation for dismissal of their action against the tortfeasors, reserving, however, the right to pursue a disputed attorney fee issue with State Farm. Later, on February 1, 1994, plaintiffs filed motions to join State Farm as a party defendant and for declaratory relief on the attorney fee issue. The trial court granted the motion to join State Farm and, after extensive briefing of the issues, it denied the motion for declaration of entitlement to attorney fees and costs against State Farm.

Plaintiffs contend that the trial court erred in determining that State Farm was not a passive beneficiary under the "common fund doctrine" recognized in County Workers Compensation Pool v. Davis, 817 P.2d 521 (Colo.1991). We disagree.

The No-fault Act is to be liberally construed to further its remedial and beneficent purposes. Travelers Indemnity Co. v. Barnes, 191 Colo. 278, 552 P.2d 300 (1976). One of the primary purposes of the No-fault Act is to reduce the amount of tort litigation arising out of automobile accidents. Baumgart v. Kentucky Farm Bureau Mutual Insurance Co., 199 Colo. 330, 607 P.2d 1002 (1980).

When an injured party's tort claim is settled for an amount greater than its insurer's subrogation claim, and the insurer has not actively participated in the tort litigation, a court may order the insurer to pay a reasonable share of the attorney fees and court costs incurred in the course of the litigation. County Workers Compensation Pool v. Davis, supra; see also Castellari v. Partners Health Plan of Colorado, Inc., 860 P.2d 593 (Colo.App.1993)(common fund doctrine operates to prevent passive beneficiaries from being unjustly enriched by requiring them to bear a fair share of the costs of litigation).

If a tortfeasor is chargeable with notice of an insurer's rights and enters a settlement with an insured to which the insurer is not a party, the settlement may be regarded as having been made subject to the rights of the insurer. State Farm Mutual Automobile Insurance Co. v. Sanditen, 701 P.2d 876 (Colo.App.1985).

Here, the trial court found that State Farm, unlike the insurance carriers in County Workers Compensation Pool v. Davis, supra, and Castellari v. Partners Health Plan of Colorado, Inc., supra, had not intervened in the underlying action and had, in fact, expressly told plaintiffs' attorney that it did not want to participate in any litigation, but that it intended to pursue its claim independently under an arbitration agreement with the liability carrier for the tortfeasors. As a result of this conversation, State Farm was not notified of the settlement conference or that plaintiffs had signed a purported release and indemnification agreement as to State Farm's claim against tortfeasors' liability insurer as part of the...