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On February 9, 2012 the Washington State Supreme Court synthesized, clarified, and expanded the pro rata fee sharing rules first announced in Mahler, and elaborated upon in Winters, and Hamm. In the consolidated cases of Weismann v. Safeco Insurance Company and Matsyuk v. State Farm & Casualty Co., the Supreme Court looked at whether an insurer could offset funds paid under PIP coverage without contributing its pro rata share of fees and costs when the plaintiffs also recovered from the tortfeasor’s liability coverage found in the same policy.
In Matsyuk, the plaintiff was involved as a passenger in an automobile accident. As such, she was an insured under the driver’s policy for PIP benefits. Plaintiff then sued the driver and reached settlement whereby State Farm paid under the driver’s liability coverage. In Weismann, a motorist struck the plaintiff while she was operating a motorized wheel chair. As a pedestrian she received PIP benefits under the motorist’s policy. She then sued the motorist. The parties agreed to plaintiff’s total damages, but Safeco offset the PIP benefits she received when it issued payment. Both insurers refused to pay their proportionate share of attorney’s fees and costs.
Matsyuk brought claims seeking contribution by Safeco for legal expenses, and also a claim for bad faith. Weismann filed a claim and then argued that she was entitled to fees and costs under the Olympic Steamship Rule. The Supreme Court rejected as irrelevant defense arguments based on subrogation principles. It also rejected a defense argument that the collateral source rule applied because if the cases proceeded to trial the defendants would be entitled to an instruction asking the jury to reduce their liability by the amount paid under the PIP policies with no accounting for attorney’s fees. The Court classified this as an evidentiary issue and not a proper defense. Finally, the Court rejected the non-duplication of benefits clause in the policies as inapplicable.
In the end, the Court found that Mahler, Winters, and Hamm support a finding that liability funds created a common fund triggering the equitable fee sharing rule. Finally, the Court allowed a bad faith claim based on plaintiff’s theory that State Farm improperly leveraged its position as a holder of liability settlement funds. Meanwhile, the plaintiff in Weismann was allowed fees under Olympic Steamship because the matter was characterized as a coverage dispute and not one about the value of the reimbursement right.
We do not find the ruling a great surprise. Since Mahler the Washington State Supreme Court has steadily expanded an insurers duty to pay its pro rata share of attorney’s fees and costs based on the common fund theory, regardless of how that fund is created or who is actually making the payments.