Tuesday, August 25, 2009
S.C. Clarifies Rule on Attorney Fees in ‘Med-Pay’ Dispute
By SHERRI M. OKAMOTO, Staff Writer
An automobile insurer is not liable for attorney fees incurred by an insured in order to obtain medical payment compensation from a third party tortfeasor, the California Supreme Court said yesterday in a unanimous decision.
Affirming the Fourth District Court of Appeal’s unpublished 2007 ruling, the state high court clarified that Silvia Quintana had to be “made whole” as to all damages caused by her 2003 car accident but that her attorney fees in securing compensation from a third party were subject to a separate equitable apportionment between her and her insurer.
Quintana had received $1,000 from 21st Century Insurance Company, pursuant to her auto insurance policy’s medical payment coverage. She also sued the third party tortfeasor, incurring $2,106.50 in attorney fees, and settled her action for $6,000.
Her insurer then requested reimbursement of $600, having calculated its pro rata share of the attorney fees Quintana expended in collecting damages from the third party tortfeasor as $400.
Asserting that 21st Century could not lawfully require any reimbursement, Quintana filed a class action against the insurer alleging violation of Business and Professions Code Sec. 17200, conversion, and unjust enrichment.
She argued that she had not been made whole by the $6,000 settlement and $1,000 insurance disbursement since she only recovered a total of $4,893.50 after taking her litigation expenses into account,
The insurer demurred to her complaint, contending that Quintana did not state a cause of action because California law includes no attorney fees or costs in the made-whole calculation and that reimbursement for attorney fees is separately determined under an equitable apportionment rule.
San Diego Superior Court Judge Kevin A. Enright overruled the demurrer, and the Fourth District Court of Appeal subsequently considered 21st Century’s petition for a writ of mandate along with four others which raised the identical legal issue against different insurers.
A divided Div. One panel granted 21st Century’s writ petition and ordered the trial court to vacate its judgment and enter a new order sustaining the demurrer.
The opinion by Justice Judith L. Haller—in which Justice Alex C. McDonald joined—held that the made-whole rule does not require an insurer seeking reimbursement to consider the attorney fees the insured expended in recouping her losses from a third party tortfeasor.
Justice Gilbert Nares disagreed, citing his dissenting opinion in Allstate Insurance Company v. Superior Court (Delanzo), 60 Cal.Rptr.3d 782, which advocated for an interpretation of the made-whole rule that would require attorney fees be deducted from the total amount recovered in the third party tortfeasor litigation.
Writing for the California Supreme Court, Justice Ming W. Chin was persuaded by the intermediate appellate court majority’s reasoning, based on the limited nature of medical payment compensation insurance coverage.
Noting that Quintana’s coverage provided her with the benefit of expedient medical payments at lower premiums in the event of an accident and permitted her to retain the insurance payment if she did not recover those expenses directly from the third party tortfeasor, Chin reasoned that Quintana should be responsible for the attorney fees and costs necessary to recover her uninsured damages.
Quintana was entitled to full compensation for her damages before the insurer could demand reimbursement, Chin said, but he clarified that the attorney fees and costs of the third party litigation should be apportioned pro rata because she had recovered for both insured and uninsured losses.
Such apportionment, he concluded, ensured that 21st Century paid its fair share of attorney fees and costs according to what the parties had contracted for and the risks that each party had agreed to bear.
Justice Joyce L. Kennard wrote separately, explaining that she agreed with the result but arrived at the same conclusion via different reasoning.
She opined that equitable apportionment of attorney fees between an insurer and insured so that the insurer pays only the litigation expenses attributable to recovery of the benefits it was contractually obligated to provide “more appropriately complies with the dictate of the American rule that parties must bear their own litigation expenses.”
Justice Kathryn M. Wedegar also offered an alternate rationale for the majority’s conclusion in her separate concurrence, opining that the approach proposed by the plaintiff would “add to the procedural differences between reimbursement and subrogation significant substantive differences, with insureds recovering and retaining more under reimbursement than they would under subrogation, and insurers recovering less,” thereby creating “significant disparities in the treatment of similarly situated insurers, as well as anomalies in the treatment of insureds.”
John T. Brooks of Luce, Forward, Hamilton & Scripps argued before the California Supreme Court on behalf of 21st Century while Quintana was represented by Robert S. Gerstein.
The case is 21st Century Insurance Company v. Superior Court (Quintana), 09 S.O.S. 5127.
Copyright 2009, Metropolitan News Company