Applicability of Common Fund Doctrine - Mitchell v. State Farm Mutual Automobile Ins. Co.


In Mitchell v. State Farm Mutual Automobile Ins. Co., [Ms. 2100184, Oct. 7, 2011] __ So. 3d __(Ala. Civ. App. 2011), the Alabama Court of Civil Appeals held that a subrogated insurance carrier is responsible for a pro rata share of the insured's attorney fees incurred in obtaining a settlement payment against which the carrier has asserted a right of reimbursement. In short, the "common fund" exception applies to medical benefits paid by a subrogated insurance carrier. In December 2008, Plaintiff was involved in an automobile collision in which she sustained injuries and property damage. Plaintiff hired counsel on a 1/3 contingency fee. Plaintiff made an insurance claim to State Farm, her own insurer, for property damage, rental-car coverage, and medical payments. State Farm paid $5,000 in medical payments and $7,992.90 in other payments. State Farm recouped the $7,992.50 from the at-fault driver's liability carrier, but was informed that the medical payments coverage would not be paid to State Farm pending the settlement of State Farm's insured's bodily injury claim. State Farm put its insured's attorney on notice that it intended to seek subrogation of its $5,000 medical payment. Plaintiff filed suit in October 2009 against the at-fault driver. Plaintiff also asserted claims for UIM benefits against State Farm as well as a tort claim alleging a fraudulent, bad-faith refusal to pay an insurance claim and conversion of funds stemming from State Farm's rejection of the proposition that its subrogation interest was subject to a reduction under the common-fund doctrine. The Plaintiff reached a settlement in the amount of $35,000 with the at-fault driver and her liability insurance company. State Farm requested full reimbursement of its $5,000 medical payment. Plaintiff paid the disputed $5,000 into court pursuant to Rule 22 of the Alabama Rules of Civil Procedure. Plaintiff and State Farm both filed motions for partial summary judgment. The trial court ruled in State Farm's favor, holding that State Farm took sufficient affirmative action on its own behalf to avoid application of the common fund doctrine. The Alabama Court of Civil appeals reversed, holding that the requirements of establishing a common fund doctrine had been met and no exceptions applied. The Court began by analyzing whether a common fund existed and concluded that it did. First, the insured retained counsel to obtain compensation for the damages she sustained in an automobile collision. Second, the insured's counsel investigated the merits of the case, sent a demand letter, and filed a civil action to recover damages. Third, the insured's counsel obtained a $35,000 settlement. The Court held that it did not matter that the at-fault liability insurer indicated its acceptance of its insured's fault as early as January 9, 2009 because there was no indication in the record that the liability carrier offered to pay anything before the Plaintiff hired an attorney. Having determined that a common fund existed, the Court next examined whether State Farm could avoid application of the common-fund doctrine. Although the policy language preserved State Farm's subrogation rights despite the "made whole" doctrine (i.e., no subrogation rights unless the insured has been fully compensated unless contrary provisions are agreed upon by the parties), the Court held that such language was not sufficient to abrogate the common-fund doctrine. The Court held: "In the absence of language in the State Farm policy demonstrating a clear intent to negate the application of the common-fund doctrine to an insured's recovery of damages from a third party, we are persuaded that the mere presence of subrogation and reimbursement clauses in the State Farm policy do not support the trial court's summary judgment in favor of State Farm." Finally, the Court held "State Farm's insistence that its separate extrajudicial dealings with [the at-fault driver's liability carrier] to obtain reimbursement, and its declarations of its intent to seek full reimbursement.


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