Phillips v. State Farm Mut. Auto. Ins. Co., 94-6414

• Decision Date: 22 January 1996
• Docket Number: No. 94-6414,94-6414
• Citation: 73 F.3d 1535
• Parties: Wendell PHILLIPS and Wanda Phillips, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1535

73 F.3d 1535

Wendell PHILLIPS and Wanda Phillips, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois

corporation, Defendant-Appellee.

No. 94-6414.

United States Court of Appeals,

Tenth Circuit.

Jan. 22, 1996.

Ed Abel (Lynn B. Mares with him on the briefs) of Abel, Musser, Sokolosky, Mares, Haubrich, Burch & Kouri, Oklahoma City, Oklahoma, for plaintiffs-appellants.

Robert W. Hayden of Speck, Easter & Hayden, Oklahoma City, Oklahoma, for defendant-appellee.

Before MOORE, BRORBY and EBEL, Circuit Judges.

BRORBY, Circuit Judge.

Plaintiffs Wendell and Wanda Phillips appeal the district court's grant of summary judgment in favor of their uninsured/underinsured motorist insurance carrier, defendant State Farm Mutual Automobile Insurance Company, on their claim State Farm was obligated to pay a portion of the attorney fees and costs they incurred to obtain a settlement from a third-party tort-feasor. We exercise jurisdiction pursuant to 28 U.S.C. Sec. 1291 and reverse.

I

On March 10, 1992, Wendell Phillips and Robert Gregson were driving southward on Interstate 19 in Pima County, Arizona. Mr. Gregson steered the vehicle to the left and crashed into a guardrail. Mr. Phillips suffered serious injuries as a result of the accident.

At the time of the accident, Mr. Gregson had automotive liability coverage in the amount of $1.5 million. Despite this fact, Mr. and Mrs. Phillips brought this action against State Farm to recover on their uninsured/underinsured motorist insurance policy. It appears Mr. and Mrs. Phillips did not discover Mr. Gregson was insured until sometime after they filed their complaint, because they allege therein "[a]t the time of the collision complained of, Robert F. Gregson was an uninsured or underinsured motorist."

In February 1993, Mr. and Mrs. Phillips settled their claims against State Farm for $200,000, the combined limit of their uninsured/underinsured motorist insurance policy. As part of the settlement, Mr. and Mrs. Phillips signed a preprinted "Release and Trust Agreement" providing that

to the extent of any payment made [under the uninsured/underinsured motorist policy], the undersigned agrees to hold in trust for the benefit of [State Farm] all rights of recovery which he shall have against any person or organization legally liable for [his] bodily injuries, and assigns to [State Farm] the proceeds of any settlement with or judgment against such person or organization.

The Release and Trust agreement also incorporated a typewritten appendix stating

The parties expressly understand and agree that a dispute exists between [State Farm] and Wendell Phillips, the undersigned regarding the proper allocation of attorneys' fees and costs incurred or to be incurred in the further prosecution of the undersigned's claim for injuries which he has or may have sustained as a result of the accident described herein. In this regard, Mr. Phillips claims a right to pro rata reimbursement from [State Farm] for any attorneys' fees and/or costs which he incurs in the further prosecution of his claim, to the extent that such further prosecution of his claim inures to the benefit of [State Farm]. [State Farm] expressly denies that Mr. Phillips has such a right and claims that it is entitled to be reimbursed for all amounts which it has paid pursuant to this agreement, without the deduction of a pro rata share of the attorneys' fees and/or costs referred to herein.

Nothing in this Release and Trust Agreement shall be construed as a waiver or abandonment of the parties' respective claims regarding the matter in dispute herein. The parties understand and agree that their claims regarding the matter in dispute shall be preserved for the determination of the Court at the conclusion of the further litigation resulting from the accident referenced herein.

Mr. and Mr. Phillips later dismissed their action against State Farm.

After settling their claims against State Farm, Mr. and Mrs. Phillips sued Mr. Gregson in state court in Arizona and recovered a $400,000 settlement. State Farm participated in the settlement conference by telephone. Pursuant to their retainer agreement, Mr. and Mrs. Phillips were obligated to pay their attorneys one-third of the settlement, which is $133,333.33. The record also contains evidence showing Mr. and Mrs. Phillips' attorneys incurred some $6,200 in unreimbursed costs pursuing the action against Mr. Gregson.

Mr. and Mrs. Phillips then moved to reopen their case against State Farm so the district court could determine State Farm's subrogation interest in the $400,000 settlement. The district court granted the motion and reopened the case. State Farm later moved for summary judgment, asserting it was entitled to $200,000 of the $400,000 settlement pursuant to the Release and Trust Agreement, and it was not obligated to pay a pro rata share of the attorney fees and costs Mr. and Mrs. Phillips incurred to secure the settlement with Mr. Gregson. The district court agreed and granted summary judgment in favor of State Farm. This appeal followed.

II

Mr. and Mrs. Phillips concede State Farm is entitled to subrogation under Oklahoma law and the terms of the Release and Trust Agreement. They also concede they never entered into an express agreement with State Farm allocating attorney fees and costs. However, Mr. and Mrs. Phillips contend, as a matter of equity, State Farm should be required to pay a pro rata share of the expenses they incurred pursuing their action against Mr. Gregson, and the district court should have compromised State Farm's $200,000 subrogation interest by such an amount.

The Oklahoma Supreme Court has never decided the precise issue now before us. Thus, we "must determine what decision the state court would make if faced with the same facts and issue." Armijo v. Ex Cam, Inc., 843 F.2d 406, 407 (10th Cir.1988); see also Fields v. Farmers Ins. Co., 18 F.3d 831, 834 (10th Cir.1994); Adams-Arapahoe Sch. Dist. No. 28-J v. GAF Corp., 959 F.2d 868, 870-71 (10th Cir.1992). In doing so, we consider a number of authorities, including analogous decisions by the Oklahoma Supreme Court, the decisions of the lower courts in Oklahoma, the decisions of the federal courts and of other state courts, and "the general weight and trend of authority." Farmers Alliance Mut. Ins. Co. v. Bakke, 619 F.2d 885, 888 (10th Cir.1980); see also Armijo, 843 F.2d at 407; Hartford v. Gibbons & Reed Co., 617 F.2d 567, 569 (10th Cir.1980).

The Oklahoma Supreme Court's decision in Carter v. Wooley, 521 P.2d 793 (Okla.1974), is virtually indistinguishable from the case now before us. Mr. Carter was involved in an accident while driving a company car. He later sued the driver of the other car, Mr. Wooley, and his wife in two separate lawsuits. While these actions were pending, Mr. Carter filed a claim for worker's compensation benefits against his employer and its worker's compensation insurance carrier and received some $5,700 in benefits. While the actions against Mr. and Mrs. Wooley were pending, the attorney representing the worker's compensation insurance carrier wrote Mr. Carter's attorney a letter stating he was aware of the actions against the Wooleys, the company did not wish to intervene, it was his understanding Mr. Carter's attorney agreed to protect the insurance company's subrogation claim, and he and the company would provide any assistance needed to bring the action against the Wooleys to a successful conclusion. With the company's consent, Mr. Carter later settled his actions against the Wooleys for $17,000.

Mr. Carter then asked the trial court to fix reasonable attorney fees and determine which portion of that amount he should pay and which portion the insurance carrier should pay. The trial court denied the motion. The Oklahoma Supreme Court reversed. It reasoned that "in the effectuation of the settlement here involved, a distinct service was rendered [to the insurance company], that it could not otherwise have obtained without presumably paying some attorney (other than [Mr. Carter's] for that service." Carter, 521 P.2d at 796. Unless the insurance company paid some portion of the costs and the fees due Mr. Carter's attorney, Mr. Carter would be forced to pay the entire sum, which would reduce the amount Mr. Carter received as compensation for his injuries. Id. at 797-98. The Oklahoma Supreme Court remanded the case to the trial court with direction to determine whether there was an implied contract between Mr. Carter's attorney and the insurance company obligating the company to pay him reasonable attorney fees. Id. at 798.

For the following reasons, we conclude the Oklahoma Supreme Court would apply Carter to the case now before us. First, the facts of Carter are strikingly similar to the facts of this case. Second, there is no meaningful difference between the relevant statute in Carter, the version of Okla.Stat. tit. 85, Sec. 44, effective in 1974, and the relevant statute in this case, Okla.Stat. tit. 36, Sec. 3636(E). ¹ Both provide an insurer has a right to subrogation under the circumstances present in Carter and in this case, and neither specifically allow for a pro rata allocation of attorney fees and costs. In fact, it is unclear whether the result would be different even if relevant statutes were somewhat different. Under Oklahoma law, the right to subrogation arises out of equity and exists independent of any statutory rights the legislature may have conferred. Prettyman v. Halliburton Co., 841 P.2d 573, 577 n. 1 (Okla.1992).

Third, shortly after the Oklahoma Supreme Court announced its decision in Carter, the Oklahoma Legislature amended Okla.Stat. tit. 85, Sec. 44, to codify its holding. As amended, the statute provides in pertinent part:

Whenever recovery against such other person is effected without compromise settlement by the employee or his representatives [i.e., the settlement exceeds the workers'...