Two cases1 recently decided by the Washington State Supreme Court clarified an existing rule which requires insurance companies who provide Personal Injury Protection (PIP) benefits to pay a fair share of legal costs incurred by injured persons who recover those benefits paid on behalf of the insurer.
As a rule, plaintiffs must pay their own attorney fees and costs when bringing legal action against another party. However, there are certain exceptions. In claims involving a motor vehicle collision, an injured party whose medical bills are paid by PIP insurance is required to reimburse the PIP insurer for those benefits paid from any settlement or judgment obtained from the at-fault party. Under the “equitable fee sharing rule” first announced in Mahler v. Szucs2, a PIP insurer is required to pay a pro rata, or proportionate share of the legal expenses incurred by the injured person who recovers from the third-party and reimburses the PIP carrier for those benefits paid.3 The PIP carrier typically contributes to those legal expenses by reducing the amount it is entitled to receive from the settlement. The Mahler court reasoned that any recovery obtained by the injured person from a third party created a “common fund” from which the PIP insurer benefited and held that a PIP insurer could not benefit from the efforts of the injured party (and their attorney) in recovering the PIP benefits paid without contributing to the expenses incurred in securing that recovery.
Later cases expanded the Mahler rule to include situations where the injured party recovered funds from both the underinsured at-fault party and their own Underinsured Motorist (UIM) coverage4; and where the at-fault party was uninsured and the injured person received benefits under both the PIP and Uninsured Motorist (UM) coverage.5
In Matsyuk, the plaintiff was a passenger in a motor vehicle who was injured by the driver’s negligence. Matsyuk’s medical bills were paid by the driver’s PIP coverage with State Farm. Matsyuk later settled her negligence claim against the driver under their liability coverage, also with State Farm Insurance. State Farm sought reimbursement of its previous PIP payments through an “offset,” or reduction, against the liability payment to Matsyuk. Matsyuk demanded State Farm pay their a pro rata share of her legal expenses in accordance with Mahler. State Farm argued it was not required to reduce its reimbursement claim under Young v Teti,6 a Court of Appeals decision which held a plaintiff was not entitled to recoup a pro rata share of attorney fees where the liability insurer and PIP insurers were the same.
The Court of Appeals upheld State Farm’s argument. The supreme court reversed the appellate court, stating the Young decision was inconsistent with the Mahler rule, subsequently expanded by Winters and Hamm.
The Matsyuk decision is an important victory in that it further establishes a clear, consistent rule regarding the obligation of an PIP insurer seeking reimbursement of benefits paid to contribute to the legal expenses incurred by the injured party who secures that reimbursement.