Introduction
Appellant Monica Fisher was injured and her brand new car totally destroyed when she was rear-ended while waiting to turn left from SR 9 into her aunt and uncle's driveway. This should have been a clear case of liability and damages, but the tortfeasor's insurance company contested liability and damages, forcing Fisher's attorney, Patrick LePley, to investigate the crash, file this lawsuit, conduct discovery, move for summary judgment, and eventually settle for $40,000 shortly before trial.
Fisher's own insurance company, State Farm, paid some, but not all, of her medical expenses and wage loss, in the amount of $12,223. State Farm demanded and eventually collected its subrogated $12,223 from the $40,000 settlement.
The issue before this Court is whether State Farm must pay a pro rata portion of the legal expense incurred in investigating, prosecuting, and settling Fisher's claim. State Farm's position is that it never has to pay a penny of the expense of prosecuting the claim because its subrogated interest is "recoverable" in inter-company arbitration from the tortfeasor's insurer even after the injured plaintiff has settled with and released the tortfeasor. Fisher's position is that State Farm's subrogated interest is no longer "recoverable" and that fundamental principles of equity and fairness require that State Farm share in the expense of creating the settlement fund from which State Farm has been reimbursed.
Assignment of error and issues
a. Assignment of error
The trial court erred in granting State Farm's motion for summary judgment and in denying Fisher's motion for summary judgment.
b. Issues pertaining to assignments of error
Fisher incorporates by this reference all of the issues set forth by Elaine Mahler in the consolidated case of Mahler v. State Farm, Supreme Court No. 64344-0. Fisher states the following additional issues.
1. Where State Farm shared in Fisher's recovery from the party at fault, must State Farm pay its share of the legal expenses under State Farm's policy language that "if the insured recovers from the party at fault and we share in the recovery, we will pay our share of the legal expenses"?
2. Does res judicata preclude a subrogated insurance carrier from re-litigating in inter-company arbitration the liability of the underlying tortfeasor where the insured has already settled with and released the tortfeasor from all claims?
3. Does a conflict of interest arise when the plaintiff's lawyer recovers both the third-party insurer's subrogated interest and the injured plaintiff's non-subrogated interest?
4. Must State Farm pay its share of Fisher's legal expenses subject to challenging the reasonableness of plaintiff's attorney's fee under RCW 4.24.005?
5. Were Lepley's services reasonable and necessary such that State Farm must pay a proportionate share of Lepley's legal fee?
6. Is Fisher entitled to an award of attorney fees under Olympic Steamship where State Farm disputes a specific aspect of its coverage--the obligation to contribute to attorney fees--as opposed to the amount of the fees?
Statement of the case
a. Plaintiff Monica Fisher's car was struck from the rear by a car driven by an employee of defendant Aldi Tire, Inc.
This case arises out of an automobile collision on December 29, 1991. Plaintiff Monica Fisher was driving on SR 9 south of the town of Snohomish when she slowed and stopped to turn left into the driveway of her aunt and uncle's house. CP ___ [Sub 18, p. 1] Fisher described the circumstances of the collision:
I looked in my rear view mirror just in time to see a truck barreling down upon me. I knew at that time the vehicle was not going to be able to stop in time. I heard the brakes squeal and I could see the truck shuddering behind me. . . . The next thing I recall just an instant later was glass breaking, metal bending and I could smell burnt rubber. The force of the impact made me hit my chest on my hands which were braced on the steering wheel and my left shoulder hit the door and I was slammed backwards and broke the back of my seat.
It was difficult for me to get out of my vehicle, because I was hit so hard the door was jammed, even though it was not locked. Someone broke glass and reached in and tried to get me out of the vehicle. Later on, an ambulance arrived and I was taken to Stevens Memorial Hospital. The vehicle I was driving that night was a brand new Mitsubishi Eclipse which I had purchased less than two hours prior to the collision from Aurora Mitsubishi in North King County. My vehicle was a total loss as a result of this incident.
CP ___ [Sub. 18, pp. 2-3] Photos of Fisher's totaled Mitsubishi are found at CP 85-86. Fisher suffered cervical and lumbar injuries. Sub. 65:2. She was off work for a month following the collision and then returned to work only part-time. Sub. 65:1. Her medical expenses exceeded $6800 and her wage loss exceeded $4200. Id.
Fisher retained attorney Pat LePley to represent her on a contingent fee basis in seeking to recover from Aldi Tire and its employee. Sub. 61:1-S.
b. Fisher was insured by respondent State Farm.
Fisher held a policy of automobile insurance with respondent State Farm. Sub. 61, p.4. The key language from the policy, Condition 3, "our right to recover our payments", is Appendix A to this brief. State Farm's insurance policy covered a newly acquired car if it replaced an existing car and if she notified State Farm within 30 days of delivery, Sub. 61:4, p. 3, and 45 days after the collision State Farm eventually acknowledged its responsibility to pay benefits under the policy. Sub. 61:5.
State Farm sent to Fisher an application for first party/Personal Injury Protection (PIP) benefits. Sub. 61:1-A. State Farm directed Fisher to "protect our reimbursement rights:"
All First Party Benefit payments we make to or for you are subject to Sate Farm's right of reimbursement. If you should recover our interest from the responsible party or their insurance carrier, you must protect our reimbursement rights.
Sub. 61:1-A.
State Farm sent a copy of this letter to Fisher's attorney, Pat LePley. Id. Even though State Farm knew that LePley was representing Fisher in connection with the collision, it did not tell LePley that it intended to collect its own subrogated interest. It did not tell LePley not to collect the subrogated portion of any recovery. It did not offer to assist LePley in any way.
LePley subsequently wrote to State Farm to protest State Farm's treatment of Fisher's health care providers, referring to Fisher as "my client/your insured." Sub. 61:1-H, 1-I. LePley never proposed to represent State Farm. He always stated that he represented Fisher.
State Farm eventually paid Fisher $12,223.53 in PIP benefits for medical expenses and wage loss under Fisher's first party insurance coverage. Sub. 61:1-J. This represented some, but not all, of Fisher's injuries. CP ___ [sub. 33] Fisher's medical expenses and wage loss totaled $20,580.72. CP ___ [sub. 30, p. 3]
The underlying tortfeasor was insured by Federated Insurance. State Farm sent a series of form letters to Federated advising Federated of State Farm's "subrogation or reimbursement rights." Sub. 61: 1-B through 1-G.
c. Fisher commenced this action against Aldi Tire and its employee Tinsley within a year after the collision.
LePley's investigation disclosed that the truck that struck Fisher was owned by Douglas Kreie, driven by Don Tinsley, and that Tinsley was employed by Aldi Tire, Inc. CP ___ [sub. 2, p. 1] Fisher commenced this action against Aldi Tire, Kreie, and Tinsley on August 10, 1992. LePley also deposed defendant Tinsley.
The defendants answered and admitted that Tinsley was within the scope of his employment, but denied that Tinsley was negligent or that his injuries caused Fisher's injuries. Sub. 65:24. The defendants also asserted that Fisher was comparatively at fault, that her damages were caused by a prior automobile accident in 1986, and that Fisher had failed to mitigate her damages. Id.
Fisher's case became somewhat more complicated when she was injured in another automobile collision on July 26, 1993. Sub. 65:3.
LePley negotiated with defense counsel to settle the case. But defendants took the position that Fisher was comparatively at fault:
For the purpose of settlement discussions, we concede it is likely Defendant Tinsley will be found at fault. However, we anticipate Ms. Fisher will also be found at fault. You may wish to review the transcript from Mr. Tinsley's deposition. He testified that there were no brake lights until very shortly before impact. Ms. Fisher never activated the turn signal. In other words, Ms. Fisher suddenly braked, with the intent of turning left across two solid yellow lines. As you know, a turn across two solid yellow lines is in violation of RCW 46.61.150.
Sub. 65:1. Defendants also claimed that a jury would "significantly discount the medical expenses." Id. Defendants offered to settle for $23,100:
Based on the information obtained to date, we anticipate the following gross verdict:
1. Medical expenses - $6,800;
2. Wage loss - $4,200; and
3. General damages - $22,000.
As addressed above, we anticipate a jury would assign fault to both Defendant Tinsley and Plaintiff. For the purpose of settlement negotiations, we are using a 70/30 split. Accordingly, Federated Insurance Company has authorized us to extend an offer of $23,100.
Sub. 65:1. Fisher rejected this offer, Sub. 65:2, instead proceeding with discovery from the State Trooper who had investigated the accident. Sub. 65:3.
LePley's investigation of Trooper Wilcoxson disclosed that defendant Tinsley had drunk three beers before the accident and that he appeared to be under the influence of intoxicants. CP ___ [sub. 20, p. 3.] Wilcoxson arrested Tinsley and administered a breathalyzer test showing a BAC of .10/.09. Id. Wilcoxson described the severity of the impact:
The field diagram indicates that Tinsley's truck skidded 107' before striking the Fisher vehicle. After striking the Fisher vehicle, the Tinsley truck veered slightly to the right and continued down the roadway another 64' before it came to a stop. . . .
After the Fisher vehicle was struck, it was pushed down the road approximately 56' and a portion of the front end of the vehicle ended up in the southbound lanes of State Route 9.
CP ____ [id at p. 4] Trooper Wilcoxson concluded that Tinsley was operating a vehicle under the influence of intoxicating liquor and/or drugs and that Tinsley's acts and omissions were the cause of the collision. CP ___ [id. at p. 5] Wilcoxson also laid to rest the defendants' contention that Fisher was illegally turning left: "Vehicles traveling northbound at this location of State Route 9 are permitted to make left turns into the private driveway on the west side of the roadway." Id.
Fisher moved for summary judgment of liability based on LePley's discovery and investigation. Sub. 65:4. Fisher also asked for a determination that she was not at fault in causing the collision.
Having put Fisher through the effort of discovery and preparing the motion for summary judgment, defendants advised LePley that they would not contest the motion for summary judgment of liability, asking him to prepare a proposed order. Sub. 65:9. LePley then drafted a Stipulation and Order Re: Liability and Contributory Negligence, obtained Aldi Tire's agreement, and had the Order entered by the Snohomish County Superior Court. Sub. 65:10.
d. State Farm refused to pay a proportionate share of Fisher's attorney fees incurred in seeking recovery from aldi tire.
Having established liability, LePley counteroffered to settle for $53,580.72. Sub. 65:11. On March 14, 1994, two months before trial, LePley advised State Farm of the ongoing settlement discussions and asked State Farm to agree to pay a proportionate share of Fisher's legal fees:
This matter is set for trial on May 9th, and I have had to do everything but hammer at the gates of hell to get this case settled, or to get it into a posture where it can be settled. . . .
I have an opportunity to settle this case for somewhere between $35,000 and $45,000, and I believe the settlement in that range would be pretty good. However, I am not going to whack $12,000 off the top and give it back to State Farm without you paying some consideration for the fact that I have had to battle the insurance carrier for the defendants every step of the way, both on liability and the reasonableness and necessity of this lady's medical treatment. State Farm obviously is aware of the issue regarding reasonableness and necessity of medical treatment since you cut off my client's PIP benefits based on an IME which I found to be very suspect.
In any event, let's talk about getting this case resolved. I feel the fair way to go is for State Farm to pay a pro rata share of the insured's fees and costs in this case, which I calculate to be around $3,900.
Sub. 65:12.
On March 29, less than two months before trial, State Farm responded that it would not pay any portion of Fisher's attorney fees but would seek its own recovery from Aldi Tire's insurer, Federated:
Please be advised that we will not waive or compromise our subrogated interest. We paid for reasonable and necessary medical expenses related to the loss, and we will collect directly from the adverse carrier.
Sub. 65:13.
Meanwhile, Federated offered to pay $40,000 for a complete settlement of Fisher's claims, both subrogated and non-subrogated. Sub. 65:6, 18. Fisher was willing to settle provided the parties could work out a satisfactory arrangement with State Farm. LePley wrote to Federated's attorney and to State Farm proposing that the subrogated amount of $12,223.53 either be paid into the registry of the court or else deposited into a special interest bearing account subject to withdrawal only by court order or agreement between Fisher and State Farm. Id. LePley also suggested that Fisher and State Farm agree upon "an appropriate forum in which to resolve the dispute which has arisen between us." Sub. 65:18. He suggested that State Farm consult with its attorneys and choose one of his proposals or else suggest another alternative for resolving the dispute. Id.
State Farm advised Federated's attorney that it would agree to depositing the subrogated amount of the settlement into the registry of the court pending determination of the rights to the subrogated fund. Sub. 65:16. LePley and Federated's attorney signed a settlement agreement under which Federated would pay $40,000--$27,776.47 to Fisher and $12,223.53 into the registry of the court. Fisher agreed to execute a release and to hold Federated harmless against State Farm's subrogation claims. Sub. 65:7, 8.
At this point, State Farm, having agreed to the procedure of depositing the subrogated funds into the registry of the court, changed its position and advised LePley by letter of April 25, 1994:
We are writing in response to your April 4, 1994 letter. Our position remains unchanged. We will collect our subrogation directly from the adverse carrier.
Sub. 65:19.
State Farm then retained attorney Harold Fosso. LePley wrote to Fosso on May 2, 1994, recounting Fosso's suggestion that the subrogated funds be deposited into court and advising Fosso that Federated and Fisher had agreed to do so:
I thought your suggestion the other day was interesting that we could go ahead and pay the subrogation interest into the court and then each of us file motions for disbursal of funds under that cause number as a way of resolving the claim.
Federated Service Insurance Company of California has asked for certain assurances regarding this settlement. They do not want to be sued or drug into intercompany arbitration if they pay the full value of the claim, i.e. $40,000.
The tentative process we have agreed to is to have the nonsubrogation portion paid directly to my client and myself and the subrogation portion paid directly into Snohomish Superior Court under the cause number designated in the case.
In any event, I will be interested in your thoughts.
Sub. 65:15.
Two days later, May 4, the Snohomish County Superior Court entered an order authorizing Federated to pay the subrogated amount into the registry of the court, authorizing Fisher to release and hold Federated harmless, and granting leave to Fisher to litigate State Farm's obligation to pay a proportionate share of her fees and costs:
The plaintiff is granted leave by this court to file a separate action against State Farm Mutual
under a different cause numberto litigate the issue of State Farm's entitlement to any and all of their claimed subrogation interest and to litigate the further question of whether or not State Farm is required to pay to Monica Fisher a pro rata share of attorney's fees and costs incurred in the prosecution and settlement of this particular lawsuit.Sub. 65:20 (strikethrough in original).
Federated paid $27,776.47 to Fisher and $12,223.53 to the Snohomish County Clerk. Sub. 65:23. Fisher signed a release of defendants and their insurers "from any and all claims, demands, actions, causes of action, suits, or causes of suit of every nature whatsoever" arising out of the collision. Sub. 65:25. Fisher also agreed to indemnify and hold the released parties harmless from all claims by State Farm and any other subrogated party:
It is further understood and agreed that this settlement is upon specific warranty, guarantee and representation that any and all outstanding liens and subrogated interests, including but not limited to State Farm's subrogated interest, liens for compensation benefits, hospital or medical care, or time loss, will be paid and the undersigned specifically promises and agrees to defend, indemnify and hold harmless the Released Parties from any such claim or lien by any person, entity, hospital, private or governmental agency . . .
Sub. 65:25.
Fisher then dismissed all claims against the defendants with prejudice. CP ___ [sub. 32, ex. 12]
e. After Fisher and Federated had agreed to settle for $40,000, State Farm demanded that Federated proceed to inter-company arbitration.
State Farm and Federated are parties to an agreement among insurance companies to arbitrate subrogation claims. Sub. 61:2. For over two years after the collision, State Farm did not demand arbitration. State Farm sent to Federated what appears to be a form letter suggesting that they make an effort to settle "their dispute prior to filing in arbitration." Sub. 61:1-J. The record does not include any response by Federated or any further settlement discussions.
On April 28, 1994, after Fisher and Federated had agreed to settle for $40,000 and to deposit State Farm's subrogated interest into court, State Farm finally demanded arbitration through Arbitration Forums, Inc., the organization administering the intercompany arbitration agreement. Sub. 65:21. State Farm was aware that Fisher and Federated had settled, having checked "no" in answer to the question, "are companion claims or suits pending?" Id. State Farm stated in an attachment to the arbitration form: "Liability is not an issue. The respondent [Federated] has accepted 100% liability." Sub. 65:22.
Federated responded to the arbitration demand:
Respondent did contest liability and damages.
However, since claim has settled, Respondent does not now contest liability, coverage or damages claimed by State Farm.
As we have advised State Farm, we have settled their insured's bodily injury claim including a separate check for $12,223.53. That check will be sent to the Registry of the Court to be disbursed as the Court sees fit upon resolution of State Farm's dispute with their own insured.
This clearly absolves Federated Service Insurance Company of any further responsibility to State Farm per our settlement agreement.
Sub. 65:22.
The arbitration never proceeded to a hearing. State Farm collected its subrogated interest from the registry of the court and then withdrew its demand for arbitration. Sub. 61, p. 14.
f. First appeal: the Court of Appeals reversed summary judgment remanded for determination whether State Farm's subrogation interest was recoverable through inter-company arbitration.
Fisher filed a complaint in interpleader against State Farm under this original cause number. Fisher and State Farm filed cross-motions for summary judgment. State Farm asked for an order disbursing to it the subrogated portion of the settlement placed in the registry of the court. CP ___ [sub. 36, p. 1] The Snohomish County Superior Court, Hon. Joseph Thibodeau, granted State Farm's motion. State Farm withdrew the subrogated funds from the registry of the court. Fisher appealed.
The Court of Appeals reversed the summary judgment. Fisher v. Aldi Tire, Inc., 78 Wn. App. 902, 902 P.2d 166 (1995), review denied 128 Wn.2d 1025 (1996). The Court focused on State Farm's policy language regarding State Farm's obligation to contribute to Fisher's attorney fees:
If the insured recovers from the party at fault and we share in the recovery, we will pay our share of the legal expenses. Our share is that per cent of the legal expenses that the amount we recover bears to the total recovery. This does not apply to any amounts recovered or recoverable by us from any other insurer under any inter-insurer arbitration agreement.
Sub. 61:4 at p. 26, quoted at 78 Wn.App. at 906.
Fisher argued that State Farm should contribute to her attorney fees because LePley's efforts had reasonably and necessarily benefited State Farm, relying on prior case law that "an insurer who makes a recovery from a third party for moneys paid its insured is only required to pay attorney fees which were 'reasonably and necessarily incurred' to make the recovery. Absent an agreement to the contrary, an insurer is only obligated for attorney fees if it is benefited." Pena v. Thorington, 23 Wn. App. 277, 281, 595 P.2d 61, review denied, 92 Wn.2d 1019 (1979) (quoting Ridenour v. Nationwide Mut. Ins. Co., 273 Or. 514, 516, 541 P.2d 1377 (1975)). See Fisher, 78 Wn.App. at 907. Fisher argued that a presumption should arise that the insured's attorney has benefited the first party insurance carrier whenever liability is contested. 78 Wn.App. at 907.
The Court of Appeals rejected Fisher's argument, holding that an insurance company and its insured can "agree" through the policy language to modify equitable principles of subrogation and to ignore the "reasonable and necessary" test of Pena v. Thorington. 78 Wn.App. at 908. But the Court reversed the summary judgment and remanded for a determination whether the inter-company arbitration merely operates "as a clearinghouse for predetermined disputes":
Finding the insurance contract controlling, however, does not conclude our analysis. For summary judgment to be proper, State Farm must demonstrate that the contract is clear and unambiguous. The policy states that State Farm will share responsibility for attorney fees incurred to recover subrogated amounts unless the subrogation interest was "recovered or recoverable by us from any other insurer under any inter-insurer arbitration agreement." Because State Farm did not recover the funds at issue through arbitration, our attention focuses on the term "recoverable." We do not agree with State Farm that this term simply refers to whether the insurers have entered into an arbitration agreement. Instead, the language of the provision speaks in terms of a factual inquiry. Arbitration, by definition, presupposes a controversy requiring resolution. In general, when recovery is sought through arbitration, it can be assumed that the amount is contested. When liability and other controverted issues are determined in the underlying tort claim, nothing remains unsettled and, therefore, dispute-resolution is unnecessary. In that case, inter-company arbitration between insurers would simply operate as a clearinghouse for predetermined disputes and could be used to avoid payment of attorney fees even though the insurer would be sharing in the recovery.
Thus, in the present circumstances, if inter-company arbitration works merely as a rubber stamp of personal injury litigation, subrogated funds are not, in reality, recoverable through inter-company arbitration. If arbitration is not the vehicle that provides the recovery, the limitation in the insurance policy would not apply and State Farm would be obligated to share responsibility for attorney fees as set forth in the policy. In light of the need for further factual inquiry, therefore, summary judgment was not proper on the issue of whether the policy required State Farm to pay a part of the legal expenses.
78 Wn.App. at 909-10.
f. On remand, the superior court again granted summary judgment to State Farm.
On remand, State Farm provided additional record materials regarding inter-company arbitration. Arbitration Forums, Inc. (AFI) is a non-profit corporation organized by insurance companies to resolve disputes among insurers. Sub. 61:2 at p.2. The "personal injury (no-fault) arbitration agreement" applies both to no-fault statutes and PIP endorsements. CP 168. (Copy attached as Appendix B.) The signators agree:
Signatory companies bind themselves to arbitrate all disputes arising from the pursuit of subrogation, reparations, reimbursement, indemnity or direct action recovery rights created by the payment of claims or benefits to insureds . . . created by a Voluntary Personal Injury Protection Endorsement . . .
CP 168.
State Farm filed the declaration of AFI's Seattle Field Office Manager stating in part:
The arbitrator(s) are not bound by any settlement agreement or judgment entered in litigation instituted by the insured for his or her personal damages. There are cases in which there has been a verdict in favor of the alleged tortfeasor in a third party liability action, but the arbitrator(s) in the AFI arbitration proceeding have nevertheless granted the applicant insurance company an award on its subrogation claim against the respondent insurance company based upon the proof presented. The AFI intercompany arbitration proceeding is a separate and independent dispute resolution system between signatory companies.
Sub. 61:2 at p. 3. Significantly, the declaration cites nothing in the AFI arbitration agreement or in its rules and regulations to support these assertions. If anything, the rules contradict this assertion when they state, "the Agreement shall not be construed to create any causes of action or liabilities not existing in law or equity." CP 170. (Copy of the rules and regulations attached as Appendix C.) State Farm also filed the declaration of its own employee that "we are entitled to proceed to arbitration and recover our interests through that arbitration system regardless of a prior payment of the subrogation interest." Sub. 61:3.
Fisher responded that the declarations of AFI's and State Farm's employees should be stricken under CR 56(e) because they are filled with suppositions rather than facts and are contrary to AFI's own arbitration agreement, rules and regulations. CP 137-40.
Judge Thibodeau declined to strike the employee declarations and relied on them in again granting summary judgment to State Farm: ". . . this court now finds, based on the two affidavits that have been submitted and other information provided, that the amount in question was recoverable through inter-insurer arbitration and it was just not a clearinghouse." RP 4-5 (12/20/96). Judge Thibodeau entered summary judgment that:
. . . [T]he relevant policy language relating to Personal Injury Protection subrogation is clear and unambiguous and that such interest was recoverable through intercompany arbitration but for the interference by the insured's attorney and that the intercompany arbitration system documented by the record is an independent proceeding and that it is not "merely a rubber stamp of personal injury litigation" nor does it "simply operate as a clearing house for predetermined disputes" . . .
CP 7. Fisher appealed.
Argument
a. Monica Fisher adopts the arguments of Elaine Mahler in the consolidated case of Mahler v. State Farm.
Monica Fisher adopts and incorporates by this reference the arguments of Elaine Mahler in Mahler v. State Farm, Supreme Court No. 64344-0.
Important similarities between the two cases include:
1. Fisher's State Farm policy is identical to Mahler's policy. See footnote 2, supra.
2. State Farm paid some, but not all, of Mahler's and Fisher's medical expenses and wage loss.
3. The insurance companies for the tortfeasors contested liability and damages in both cases.
4. Both tortfeasors' insurers settled after forcing the injured plaintiff to expend considerable resources to build a case.
5. Both Fisher and Mahler protected State Farm's subrogated interest by seeking to recover it and segregating it for later determination by a court of the respective rights of State Farm and the plaintiff.
6. State Farm waited until the underlying cases settled before demanding inter-company arbitration from the settling insurance companies for the tortfeasors.
But there are important factual differences between the cases:
1. The two trial judges reached opposite results on summary judgment.
2. State Farm advised Mahler's attorney (Bailey) at the outset of the action that State Farm would seek inter-insurer arbitration and told Bailey not to pursue State Farm's subrogated interest. Mahler CP 208. State Farm never made any such statement to LePley until after LePley had already settled the entire case.
3. Fisher was forced to move for summary judgment of liability before the tortfeasor agreed to settle.
4. State Farm actually proceeded to arbitration of its subrogated claim in Mahler. There has been no arbitration in the Fisher case.
5. State Farm has never collected any part of its subrogated interest in Mahler. It collected its entire interest from the registry of the court in Fisher.
In the balance of this brief, Fisher elaborates upon the arguments raised by Mahler.
b. State Farm conceded in this case that it cannot pursue its subrogated claim independently before the insured/subrogor recovers the entire claim.
The Mahler brief explained several public policy reasons why the insurance company cannot pursue its subrogated claim independently before its insured recovered the entire claim: the insured has only one indivisible claim; the insurance company cannot recover its subrogated interest until the insured has been fully compensated; allowing the insurance company to proceed simultaneously with its own action woudl weaken the insured's claim against the tortfeasor. Mahler Brief of Respondent 22-24. Mahler also pointed out that this principle is consistent with State Farm's policy language, which provides: "Our right to recover our payments applies only after the insured has been fully compensated for the bodily injury, property damage or loss." Mahler CP 281; Fisher Sub. 61:4 p. 26.
State Farm conceded in its summary judgment pleadings in this case that it cannot proceed independently with inter-company arbitration until the insured has concluded her third-party action and has been paid for her losses. Sub. 61 p. 11-12. State Farm also conceded that its own policy language prevents it from proceeding independently with arbitration: "The State Farm policy language balances the above interests [the equitable principles under Thiringer v. American Motors Ins., 91 Wn.2d 215, 219, 588 P.2d 191 (1978)] by requiring the insurer to refrain from collecting its subrogation interest until the insured has been fully compensated." CP 108.
But State Farm argued in the trial court that in seeking to recover its subrogated interest, it has no enhanced duty not to place its own interests above the interests of its insured. CP 107-08. State Farm argued that the enhanced duties of Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381, 385-86, 715 P.2d 1133 (1986) apply only to third-party liability coverage and have nothing to do with subrogation rights to payments made by an insurance company to its own insured. CP 107-08.
State Farm is clearly wrong. This Court applied the principles of Tank to coverage for first party UIM benefits in McGreevy v. Oregon Mut. Ins. Co., 128 Wn.2d 26, 35-37, 904 P.2d 731 (1995).
Elaine Mahler argued in her Brief of Respondent that an insurer who litigates its subrogated interests separately is inherently placing its own interests ahead of those of its insured by weakening the insured's claim against the tortfeasor. Mahler pointed out that losses paid out as PIP claims increase the insured's settlement leverage. Mahler Brief at 23. State Farm admitted this fact in the pleadings in Fisher, arguing that medical expenses and lost wages have "a direct influence on the amount of general damages that will be awarded by a court or jury . . ." Sub. 61 at 21. State Farm thus concedes that it would weaken the claim of its insured if it were permitted to proceed independently against the third party insurance carrier.
A first-party PIP carrier may also weaken the claim of its insured by divulging confidential information about its own insured. Fisher submitted medical information to State Farm and submitted to a medical examination, as she was required to do in order to obtain PIP benefits. There is a substantial risk that the PIP carrier might share some of this information with the liability carrier for the tortfeasor, undermining the insured's claim against the tortfeasor. Indeed, the very fact that the PIP carrier denied medical benefits may suggest to the third-party carrier strategies or arguments to use against the insured in the underlying action. In short, the enhanced fiduciary obligations of the first party insurance company provide additional public policy reasons to hold that the insurer could not proceed with inter-company arbitration until the insured has recovered from the third-party tortfeasor.
c. State Farm shared in fisher's recovery from the party at fault and must pay its share of the legal expenses under State Farm's policy language that "if the insured recovers from the party at fault and we share in the recovery, we will pay our share of the legal expenses."
State Farm's own policy language obligates State Farm to pay a proportionate share of Fisher's attorney fees when State Farm shares in the recovery from the party at fault:
If the insured recovers from the party at fault and we share in the recovery, we will pay our share of the legal expenses. Our share is that per cent of the legal expenses that the amount we recover bears to the total recovery. This does not apply to any amounts recovered or recoverable by us from any other insurer under any inter-insurer arbitration agreement.
Sub. 61:4 at p. 26 (emphasis supplied).
This case differs from Mahler. State Farm never sought to recover any part of Mahler's recovery from the party at fault and never received any part of Mahler's recovery. Here, by contrast, Fisher settled with the party at fault for $40,000 and State Farm's subrogated interest was tendered into the registry of the court with State Farm's knowledge and consent. State Farm then successfully moved (twice) for summary judgment that it was entitled to recover the funds from the registry of the court and actually withdrew those funds. CP 102; CP ___ [sub. 36, p. 1]; Sub. 61, p. 14. State Farm then withdrew its request for arbitration.
Clearly, State Farm shared in the recovery from the party at fault. Equally clearly, State Farm did not recover the funds through inter-company arbitration and the funds are no longer recoverable through inter-company arbitration. For this reason alone, the Court should reverse summary judgment and remand for the entry of judgment against State Farm for its share of legal expenses and for attorney fees for Fisher's lengthy battle to establish State Farm's liability for a portion of her legal expenses.
D. Res judicata precludes a subrogated insurance carrier from re-litigating in inter-company arbitration the liability of the underlying tortfeasor where the insured has already settled with and released the tortfeasor from all claims.
We have shown that State Farm must pay its share of Fisher's legal expenses because State Farm shared in Fisher's recovery from the party at fault. We now show that even if State Farm had not dismissed its arbitration claim against Federated, State Farm's subrogated interest would not longer be "recoverable" through inter-company arbitration.
1. State Farm can only assert Fisher's rights against the party at fault, and Fisher's rights are barred by res judicata.
State Farm's policy states, "we are subrogated to the extent of our payments to the proceeds of any settlement the injured person recovers from any party liable for the bodily injury or property damage." Sub. 61:4 at p. 26. This gives State Farm only such rights of recovery against Aldi Tire and Tinsley as Fisher had:
The insurer steps "into the shoes" of its insured. R. Keeton & A. Widiss, Insurance Law SS 3.10(a)(1) (1988). The insurer, the "subrogee", has rights equal to, but no greater than, those of the injured party.
Touchet Valley v. Opp & Seibold Constr., 119 Wn.2d 334, 341, 831 P.2d 724 (1992).
Fisher settled with Aldi Tire and Tinsley and dismissed with prejudice her claims against them. Fisher no longer has any rights against Aldi Tire and Tinsley. As this Court said in Touchet Valley, State Farm's rights are "no greater than" Fisher's rights. Accordingly, State Farm no longer has any right to proceed with inter-company arbitration against Aldi Tire's and Tinsley's insurance company, Federated.
It makes no difference that State Farm seeks to litigate in inter-company arbitration rather than in Superior Court. Res judicata, and the related principles of collateral estoppel, both bar subsequent proceedings in arbitration. Larsen v. Farmers Ins. Co., 80 Wn. App. 259, 909 P.2d 935 (1996); Neff v. Allstate Insurance Co., 70 Wn. App. 796, 799, 855 P.2d 1223 (1993), review denied, 123 Wn.2d 1004 (1994). In Larsen, the plaintiff was injured in an auto accident in Oregon and obtained a decision against the tortfeasor in Oregon's equivalent to Washington's mandatory arbitration. Plaintiff then brought a UIM action in Washington and the UIM arbitration panel held that plaintiff was collaterally estopped by the Oregon arbitration result. The Court of Appeals held that collateral estoppel applied to a subsequent arbitration proceeding:
Generally, a party who has adjudicated an issue to finality is estopped from readjudicating it in a subsequent action. It does not matter whether the prior adjudication occurred in arbitration or in litigation, so long as it resulted in a final judgment. The party is directly estopped from readjudicating the issue in a subsequent action on the same claim, and collaterally estopped from readjudicating the issue in a subsequent action on a different claim.
Larsen, 80 Wn.App. at 262 (footnotes omitted). But the Court reversed the decision of the UIM arbitration panel because the Oregon arbitration award was never reduced to judgment and therefore failed to satisfy the second requirement of collateral estoppel. In Neff, the court applied collateral estoppel principles because the prior arbitration award had been reduced to judgment. Similarly, in this case Fisher could not proceed to arbitration against Aldi Tire or Federated because she has dismissed with prejudice all claims against them and released them from liability. Accordingly, State Farm as subrogee cannot proceed against Aldi Tire or Federated either.
RCW 7.04.010 reinforces the conclusion that principles of res judicata can bar arbitration. RCW 7.04.010 authorizes agreements to arbitrate "any controversy." Now that Fisher has settled with Aldi Tire and Tinsley, there is no longer "any controversy" between her and them. Nor can there be any controversy between State Farm as Fisher's subrogee and Aldi Tire and Tinsley, or between State Farm and Aldi Tire/Tinsley's insurance company Federated.
State Farm argued in Mahler that it was authorized to proceed with inter-company arbitration despite the prior settlement and release under the authority of Leader National Ins. v. Torres, 113 Wn.2d 366, 779 P.2d 722 (1989). For all the reasons discussed in Mahler's Brief of Respondent, Leader National does not authorize State Farm's action after the party at fault has settled both the subrogated and non-subrogated portions of the claim. Moreover, Leader National did not even mention the concept of res judicata.
2. The court, not the arbitration panel, must decide the application of res judicata.
State Farm argued to the trial court that the arbitrators are free to disregard principles of res judicata. Indeed, State Farm made that argument through the declaration of AFI's Seattle Field Office Manager, who asserted without support that, "The arbitrator(s) are not bound by any settlement agreement or judgment entered in litigation instituted by the insured for his or her personal damages." Sub. 61:2. See also Sub. 61:3. These declarations are incompetent legal conclusions and should have been stricken, as Fisher requested.
State Farm overlooks the fact that the court, not the arbitrators, ultimately decides whether res judicata bars a party from proceeding to arbitration. In Larsen, supra, the superior court refused to confirm an arbitration award because the arbitrators had erroneously given collateral estoppel to the prior arbitration award (which had never been reduced to judgment). The Court of Appeals affirmed. Neither court deferred to the arbitrators' decision to apply collateral estoppel.
Other jurisdictions have similarly held that the court, not the arbitrators, decide the res judicata effect of a prior adjudication on a subsequent arbitration. E.g., Rembrandt Industries, Inc. v.Hodges International Inc., 38 N.Y.2d 502, 344 N.E.2d 383, 384, 381 N.Y.S.2d 451 (1976) ("The scope of the award and, therefore, its Res judicata effect, is an issue properly determinable by the court and not the arbitrators [citations omitted]."). The Virginia Supreme Court explained why the court, and not the arbitrators, must decide issues of res judicata:
First we note that arbitration is proper in this case only for controversies "arising from" or "relating to" the contract between the parties. The dispute over WMC's plea of res judicata arises from, or is related to, satisfying the elements of this common law doctrine; it does not arise from the terms of the contract. Thus, it is not arbitrable.
More importantly, an arbitration panel is not generally bound by legal principles, does not have to explain or justify its decision, and the decision is not reviewed for legal errors. Rather, the arbitrators are entitled to make their decision based on what they deem to be just and equitable within the scope of the parties' agreement. AAA Construction Industry Arbitration Rule 43 (1993); G. Richard Shell, Res Judicata and Collateral Estoppel Effects of Commercial Arbitration, 35 UCLA L.Rev. 623, 633-37 (1988). Consequently, when considering a plea of res judicata, an arbitration panel could determine that the issues resolved in a prior arbitration should be revisited, regardless of whether the legal elements required for sustaining the plea were met. Allowing a plea of res judicata to be resolved by arbitration defeats the purpose of the judicially created doctrine--to bring an end to the substantive controversy and to protect the parties from re-litigating previously decided matters.
Waterfront Marine Const. Inc. v. North End 49ers Sandbridge Bulkhead Groups A,B, and C, 251 Va. 417, 468 S.E.2d 894 903 (1996).
A different issue would confront this Court if the arbitration agreement or AFI's rules and regulations provided that a prior settlement, release and dismissal would not constitute res judicata. Then the Court would need to decide whether such a clause was valid. But there is no such clause or provision in the agreement or the rules and regulations.
Federated properly invoked the principle of res judicata when it answered State Farm's demand for arbitration with a description of the settlement, release and payment, noting that "this clearly absolves Federated Service Insurance Company of any further responsibility to State Farm per our settlement agreement." Sub. 65:22. Even if the arbitrators had declined to apply res judicata, Federated (or Fisher, under the indemnity and hold harmless) could have resisted confirmation of the award by invoking the doctrine, and a superior court would have refused to confirm the award.
3. State Farm's interest is not "recoverable" in inter-company arbitration because State Farm can only recover its subrogated interest in Fisher's name and Fisher has released and dismissed her claims against the parties at fault and Federated.
State Farm premises its argument on the erroneous assumption that the inter-company arbitration agreement creates in State Farm independent rights to pursue its subrogation interest. For example, State Farm agent Dow stated in his declaration:
Because State Farm is a member of intercompany arbitration, we do not voluntarily recognize or honor the fact that a liability carrier has paid our subrogation interest to the insured's attorney as we are entitled to proceed to arbitration and recover our interests through that arbitration system regardless of a prior payment of the subrogation interest. Only in instances where the adverse carrier is not a member of intercompany arbitration do we authorize the insured's personal attorney to recover our interest and when we do so that is confirmed in writing.
Sub. 61:3.
State Farm overlooks the fact that the arbitration agreement does not create any substantive rights between State Farm and the insurance company for the party at fault, such as Federated. The agreement simply binds the signatory companies "to arbitrate all disputes arising from the pursuit of . . . those subrogation claims created by a Voluntary Personal Injury Protection Endorsement. . ." Art. First, CP 168. What "disputes" exist between State Farm and Federated? None. The only dispute was between Fisher and Aldi Tire. The Fisher/Aldi Tire dispute was settled and all claims against Aldi Tire released and dismissed.
The arbitration agreement says in Article First that the "dispute" must have been created by a PIP endorsement. Fisher's PIP endorsement gives rise to a right of State Farm against Fisher, but it does not give rise to any claim of State Farm against Federated. State Farm's PIP endorsement refers to amounts recovered or recoverable in inter-insurer arbitration, Sub. 61:4 at p. 26, but it does not purport to create any rights in State Farm against any third party tortfeasor, let alone against the insurance carrier for a third party tortfeasor. To the contrary, the PIP endorsement contemplates that State Farm will have to seek any recovery of its subrogated interest either by reimbursement or in Monica Fisher's name if State Farm asks her to "take action through our representative to recover our payments." Id. at d 3.b.(3). Accordingly, the arbitration agreement itself does not create any right in State Farm to proceed directly against Federated, particularly after Fisher has settled with and released Federated.
4. State Farm's interest is not "recoverable" in inter-company arbitration because the arbitration agreement expressly provides that it "shall not be construed to create any causes of action of liabilities not existing in law or equity" and State Farm's cause of action to recover the subrogated damages is barred by res judicata.
AFI's rules and regulations also make clear that State Farm has no right to proceed against Federated after Fisher has settled with and released Federated. AFI's General Rule 4 provides, "The Agreement shall not be construed to create any causes of action of liabilities not existing in law or equity." CP 170. In other words, State Farm's right to proceed against Federated does not arise under the inter-company arbitration agreement itself. The only possible claim that State Farm has against Federated is by virtue of Fisher's claim against Aldi Tire and Tinsley, who are insured by Federated. But once Fisher released her claims against Aldi Tire, Tinsley, and Federated, res judicata bars Fisher's claims. In the words of AFI's Rule 4, Fisher's claims are "not existing in law or equity." State Farm's derivative claims have similarly disappeared.
e. The plaintiff's attorney represents the plaintiff and not the first-party insurer and therefore has no conflict of interest.
State Farm argued to the trial court that LePley cannot collect from State Farm for collecting its subrogated interest because LePley would be placed in a conflict of interest if he represented both Fisher and State Farm. Sub. 61 at 25-27. State Farm quoted from Judge Forrest's concurring opinion in Desmond v. Liberty Northwest Ins., 63 Wn. App. 81, 817 P.2d 872 (1991).
No conflict of interest existed because LePley did not represent State Farm--he represented Fisher and only Fisher. State Farm must share in paying for LePley's services, not because it hired LePley as its attorney, but because it agreed in its policy to pay its share of the expense of recovering from the underlying tortfeasor and because as a matter of equity and fairness it must pay its share of the cost of creating the fund from which it benefitted.
Even if LePley were considered to have represented State Farm, there would be no conflict of interest. The Illinois Supreme Court rejected the identical argument by State Farm two decades ago:
The fee, if any, which an attorney receives from a subrogee under the fund doctrine is in partial payment for his services in creating the fund from which the subrogee benefits. In the creation of the fund the client and the subrogee are not adverse litigants; rather they have the same common interest in creating the fund from which each will benefit. Concededly after the fund is created, conflicts may arise between the subrogor and subrogee as to whether, or how much, the subrogee is entitled to recover, or as here between the attorney and the subrogee as to the attorney's right to, or the amount of, a fee. A conflict which arises in the distribution of the fund, however, does not involve the type of adverse interest which would preclude an attorney from properly representing both the subrogor and subrogee.
Baier v. State Farm, 66 Ill.2d 119, 361 N.E.2d 1100, 1103 (1977). Other courts have reached the same conclusion. E.g., Southern Council of Industrial Workers v. Ford, 83 F.3d 966 (8th Cir. 1996); Molitoris v. Woods, 422 Pa.Super. 1, 618 A.2d 985, 990 (1992).
f. State Farm must pay its share of Fisher's legal expenses but can always challenge the reasonableness of plaintiff's attorney's fee under RCW 4.24.005.
State Farm's own policy obligates it to pay its share of Fisher's attorney fees since it has shared in Fisher's recovery and its subrogated interest was not recovered or recoverable through inter-company arbitration. Sub. 61:4 at p. 26, d3.d.
State Farm or any other subrogated insurance carrier can always challenge the fee charged by plaintiff's counsel:
Any party charged with the payment of attorney's fees in any tort action may petition the court not later than forty- five days of receipt of a final billing or accounting for a determination of the reasonableness of that party's attorneys' fees. The court shall make such a determination and shall take into consideration the following:
(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) The fee customarily charged in the locality for similar legal services;
(4) The amount involved and the results obtained;
(5) The time limitations imposed by the client or by the circumstances;
(6) The nature and length of the professional relationship with the client;
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services;
(8) Whether the fee is fixed or contingent;
(9) Whether the fixed or contingent fee agreement was in writing and whether the client was aware of his or her right to petition the court under this section;
(10) The terms of the fee agreement.
RCW 4.24.005.
Fisher proposes that the Court adopt a presumption that a contingent fee of one-third is reasonable in any case in which the party at fault contests liability, causation of plaintiff's damages, or comparative fault. This presumption would be fair and equitable to both parties--the most fundamental principle of subrogation--and would reduce wasteful ancillary litigation over entitlement to attorney fees. If the underlying tortfeasor contests liability or causation of damages--as did Aldi Tire/Tinsley in this case--the plaintiff is forced to file a complaint, to conduct discovery, and to seek an adjudication on the merits--as was Fisher in this case. In such cases the plaintiff's lawyer has almost certainly earned a contingent fee of one-third. (Here LePley only asked for 30% because the case was settled before trial. Sub. 61:1-S)
By contrast, it may not be equitable for plaintiff to recover one-third of the subrogated interest from the plaintiff's insurance company if the underlying tortfeasor concedes liability and causation of damages and does not contend that plaintiff was comparatively negligent. In such a case, the plaintiff may not have incurred sufficient legal services to justify passing this fee along to the insurance company. Indeed, many fine plaintiff's lawyers do not even ask a subrogated insurance company to share in attorney fees if liability is not contested. I Robert Dawson, Trial Lawyers Form Books Forms 26, 27 (WSTLA 1991).
The presumption would also allow subrogated insurance companies to protect themselves from sharp practices by unscrupulous lawyers. For example, if plaintiff's lawyer sought to recover only the insurance company's subrogated interest, without seeking to recover any significant non-subrogated damages, a trial court could decide that it would not be equitable to force an insurance company to contribute to attorney fees. Or if the plaintiff sought to conceal from the insurance company that the plaintiff had obtained a recovery from the party at fault, a trial court could decide to deny any fee to the plaintiff's lawyer. See Provident Life and Accident Ins. Co. v. Driver, 317 S.C. 471, 451 S.E.2d 924 (S.C.App. 1994).
This approach also gives trial courts flexibility to deal with variations on the fact pattern presented by this case. For example, if plaintiff is paying her attorney on an hourly basis instead of a contingent fee, it might be appropriate to require the insurer to pay all of the fees instead of just a pro rata share of the fees. E.g., DeTienne Associates Limited Partnership and Park Plaza Hotel, Inc v. Farmers Union Mutual Insurance Company, 266 Mont. 184, 879 P.2d 704 (1994); St. Paul Fire and Marine Ins. Co. v. W.P. Rose Supply Co., 19 N.C. App. 302, 198 S.E.2d 482 (1973).
The judicious application of RCW 4.24.005, tempered by the rebuttable presumption in cases of contested liability, would adequately protect the insurer while avoiding the wasteful litigation engendered by the test of "reasonable necessity" test adopted by the Court of Appeals in the first appeal of this case and in Desmond v. Liberty Northwest Ins., 63 Wn. App. 81, 817 P.2d 872 (1991); Richter, Wimb. & Erics. v. Honore, 29 Wn. App. 507, 628 P.2d 1311 (1980); Pena v. Thorington, 23 Wn. App. 277, 281, 595 P.2d 61, review denied, 92 Wn.2d 1019 (1979). It would also be consistent with holdings in other jurisdictions that the insurance company is not bound by the plaintiff's agreement with her lawyer, but may contest the reasonableness of the fee. E.g., Krause v. State Farm Mutual Automobile Ins. Co., 184 Neb. 588, 169 N.W.2d 601, 605-06 (1969); ; Amica Mutual Ins. Co. v. Maloney, 120 N.M. 523, 903 P.2d 834, 841 (1995); Allstate Ins. Co. v. Clarke, 527 A.2d 1021, 1026 (Pa.Super. 1987); State Farm Mutual Automobile Ins. Co. v. Geline, 48 Wis.2d 290, 179 N.W.2d 815, 821-22 (1970).
RCW 4.24.005 and the proposed presumption would also be much easier to apply and would avoid the inequitable and inexplicable inconsistency in the holdings of the trial judges in this case and the Mahler case. Our Superior Court judges are eminently capable of fairly and consistently ruling on attorney fee issues when this Court adopts practical and equitable principles to guide decisionmaking. Under this test, both LePley in this case and Bailey in Mahler clearly earned their fees and it would be equitable for State Farm to pay its fair share of those fees.
g. State Farm must pay a proportionate share of LePley's legal fee because LePley's services were reasonable and necessary under prior court of appeals cases.
Fisher joins in and adopts Mahler's argument that the Court should abandon the "reasonable necessity" test adopted by the Court of Appeals. But State Farm would be liable for a proportionate share of Fisher's attorney fees even under the reasonable necessity test.
As discussed in the Mahler brief, State Farm is not entitled to collect any part of its subrogated interest until Fisher has been fully compensated for her loss. Thiringer v. American Motors Ins., 91 Wn.2d 215, 219, 588 P.2d 191 (1978). Thus, Fisher must recover the unsubrogated damages before State is entitled to recover its subrogated interest. The issue is therefore whether Federated would have paid Fisher and State Farm a total of $40,000 without the efforts of LePley. The answer is obvious--Federated initially contested liability and damages, contending that defendant Tinsley was not negligent even though he rear-ended Fisher while he was under the influence of intoxicants and pushed her car 56 feet down the highway, totaling the car and injuring Fisher. Federated even claimed that Fisher was negligent for trying to turn left into a private driveway. Federated backed down only after LePley filed this action, deposed Tinsley, sought out and learned the results of Trooper Wilcoxson's investigation, moved for summary judgment, and pursued the case to the eve of trial.
Federated would undoubtedly have made the same meritless arguments had the case proceeded to inter-company arbitration. No rational person could conclude that LePley's investigation would not have been necessary and helpful to State Farm if arbitration had proceeded.
State Farm asked the trial court to speculate that Federated would have paid the subrogated $12,223 without LePley's intervention. Even if the Court were willing to speculate, that is not the issue. If Federated had only been willing to pay $12,223 of Fisher's total damages of $40,000, then State Farm would not have been entitled to any part of the $12,223 because Fisher would not have been fully compensated for her loss.
Under State Farm's argument, the recovery from the tortfeasor's insurance company is like nuggets of gold lying on the ground--all State Farm needs to do is bend down and pick them up. If this were a case of uncontested liability and damages, then State Farm would arguably be correct and it would be unfair to force State Farm to pay a fee for LePley's efforts. But instead, these nuggets of gold were hidden under layers of sand and gravel. LePley was forced to dig through the overburden to uncover the nuggets of gold, both subrogated and nonsubrogated. LePley's efforts were reasonable and necessary for the recovery of all of the gold, both subrogated and unsubrogated. Now that LePley has done the work, State Farm wants to jump the claim and pick up the gold LePley has uncovered.
State Farm pleads economy, arguing that it saves attorney fees by engaging in inter-company arbitration. Sub. 61:3. State Farm saves attorney fees because it is practicing law without a license. Its non-lawyer employees receive their regular salaries to go into an arbitration forum and represent their employer to recover money from an adversary insurance carrier. This might be acceptable for the sole officer of a wholly owned corporation, Willapa Trading v. Muscanto, Inc., 45 Wn. App. 779, 787, 727 P.2d 687 (1986), or for representatives of corporations appearing in small claims court in which parties may not appear through an attorney, State ex rel. Long v. McLeod, 6 Wn. App. 848, 496 P.2d 540 (1972), but it is not at all clear that a corporation may actually conduct adversary litigation through its non-lawyer staff. The most troublesome aspect of this practice may be that State Farm's non-lawyer staff cannot understand or appreciate the implications of their actions upon the insured's third-party action against the tortfeasor. For example, non-lawyers may breach the insurance company's duties under Tank and McGreavy not to put its interests ahead of the insured's interest by disclosing confidential information.
The Court should abandon the reasonable necessity test, but if it retains the test, the Court should hold that LePley's efforts were both reasonable and necessary and State Farm must pay its fair share of the legal expenses incurred in obtaining this recovery.
h. Fisher is entitled to an award of attorney fees under Olympic Steamship because State Farm is disputing a specific aspect of its coverage--the obligation to contribute to attorney fees--as opposed to the amount of the fees.
Fisher is entitled to an award of attorney fees under Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 52, 811 P.2d 673 (1991) for the reasons discussed in the Mahler Brief of Respondent. Fisher is entitled to fees for all prior proceedings in the Superior Court and the Court of Appeals and for this appeal also. State Farm v. Johnson, 72 Wn. App. 580, 871 P.2d 1066, review denied 124 Wn.2d 1018 (1994).
Conclusion
This case illustrates the predicament faced by plaintiff's counsel in automobile accident cases. The tortfeasor's insurance company resists even the clearest case of liability and forces plaintiff's counsel to incur substantial expense to develop and then to settle the case. The plaintiff's own insurance company demands that it be reimbursed from the settlement but denies that it can be required to pay any of the expenses of producing the settlement.
State Farm shared in Fisher's recovery from Federated. State Farm's subrogated interest was never recovered through inter-company arbitration and it is no longer recoverable through arbitration. State Farm's own policy obligates it to pay a proportionate share of the legal expenses incurred in recovering State Farm's subrogated interest. Aside from the language of State Farm's policy, fundamental equitable principles of subrogation require that State Farm share in the expense of pursuing recovery of State Farm's subrogated interest.
The Court should reverse the summary judgment, hold that State Farm must share in the legal expense of recovering State Farm's interest, hold that an equitable share to be paid by State Farm is 30% of State Farm's subrogated interest, and remand to the Superior Court for entry of judgment in favor of Fisher and LePley for that amount plus a reasonable fee under Olympic Steamship for the cost of this litigation. The Court should also direct that this Court's Clerk or Commissioner should determine a reasonable fee to be awarded to Fisher and her attorneys for the cost of this appeal.
Respectfully submitted this ___ day of May, 1997.
____________________________
Patrick LePley WSBA # 7071
4122 128th Ave. SE, Suite 301
Bellevue, WA 98006
(425) 641-5353____________________________
Charles K. Wiggins WSBA # 6948
241 Madison Ave. North
Bainbridge Is, WA 98110
(206) 780-5033