Safeco Ins. Co. v. Woodley
| Decision Date | 15 January 2004 |
| Docket Number | No. 73477-1.,73477-1. |
| Citation | 82 P.3d 660,150 Wash.2d 765 |
| Parties | SAFECO INSURANCE COMPANY, Respondent, v. Denise Brackett WOODLEY, Petitioner. |
| Court | Washington Supreme Court |
Philip Albert Talmadge, Talmadge & Stockmeyer, Tukwila, Gordon Arthur Woodley, Bellevue, for petitioner.
J. Robert Leach, Everett, for respondent.
A no-fault motorist was injured in a car accident with an underinsured motorist (tortfeasor). She received both personal injury protection (PIP) benefits and underinsured motorist (UIM) benefits from the same insurance carrier, as well as a recovery from the tortfeasor. After arbitration of the UIM claim was complete, the insurance carrier took an offset, in an amount equal to the PIP benefits it previously paid, against the amount it owed in its capacity as UIM carrier. We apply our earlier decision in Winters v. State Farm Mutual Automobile Insurance Co., 144 Wash.2d 869, 31 P.3d 1164, 63 P.3d 764 (2001), and hold that in order to take the offset, the insurance carrier must pay a pro rata share of the legal expenses incurred by the insured to recover from the tortfeasor and to arbitrate the UIM claim. In addition, we deny the insured's request for prejudgment interest on the pro rata share of attorney fees but award the insured reasonable attorney fees, including those on appeal.
In July 1991, Denise Brackett Woodley was injured in an automobile accident with an underinsured motorist. Woodley qualified as an insured under a policy with Safeco Insurance Company (hereinafter Safeco) for both PIP benefits and UIM benefits. She received $56,435.25 in PIP benefits from Safeco for medical expenses she incurred as a result of the accident. The tortfeasor had liability coverage for up to $300,000 and eventually paid Woodley the full coverage limit. While her lawsuit with the tortfeasor was pending, Woodley also sought the limit of her $1,000,000 UIM coverage from Safeco.
After attempts to settle the UIM claim proved unsuccessful, Woodley pursued arbitration, as provided in the Safeco policy, and was awarded $450,000 in total damages. Anticipating Woodley's settlement with the tortfeasor, Safeco took a $300,000 setoff from the $450,000 in damages it owed to Woodley as a result of the UIM arbitration.1 In addition, Safeco offset the amount of its prior PIP payments from the remaining $150,000 it owed in UIM benefits. After taking the tortfeasor setoff and the PIP offset, Safeco tendered Woodley a check for $93,564.75 ($450,000 arbitration award, minus $300,000 tortfeasor recovery setoff, minus $56,435.25 offset for prior PIP payments).
The propriety of Safeco's setoffs was extensively litigated, and the case was eventually remanded to the Court of Appeals following our decision in Price v. Farmers Insurance Co., 133 Wash.2d 490, 946 P.2d 388 (1997). Woodley v. Safeco Ins. Co., 134 Wash.2d 1001, 953 P.2d 95 (1998). On remand, the Court of Appeals vacated its earlier opinion and a new declaratory judgment action was filed. Woodley v. Safeco Ins. Co., 84 Wash.App. 653, 953 P.2d 822 (1998). In the new declaratory judgment action, the trial court permitted Safeco to set off the full $300,000 that Woodley received through her settlement with the tortfeasor. The Court of Appeals affirmed, Safeco Insurance Co. v. Woodley, 102 Wash. App. 384, 8 P.3d 304 (2000), and Woodley again petitioned for review.
In April 2002, we granted Woodley's petition for review, but "only on the issue of Safeco's obligation to share in Woodley's legal expenses," and remanded the case to the Court of Appeals "for reconsideration in light of Winters." Wash. State Supreme Court Order, Safeco Ins. Co. v. Woodley, 145 Wash.2d 1032, 42 P.3d 1278 (2002). In its order on remand, the Court of Appeals concluded that Woodley had not properly raised the question of Safeco's obligation to pay a pro rata share of legal expenses and declined to amend its earlier opinion to address Winters directly. Woodley, 102 Wash.App. at 395, 8 P.3d 304. Woodley petitioned for review yet again, and we accepted review. Safeco Ins. Co. v. Woodley, 149 Wash.2d 1017, 72 P.3d 762 (2003).
A. Should Safeco, in order to take an offset to reimburse itself for its prior PIP payments, be required to pay a pro rata share of the legal expenses Woodley incurred to recover from the tortfeasor and pursue her UIM claim?
B. If Woodley is entitled to a pro rata share of legal expenses, is she entitled to prejudgment interest on that amount?
C. Is Woodley entitled to costs on appeal, including reasonable attorney fees?
As noted above, the Court of Appeals concluded that Woodley did not precisely raise the issue of pro rata sharing of legal expenses and decided not to consider the issue presented by Winters. Regardless of whether Woodley precisely raised the question of pro rata sharing of legal expenses, it is clear that the issue was considered by both the parties and the Court of Appeals.2 RAP 1.2(a) encourages the liberal interpretation of the Rules of Appellate Procedure in order to "facilitate the decision of cases on the merits" and permits cases to be determined on procedural rules only "in compelling circumstances where justice demands." We find no compelling circumstances to justify refusing to hear the merits of this case.
A. In Order to Take an Offset to Reimburse Itself for Its Prior PIP Payments, Safeco Must Pay a Pro Rata Share of the Legal Expenses Woodley Incurred to Recover from the Tortfeasor and Pursue Her UIM Claim.
Two separate and distinct types of insurance coverage are involved in this case — PIP and UIM. PIP coverage generally provides benefits for the immediate costs of an automobile accident, including medical expenses and loss of income. UIM coverage, which functions separately from PIP, covers all damages that the insured would have been entitled to receive from the tortfeasor, including the medical expenses, loss of income, and other damages that are also covered by PIP. See RCW 48.22.030, .085.
Because PIP and UIM coverages overlap, PIP insurers generally contract for a right to receive reimbursement of PIP benefits if an insured recovers from the tortfeasor, from a UIM carrier, or both. See, e.g., Mahler v. Szucs, 135 Wash.2d 398, 436, 957 P.2d 632, 966 P.2d 305 (1998) (). The right to reimbursement, however, is subject to the pro rata sharing rule we articulated in Mahler. Mahler explains that in order to receive reimbursement of PIP benefits previously paid to an insured out of the pool of funds recovered from the tortfeasor, a PIP carrier must pay a pro rata share of the legal expenses the insured incurs in order to obtain the tortfeasor recovery. Id.
Our recent decision in Winters clarifies that the pro rata sharing rule articulated in Mahler also applies to cases in which the insured incurs legal expenses to obtain a recovery from both the tortfeasor and the UIM carrier. Winters, 144 Wash.2d at 883, 31 P.3d 1164. In Winters, the insured obtained a tortfeasor settlement in the amount of $25,000 and a separate UIM arbitration award of $40,271.3 Winters' UIM carrier, which was also her PIP carrier, deducted both the tortfeasor recovery and the $8,271 it had previously paid as PIP carrier from the $40,271 it owed in UIM benefits. We held that in order to recoup PIP payments from the combined tortfeasor and UIM fund created by the insured, the insurer must pay a pro rata share of the legal expenses incurred by the insured in creating the fund. Id.
The essential facts of this case are nearly identical to the essential facts in Winters. Woodley obtained a UIM arbitration award of $450,000 and a tortfeasor settlement in the amount of $300,000. Safeco deducted both the tortfeasor recovery and the $56,435.25 it had previously paid as PIP insurer from the $450,000 it owed in UIM benefits. Pursuant to Winters, Woodley argues that Safeco should pay a pro rata share of the legal expenses she incurred to recover from the tortfeasor and arbitrate the UIM claim.
To distinguish the facts of this case from the facts of Winters, Safeco argues that it did not participate in the common fund created by Woodley because it purports to have waived any interest in the funds recovered from the tortfeasor after the arbitration for UIM benefits concluded but prior to Woodley's settlement with the tortfeasor. Even though the settlement with the tortfeasor was not finalized, however, Safeco notified Woodley immediately following the conclusion of the UIM arbitration that it planned to take a $300,000 setoff from its $450,000 UIM obligation based on the tortfeasor's liability limits and planned to recoup the PIP benefits it previously paid from the arbitration award. Therefore, whatever interests Safeco felt comfortable waiving, it is clear that it retained two important interests: (1) its right to set off the $300,000 tortfeasor recovery, and (2) its right to reimbursement of its PIP payments.
After the arbitration award, Safeco tendered Woodley a check for only $93,564.75 ($450,000 UIM award, minus $300,000 tortfeasor recovery setoff, minus $56,435.25 offset for prior PIP payments) instead of the full UIM award of $450,000. Thus, contrary to Safeco's assertions, it did participate in the common fund created by Woodley, for purposes of the pro rata sharing rule, by taking the $56,435.25 PIP reimbursement offset.
Like the insurance company in Winters, Safeco "seems to forget that it has written and received premiums for separate and different coverages." Id. at 882, 31 P.3d 1164. Woodley generated a common fund comprised of a...
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