Matsyuk v. State Farm Fire & Cas. Co.

229 P.3d 893

Olga MATSYUK, individually, and on behalf of all those similarly situated, Appellant, v. STATE FARM FIRE & CASUALTY CO., Respondent.

No. 64151-4-I.

Court of Appeals of Washington, Division 1.

March 29, 2010.

COPYRIGHT MATERIAL OMITTED

David R. Hallowell, Matthew James Ide, Seattle, WA, for Appellant.

Hozaifa Y. Cassubhai, Attorney at Law, Kenneth E. Payson, Stephen Michael Rummage, Seattle, WA, for Respondent.

APPELWICK, J.

¶ 1 Matsyuk was injured while riding as a passenger in a car. She recovered from the at-fault driver's insurance company, State Farm, under both the personal injury protection and liability coverages. Matsyuk then sought a pro rata share of her attorney fees from State Farm. Because Matsyuk's recovery of both liability and personal injury protection payments came from the tortfeasor's insurer, no common fund was created and fee sharing is not appropriate. The trial court properly granted State Farm's CR 12(b)(6) motion to dismiss her claims for attorney fees, breach of contract, conversion, bad faith, and Consumer Protection Act, chapter 19.86 RCW, violation and denied her motion for partial summary judgment on the attorney fees issue. We affirm.

FACTS

¶ 2 Olga Matsyuk and Omelyan Stremditskyy were in a car accident. Stremditskyy, the driver, was at fault and Matsyuk, the passenger, was injured. State Farm Fire & Casualty Company insured Stremditskyy's vehicle, including liability coverage and personal injury protection (PIP).¹ PIP coverage was available to Matsyuk as an occupant in Stremditskyy's vehicle, making her an additional insured even though she was not named in the policy. State Farm paid Matsyuk $1,874 under the PIP coverage.

¶ 3 Matsyuk then sued Stremditskyy for personal injury. Matsyuk and State Farm reached a settlement including a release of claims against Stremditskyy. The release stated,

For the sole consideration of Five Thousand Eight Hundred Seventy-Four and No/100th Dollars ($5,874.00) (Four Thousand and No/100th dollars ($4,000) in addition to payments made/to be made under the Personal Injury Protection coverage in the amount of One Thousand Eight Hundred Seventy-Four and No/100th Dollars ($1,874.00)), the receipt and sufficiency whereof is hereby acknowledged, OLGA MATSYUK, the undersigned, hereby releases and forever discharges OMELYAN STREMDITSKYY....

State Farm then gave Matsyuk a check for $4,000. State Farm stated that it would not pay a pro rata share of Matsyuk's legal expenses incurred in obtaining the liability recovery.

¶ 4 Matsyuk then brought this lawsuit against State Farm for failing to share in her legal expenses, claiming bad faith, conversion, breach of contract, and Consumer Protection Act (CPA) violations. State Farm moved under CR 12(b)(6) to dismiss Matsyuk's complaint for failure to state a claim on which relief can be granted. Matsyuk moved for partial summary judgment on whether State Farm was required to pay a share of her legal expenses incurred in obtaining the liability recovery. The trial court granted State Farm's CR 12(b)(6) motion and denied Matsyuk's motion for partial summary judgment. Matsyuk timely appeals.

DISCUSSION

I. Standard of Review

¶ 5 Whether dismissal was appropriate under CR 12(b)(6) is a question of law that the court reviews de novo. San Juan County v. No New Gas Tax, 160 Wash.2d 141, 164, 157 P.3d 831 (2007). Under CR 12(b)(6), dismissal is appropriate only when it appears beyond doubt that the claimant can prove no set of facts, consistent with the complaint, which would justify recovery. Id. Such motions should be granted sparingly and with care, and only in the unusual case in which the plaintiff's allegations show on the face of the complaint an insuperable bar to relief. Id.²

¶ 6 A motion for summary judgment presents a question of law reviewed de novo. Osborn v. Mason County, 157 Wash.2d 18, 22, 134 P.3d 197 (2006). We construe the evidence in the light most favorable to the nonmoving party. Folsom v. Burger King, 135 Wash.2d 658, 663, 958 P.2d 301 (1998). We grant summary judgment if "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." CR 56(c).

II. Sharing of Legal Expenses

¶ 7 The issue here is whether State Farm is required to contribute pro rata to Matsyuk's legal expenses, incurred in obtaining her liability recovery from Stremditskyy. Matsyuk argues that State Farm offset the PIP coverage against her liability recovery without sharing in her legal expenses, preventing her from being fully compensated. State Farm contends that it was not required to contribute to Matsyuk's legal expenses. State Farm argues that, under the policy, Matsyuk's liability recovery did not create a common fund to reimburse State Farm for its previous payment.

¶ 8 Generally, the American rule requires civil litigants to pay their own legal expenses unless so provided by contract, statute, or a recognized equitable ground. Dayton v. Farmers Ins. Group, 124 Wash.2d 277, 280, 876 P.2d 896 (1994). A recognized exception to this rule allows fee sharing in cases where litigants preserve or create a common fund for the benefit of others as well as themselves. Covell v. City of Seattle, 127 Wash.2d 874, 891, 905 P.2d 324 (1995).

¶ 9 An insurer may have a subrogation right in law, equity, or contract to the extent of payments to its insured. Mahler v. Szucs, 135 Wash.2d 398, 412-13, 957 P.2d 632 (1998).³ The insurer may seek reimbursement from the recovery its insured obtains from the party at fault, subject to limitations:

The general rule is that, while an insurer is entitled to be reimbursed to the extent that its insured recovers payment for the same loss from a tort—feasor responsible for the damage, it can recover only the excess which the insured has received from the wrongdoer, remaining after the insured is fully compensated for his loss.

This rule embodies a policy deemed socially desirable in this state, in that it fosters the adequate indemnification of innocent automobile accident victims.

Thiringer v. Am. Motors Ins. Co., 91 Wash.2d 215, 219-20, 588 P.2d 191 (1978) (citations omitted). To the extent the insured's recovery from the tortfeasor is in excess of the funds needed to make the insured whole, the fund is available to reimburse the insurer. Id. at 219, 588 P.2d 191. This reimbursement is a benefit to the insurer and makes the insured's recovery a common fund. Mahler, 135 Wash.2d at 426-27, 957 P.2d 632. The insurer being reimbursed from that fund must pay a pro rata portion of the fees incurred in obtaining it. Id. The purpose of this rule is to ensure equity: "`It is grossly inequitable to expect an insured, or other claimant, in the process of protecting his own interest, to protect those of the insurer as well and still pay counsel for his labors out of his own pocket, or out of the proceeds of the remaining funds.'" Mahler, 135 Wash.2d at 425 n. 17, 957 P.2d 632 (alteration in original) (quoting 8A JOHN A. APPLEMAN & JEAN APPLEMAN, INSURANCE LAW & PRACTICE § 4903.85, at 335 (1981)).

¶ 10 Mahler is the first in a line of automobile insurance cases clarifying the fee sharing rule. Mahler applied the common fund doctrine when the insured recovered from a fully insured tortfeasor and reimbursed PIP payments received from her insurance carrier. Id. at 436, 957 P.2d 632. Winters v. State Farm Mutual Automobile Insurance Co. employed the common fund doctrine when the insured recovered funds from an underinsured tortfeasor and her own underinsured motorist (UIM)⁴ coverage and reimbursed PIP payments from her own insurance carrier. 144 Wash.2d 869, 880, 31 P.3d 1164 (2002). Finally, Hamm v. State Farm Mutual Automobile Insurance Co. applied the common fund doctrine where the tortfeasor was uninsured and paid nothing. 151 Wash.2d 303, 318-19, 88 P.3d 395 (2004). Hamm qualified as an insured and recovered both PIP and UIM payments under the same policy. Id. at 306-07, 88 P.3d 395. When the insurer offset amounts owed under the UIM coverage for amounts paid under the PIP coverage, it received a benefit, a reimbursement of the PIP payments. Id. at 312-13, 88 P.3d 395.

¶ 11 The only case to address whether the common fund doctrine requires the sharing of legal expenses where both PIP and liability payments are made by the tortfeasor's insurer held that it was not.⁵ Young v. Teti, 104 Wash.App. 721, 726-27, 16 P.3d 1275 (2001). Matsyuk contends that the result in that case cannot be reconciled with the subsequent decision in Hamm. We disagree.

¶ 12 Hamm was injured and was paid PIP benefits under the policy covering her. Hamm, 151 Wash.2d at 306, 88 P.3d 395. The tortfeasor was uninsured, so Hamm was also entitled to recover under the UIM coverage of the same policy. Id. The insurer stood in the shoes of the tortfeasor. Id. at 308-09, 88 P.3d 395. The combination of funds recovered was in excess of the amount needed to make Hamm whole. Id. at 320-21, 88 P.3d 395. The insurer offset⁶ the amount it had paid under PIP coverage against the amounts due under the UIM coverage, as provided in a nonduplication of benefits clause. Id. at 311-12 & n. 4, 88 P.3d 395. The offset benefitted the insurer in its capacity as the PIP carrier by allowing it to be reimbursed without making a post recovery claim against its insured. Id. at 313, 88 P.3d 395. The court held, "An insurance company may not, however, style this offset as a reduction of any amount owed under UIM coverage, rather than a PIP reimbursement, in order to avoid paying a pro rata share of the insured's legal expenses." Id. at 321, 88 P.3d 395.

¶ 13 Here, the nonduplication of benefits clause⁷ was not a means of achieving reimbursement while avoiding fee sharing, as in Hamm. Matsyuk was a third party beneficiary of the insurance contract, not a party to the contract. State Farm had no contractual right of reimbursement from Matsyuk's recovery fund for the PIP payments...