"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.