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INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN


Can insurer offset attorney fees?

In July 2005, Karen Weismann was operating her motorized mobility device when she was struck by a car driven by Darlene Kangas. Kangas had a personal automobile policy issued by Safeco Insurance Company of Illinois. Safeco paid Weismann $9,012.95 in personal injury protection (PIP) benefits. It also informed her lawyer that it intended to offset her settlement against Kangas by the entire amount it had already paid without reducing the offset by any share of Weisman's attorney fees and costs.

The parties eventually agreed that Weismann's total damages were $44,521.19. Safeco told Weismann that it planned to pay her $35,508.24, the difference between $44,521.19 and $9,012.95. Weismann argued that the $9,012.95 offset should be reduced by a proportionate share of her attorney fees and costs.

When Safeco disagreed, Weismann sent notice to Safeco and to the Washington state insurance commis­sioner alleging that Safeco's refusal to pay a share of her attorney fees and costs violated the Insurance Fair Conduct Act. Safeco later filed a complaint against Weismann. The trial court found in favor of Weisman and ordered Safeco to reduce its PIP offset by one third of the attorney fees and costs. Weismann also was awarded an additional $6,360 in attorney fees and costs. Safeco appealed.

On appeal, the Court of Appeals of Washington began its analysis of the case by noting that the state of Washington follows what is known as the American rule on attorney fees in civil cases. Under the American rule, litigants are responsible for paying their own attorney fees and costs unless there is a specific statutory authority, contractual provision, or other recognized grounds stating otherwise.

An exception to the American rule is the "common fund doctrine." Under this doctrine, a party that pursues litigation that results in a "fund" to which others also have a claim is entitled to recover litigation costs and attorney fees from that "fund." The doctrine is intended to prevent unjust enrichment on the part of the litigant.

Safeco argued that the trial court erred in requiring it to reduce its offset by a share of Weisman's attorney fees and costs because the common fund doctrine did not apply. According to Safeco, no common fund was created when Weismann recovered both PIP benefits and a liability award from the same insurance company.

The Court of Appeals of Washington agreed with Safeco. It found that Weisman's lawsuit did not created a common fund because Safeco was not in any better position after the litigation than it was before.

The decision of the lower court was reversed, and the case was remanded for judgment in favor of Safeco.

Weismann vs. Safeco Insurance Company of Illinois-No. 39323-9-II-Court of Appeals of Washington, Division 2-July 29, 2010-2010 WL 2961615.

Can insurer sue public adjuster?

In January 2007, Stefo and Adele Gubic's home and personal property were damaged in a fire. The Gubics were insured by Meridian Security Insurance Company. The construction and repair claim for the residence was settled for approximately $200,000; however, the parties disagreed as to the value of the personal property, most of which had been stored in a nearby barn since the fire.

Meridian's adjuster, Jim Baugues, inventoried the damaged property soon after the fire. Meridian believed that most of the Gubics' property was salvageable and made plans to have it transported for cleaning. The Gubics hired public adjuster Joe Hoffman to assist them with their personal property claim. Their agreement with Hoffman provided that he would be paid 10% of the amount the Gubics recovered, "regardless of who effect[ed] the adjustment or recovery."

After the Gubics entered into the agreement with Hoffman, the company that Meridian hired to clean the Gubics' damaged property was told not to transport the property for cleaning. At Meridian's request, the Gubics provided an inventory of the personal property, and Meridian responded that it needed more information. Hoffman sent a letter to Meridian stating that the inventory complied with Meridian's requirements. Meridian offered to settle the claim for $32,247.25, but the Gubics rejected the offer and requested an appraisal. Meridian refused to conduct an appraisal and stopped paying the fees to store the Gubics' personal property.

On July 23, 2007, the Gubics filed a Petition for Umpire. Meridian scheduled an inspection of the property, but neither the Gubics nor Hoffman appeared at the inspection. Eventually the property was photographed and disposed of.

Meridian responded to the Gubics' petition and filed a counterclaim for declaratory judgment. The Gubics amended their complaint, alleging various claims against Meridian. Meridian responded to these allegations by asking the court to find that the Gubics had engaged in fraudulent behavior.

Meridian's response also contained several allegations against Joe Hoffman. The insurer alleged that Hoffman had breached terms in the insurance policy, failed to act in good faith, engaged in spoliation of evidence and fraud, committed unauthorized practice of law, and tortiously interfered with Meridian's business and contractual relationship with the Gubics. Meridian also alleged that Hoffman should be required to indemnify Meridian for its damages. Hoffman responded by asking the court to dismiss all allegations against him. The trial court granted Hoffman's request; Meridian appealed.

On appeal, Hoffman argued that Meridian's claims against him were not actionable under Indiana law. The Court of Appeals of Indiana agreed. The court stated that the role of a public adjuster was defined by statute and that the Gubics had employed Hoffman to act as their agent. The court then noted that the law provides that "a principal is bound by the acts of an…agent if the agent acted within the usual and ordinary scope of the business" and "[a]n agent is not liable for harm to a person other than his principal because of his failure adequately to perform his duties to his principal, unless physical harm results from reliance upon performance of the duties by the agent, or unless the agent has taken control of land or other tangible things."

Applying these principles of agency law, the court found that Meridian's claims against Hoffman were not actionable under Indiana law because Hoffman had no contractual relation­ship with Meridian. The court noted that Meridian's claims were "simply coverage defenses," which Meridian could raise against the Gubics, and that Meridian had not alleged any compensable damages.

The decision of the lower court in favor of Hoffman was affirmed.

Meridian Security Insurance Company vs. Hoffman Adjustment Company-No. 45A03-0911-CV-538-Court of Appeals of Indiana-August 18, 2010-2010 Westlaw 3250173.

Parties debate collateral source rule

In 2002, Dean Do was injured when his vehicle was struck by a vehicle driven by Julie Wagner, who was found to be the at-fault driver (tortfeasor).

At the time of the accident, Do's vehicle was covered by a personal automobile policy issued by American Family Mutual Insurance Company. The policy included $30,000 in no-fault medical expense benefits. After the accident, Do incurred medical bills totaling $40,853.13. Do submitted the bills to American Family for payment, but American Family paid only $865.50. American Family refused to pay the other bills on the grounds that Do's medical expenses were not reasonable, necessary, or related to the accident.

Do commenced a tort action against Wagner and reached a settlement with her automobile insurer, which paid Do $28,000 of her policy's $30,000 liability limit. The settlement payment was not allocated to any specific items of damage.

Do later commenced an action against American Family, seeking no-fault and underinsured motorist benefits. Do's action proceeded to trial, and the jury returned a verdict against American Family, awarding Do damages of $49,416.13. The jury award included $39,416.13 for past medical expenses, $5,000 for past pain and disability, and $5,000 for future pain and disability.

American Family filed a post-trial motion for a collateral source offset and amended findings. The district court found that under Minnesota law the $28,000 payment from Wagner's insurer was a collateral source. Therefore, the district court deducted the $28,000 settlement payment and the $865.50 in no-fault benefits previously paid by American Family from the jury verdict of $49,416.13, resulting in a net award of $20,550.63. The court reasoned that if there were no offset for the settlement payment, there would be a total recovery of $58,000, which would result in a "double recovery" contrary to the state's no-fault act. Do appealed.

The court of appeals affirmed the district court's judgment, concluding that Do's prior settlement with Wagner's insurer was a collateral source under Minnesota law and therefore the district court did not err in deducting the $28,000 settlement payment from the ultimate jury award against American Family. Do then petitioned for review, asking the Supreme Court of Minnesota to decide if the district court and the court of appeals correctly classified the $28,000 settlement payment from Wagner's insurer as a collateral source under state law. The Supreme Court granted the petition.

In its review, the Supreme Court noted that a claim for no-fault benefits is separate and distinct from a tort claim against the tortfeasor and the tortfeasor's insurer. The court cited a provision in the Minnesota no-fault law that states: "A no-fault insurer has a duty to provide basic economic loss benefits to reimburse an injured person's loss even when the injured person is entitled to compensation for the same loss from a different source."

The court then added: "But the No-Fault Act does provide statutory offsets to avoid duplicate recovery. When an injured person brings a negligence action, an offset provision requires the court to deduct from any tort recovery the value of no-fault benefits paid or payable by the no-fault insurer:…"

Turning to an examination of the collateral source statute, about whose wording the court noted that it had concerns, the court cited an earlier case in which it stated that "a tortfeasor's liability insurance payment does not trigger" the collateral source statute. Quoting from its opinion in that case, the court said that "while it might not be precisely clear exactly what the legislature meant to include as a collateral source, it is patently clear that a tortfeasor's liability insurance can never be within the definition of collateral source."

Consistent with that opinion, the court concluded that because the jury had found that Do reasonably incurred medical expenses that exceeded the $30,000 medical expense limits of his American Family policy, he was entitled to recover from American Family the policy limits of $30,000 minus the $865.50 previously paid.

Do vs. American Family Mutual Insurance Co.-No. A07-1461-Supreme Court of Minnesota-March 25, 2010.

Insured alleges ambiguity in med pay provision

Lauren Hervey purchased an automobile insurance policy from Mercury Casualty Company. The policy included a medical expense endorsement that contained, among other things, the following language:

"This endorsement forms part of the policy shown below, all other terms and conditions of this policy remain unchanged.…MEDICAL EXPENSE-NO EXCESS, NO REIMBURSEMENT. Condition 3 of Part II and Exclusion (J), Part II, are hereby deleted from the policy." The policy declarations page specified $5,000 medical expense coverage, and the box titled "No Excess, No Reimbursement" was checked.

The provision deleted by the medical expense endorsement in Part II ["EXPENSES FOR MEDICAL SERVICES-CONDITIONS"], condition 3 of the policy, provided in part: "Reimbursement Agreement-Offset Provisions: If payment is made under this coverage [Expenses for Medical Services], to or on behalf of any person, such person agrees to reimburse the company to the extent of such payment from the proceeds of (a): any settlement or judgment that may result from the exercise of any rights of recovery of such person against any party that such person claims is responsible for bodily injury to the person for which payment under medical expense coverage has been made. (b) any payment received or to be received by or on behalf of an injured person under the provisions of any (1) automobile or premises insurance affording benefits for medical expenses, (2) individual blanket or group accident, disability or hospitalization insurance, (3) medical, surgical, hospital or funeral service, benefits or reimbursement plan, (4) workers' compensation or disability benefits law or any similar law."

The medical expense endorsement also deleted Exclusion (j) of Part II, which excluded from coverage "expenses payable under this part, if the expenses are paid, payable or eligible for payment under the terms and conditions of any (1) automobile or premises insurance affording benefits for medical expenses, (2) individual, blanket, or group accident, disability or hospitalization insurance, (3) medical or surgical reimbursement plan, (4) non-profit association or corporation plan providing hospital, surgical, medical or similar benefits to participants, enrollees or members. No payment shall be made under this part until claim for the expenses incurred shall have been first submitted to the benefit providers listed in (1) thru (4) above, and such providers have paid their limit of payment or furnished their applicable limit of service and the insured furnishes a written statement from the provider(s) as proof. No payment shall be made under this part for medical expenses incurred which the insured is not required to pay."

Hervey was involved in an automobile accident caused by an uninsured driver. Hervey filed a claim under her policy's medical expense coverage, and Mercury paid the medical expenses she incurred as a result of the injuries she received in the accident. Thereafter, Hervey claimed amounts under the uninsured motorist section of her policy for the injuries she suffered as a result of the same accident. Mercury agreed to settle the uninsured motorist claim but said it would offset against any amount payable for uninsured motorist coverage the amount it had paid Hervey under the medical expense coverage.

Hervey filed suit against Mercury, alleging breach of contract and a violation of the California Unfair Competition Law and seeking declaratory relief.

The trial court entered judgment in favor of Mercury, and Hervey appealed.

On appeal, Hervey contended that the "NO REIMBURSEMENT" in large print on the medical expense endorsement, along with the checked box for "No Reimbursement" next to the medical expense coverage on the declarations page, conveyed that Mercury would not seek reimbursement or offsets of medical expense payments as a result of payments from any source. She added that the retention of the right of reimbursement for uninsured motorist obligations was buried in the policy so that it was not "conspicuous," "plain and clear" as required by a previous court decision.

The higher court disagreed with Hervey's interpretation, noting: "An insured would not normally expect that he or she would receive from the insurer two payments covering the same injury. Under the medical expense provisions of the policy, the insured here could receive from a third party a payment for his or her injury without having to credit or pay back the insurer for medical payments for the same injury. But it would seem anomalous to expect the insurer itself to pay twice for the same injury, once under the medical expense coverage of the policy and again under the uninsured motorist coverage of the policy. We conclude that the condition is conspicuous, plain, and clear and thus enforceable."

Hervey vs. Mercury Casualty Co.-185 Cal.App.4th 954, 110 Cal.Rptr.3d 890-Cal.App. 2 Dist.- June 17, 2010.

 
 
 

 

 
 
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
 

 

 
 
 

 


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