Posted on February 15, 2012 by Dana Ferestien

"Equitable Sharing Rule" Requires PIP Insurer to Pay Pro Rata Fees Even When it Also Insures and Pays Settlement on Behalf of the Tortfeasor

In a 7-1 decision in Matsuyak v State Farm & Casualty Co., handed down on February 9, 2012, the Washington Supreme Court extended the common fund rule adopted in Mahler v. Szucs, 135 Wn.2d 398 (1998) to circumstances where an automobile insurer pays personal injury protection (PIP) benefits to an injured passenger and later pays the passenger again to settle their tort claim against the insured driver.

In Mahler, the court held that a PIP insurer must pay a pro rata share of the insured's attorney's fees incurred to recover from an at-fault driver insured by another insurance company. In that instance, the PIP insurer benefited from the recovery because it received reimbursement for the PIP benefits it had previously paid out to the insured. Relying upon the premise that PIP coverage and liability coverage are two separate policies (even though they are in fact part of a single automobile insurance policy), the Supreme Court reasoned that the PIP insurer benefits from the passenger recovering from the liability insurer such that the PIP insurer must pay a pro rata share of the passenger's attorney's fees even though there is actually no common fund generated from a second insurer.

The majority also held that, contrary to Mahler, the injured passenger was entitled to recover her attorney's fees under the Olympic Steamship doctrine because the lawsuit was necessary for the passenger, as an insured, to obtain the benefits of the insurance contract, and was not merely a dispute over the amount of damages that the insurer should pay.

In dissent, Chief Justice Madsen strongly criticized the majority and questioned the rationale for both aspects of the decision.

 

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Posted on December 22, 2011 by Dana Ferestien

Washington Supreme Court Affirms Class Certification and Post-Accident Diminution in Value Award to Automobile Insureds

On December 22, 2011, in Moeller v. Farmers Ins. Co, of Washington, a 5-3 majority of the Washington Supreme Court affirmed lower court rulings in favor of a plaintiff class of automobile insureds seeking breach of contract damages against their insurer for failure to compensate them for the diminished value of a postaccident, repaired car. The Supreme Court acknowledged that a majority of other jurisdictions have previously denied coverage for diminished value because an automobile policy's reference to "repair or replace" unambiguously encompasses only a concept of tangible, physical value. But the Court disagreed with this view, emphasizing that Washington law imposes "presumptions in favor of the insurance consumer that are inherent in the rules of construction regarding insurance contracts." The Court explained that, it "must read an insurance contract as an average person would read it" and that, from the point of view of the consumer, "the reasonable expectation is that, following repairs, the insured will be in the same position he or she enjoyed before the accident."
 

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