United Services Auto. Ass'n v. Hills

• Citation: 172 Neb. 128,2 A.L.R.3d 1422,109 N.W.2d 174
• Decision Date: 28 April 1961
• Docket Number: No. 34860,34860
• Parties: , 2 A.L.R.3d 1422 UNITED SERVICES AUTOMOBILE ASSOCIATION, a Corporation, Appellant-Cross-Appellee, v. Lyle Q. HILLS, Appellee-Cross-Appellant.
• Court: Supreme Court of Nebraska

Page 174

109 N.W.2d 174

172 Neb. 128, 2 A.L.R.3d 1422

UNITED SERVICES AUTOMOBILE ASSOCIATION, a Corporation, Appellant-Cross-Appellee, v. Lyle Q. HILLS, Appellee-Cross-Appellant.

No. 34860.

Supreme Court of Nebraska.

April 28, 1961.

Syllabus by the Court.

1. The right of a stakeholder to interplead and have the interests of adverse parties in the fund determined is an equitable proceeding.

2. Where an insured, having partial insurance coverage, sustains a loss in excess of the amount of such coverage, he may properly proceed against the wrongdoer for the total loss sustained.

3. If in such proceeding he collects for the damages for which he was compensated by his insurance carrier, such insurance carrier is entitled to assert its right to an equitable subrogation thereto.

4. Where the holder of the subrogation right in such a case asserts his right to equitable subrogation in the avails of litigation or settlement created by the efforts of insured and his attorney, and the insurance company fails to make or offer to make, itself a party to the action against the wrongdoer, or in any manner to assist in the prosecution of the claim or contribute towards the expense thereof, although having full knowledge of its pendency and object, the insured is entitled to retain a proportionate share of the expenses, including attorney's fees, incurred in the recovery from which the insurance company will benefit to the extent of its subrogation claim.

5. Such recovery of expenses and attorney's fees in such case is not based on the relation of attorney and client, but on the equitable theory that one who incurs expenses for the recovery of money for the benefit of a holder of a right of equitable subrogation should be permitted to reimburse himself for the share of the expense that was for the benefit of the holder of the subrogation right.

6. The recovery of expenses including attorney's fees in such a case is not a claim in which an attorney's fee can be allowed as a part of the costs within the purview of section 25-1801, R.R.S.1943.

Eisenstatt & Lay, John J. Higgins, Jr., Omaha, for appellant.

Thomas Carey, Lyle Q. Hills, Omaha, for appellee.

Heard before SIMMONS, C. J., and CARTER, MESSMORE, YEAGER, WENKE, SPENCER and BOSLAUGH, JJ.

CARTER, Justice.

This is an action for a declaratory judgment brought by the United Services Automobile Association against Lyle Q. Hills and Allstate Insurance Company. The trial court found for the defendant Hills and against United Services Automobile Association. The latter has appealed.

For convenience we shall refer to the plaintiff as United, to the defendant Lyle Q. Hills as Hills, and to the Allstate Insurance Company as Allstate. The controlling facts are not in dispute, although there are variations in the evidence that do not appear material to the decision of the case.

Albert E. Dawson was the owner of an automobile which United had insured against loss caused by collision by a $50 deductible policy. On April 1, 1957, a loss occurred while the automobile was being operated by the wife of Dawson. United employed the Crocker Claims Service to adjust the claim. One Welch, an employee of Crocker, adjusted the claim and paid for Dawson on behalf of United the sum of $454.93, the same being the amount of the damage less $50. In he proof of loss executed by Dawson the latter agreed with United that in case of recovery for the damage from a third person United would be subrogated, that Dawson would permit suit in his name by United, and that he would cooperate and give all reasonable assistance in the enforcement of its right of subrogation. There was no assignment of any part of Dawson's claim to United.

After the accident Dawson and his wife retained Hills, an attorney, to represent them in an action against one Yanovich, the driver, and one Miller, the owner of the other car involved in the accident. Hills investigated the facts preparatory to legal action. He interviewed Welch as to the results of his investigation, informed him of his intention to sue, inquired if United desired him to handle its subrogation claim, and informed Welch of his fee arrangement with Dawson. Welch advised Hills that he would inquire of United as to its wishes as he was without authority to act in the matter. Hills heard nothing further from Welch or United and commenced the action against Miller in June or July 1957. On December 5, 1957, Welch advised Hills by letter, at the instance of United, to delete the subrogation claim of United from his cause of action. Hills advised that the cause of action was Dawson's and could not be split, and proceeded with negotiations for settlement then pending. See Shiman Bros. & Co. v. Nebraska Nat. Hotel Co., 143 Neb. 404, 9 N.W.2d 807; Dixon v. Coffey, 161 Neb. 487, 73 N.W.2d 660; Hayward v. State Farm Mut. Automobile Ins. Co., 212 Minn. 500, 4 N.W.2d 316, 140 A.L.R. 1236.

Allstate had issued a policy of insurance on Miller's automobile, insuring against public liability. After the action was commenced a settlement was negotiated between Allstate and Dawsons in the amount of $3,500. It is undisputed in this record that United had advised Allstate and Hills as attorney for the Dawsons of its right of subrogation and Allstate had informed United that if and when a settlement was made with the Dawsons it would protect the subrogation rights of United.

When the $3,500 was ready for payment, Hills requested Allstate's attorney to issue two drafts, one for $454.93 payable to United and Hills and one for $3,045.07 payable to the Dawsons and Hills. This was done by agreement, as a matter of convenience, to permit the Dawsons to get their money promptly. Allstate, having notice of the amount of United's subrogation claim, protected it as agreed, by including United as a copayee with Hills on a draft for the amount of United's claim. Hills claims 33 1/3 percent of the draft for $454.93 as an attorney's fee pursuant to fee arrangement with the Dawsons. The only issue before the court is the interest of Hills, if any, in the draft for $454.93.

We point out that ordinarily an insurance carrier such as Allstate would have adequately protected itself against the claims of others to the fund by issuing one draft for the full amount of the settlement and making all persons known to have an interest in the fund copayees therein. In the instant case the fund, by mutual agreement, was paid by two drafts by which the rights of all claimants were protected. The rights of the parties remain the same as if the whole amount were in one draft with all claimants listed as payees therein. When the present issue arose between United and Hills, this case was commenced by United against Hills and Allstate to have the rights of the parties determined. Allstate alleged that it had no interest in the litigation, asserted that it was in the position of a stakeholder, paid the $454.93 into court, and was dismissed from the case, in accordance with a stipulation of the parties.

A party may resort to a declaratory judgment proceeding whether it be an action in law or equity. In such a proceeding, where a question of fact is involved, such issue may be tried and determined in the same manner as issues of fact in other civil actions. Section 25-21,157, R.R.S.1943.

The present action is one of interpleader. Allstate as a defendant was authorized to interplead under the provisions of section 25-325, R.R.S.1943. Farming Corp. v. Bridgeport Bank, 113 Neb. 323, 202 N.W. 911. It was dismissed from the litigation by stipulation of the parties. No irregularities are asserted or are available by virtue of the stipulation. The right to interplead and have the interests of the adverse parties determined in a fund held by a stakeholder is an equitable proceeding and will be so treated on this appeal. Provident Savings & Loan Ass'n v. Booth, 138 Neb. 424, 293 N.W. 293.

It is the contention of United that Hills, standing in the shoes of the Dawsons to the extent of his claim, has no employment relation with United and cannot therefore recover from United. It cannot be questioned that Hills was not employed by United either expressly or impliedly. Ordinarily the right of a lawyer to compensation for his services depends upon a contract of employment, express or implied. But there are exceptions to this general rule. One exception is stated in a wellknown text as follows: 'An attorney who renders services in recovering or preserving a fund, in which a number of persons are interested, may in equity be allowed his compensation out of the whole fund, only where his services are rendered on behalf of, and are a benefit to, the common fund.' 7 C.J.S. Attorney and Client § 193b(2), p. 1098. And it is stated in the same section 'and the mere fact that some of the persons interested have employed counsel and opposed the suit which has benefited them, will not prevent their interests from being subjected to the payment of reasonable compensation to counsel who has succeeded in recovering or preserving the fund which is brought into the custody of the court.' See, also, Blacker v. Kitchen Bros. Hotel Co., 133 Neb. 66, 273 N.W. 836; Gamboni v. County of Otoe, 159 Neb. 417, 67 N.W.2d 489; Summerville v. North Platte Valley Weather Control Dist., 171 Neb. 695, 107 N.W.2d 425. While the foregoing cases do not sustain the claim of Hills, they do announce the underlying principle that does sustain it.

The applicable rule is that where the holder of the subrogation right does not come into the action, whether he refuses to do so or acquiesces in the plaintiff's action, but accepts the avails of the litigation, he should be subjected to his proportionate share of the expenses thereof, including attorney's fees. In the early case of Newcomb v. Cincinnati Ins. Co., 22 Ohio St. 382, 10 Am.Rep. 746, the rule was stated as follows: 'Where the assured, as in case of partial insurance, sustains a loss, in...