Miner v. Farmers Ins. Co. of Idaho

778 P.2d 778, 116 Idaho 656, 1989 Ida. LEXIS 130

• Court: Idaho Supreme Court
• Decided: August 9, 1989
• Docket: 17636
• Status: Published

Opinions

JOHNSON, Justice.

This is an insurance subrogation case. The question presented is whether an insurer is obligated for attorney fees incurred by its insureds in collecting an amount to which the insurer was subrogated, when the insureds did not notify the insurer that they had employed an attorney to collect the subrogated interest. We hold that the insureds are not entitled to withhold attorney fees from the subrogated interest. We reverse a summary judgment in favor of the insureds and remand to the trial court with instructions to grant summary judgment to the insurer.

I.

THE BACKGROUND AND PRIOR PROCEEDINGS.

The Miners were insured by Farmers when they were injured in an automobile accident on October 25, 1986. The driver of the other automobile was insured by State Farm. Farmers paid $4,773.17 on behalf of the Miners for medical care and treatment they received as a result of the accident.

In January 1987 Farmers notified State Farm that Farmers had a medical payment subrogation interest in any payments State Farm might make to settle injury claims arising out of the accident. In May 1987 Farmers advised State Farm that its claim for pending medicals was $2,170.00. In June 1987 Farmers advised State Farm that its claim had increased to $2,814.00 and then to $3,780.14. On August 10, 1987, Farmers advised State Farm that its claim had increased to $4,773.17.

On July 27, 1987, the Miners employed an attorney to recover from the driver of the other automobile the damages they had sustained in the accident. The employment contract entered into between the Miners and their attorney provided that the attorney would receive one-third of all amounts recovered for the Miners as a result of damages sustained in the accident. Neither the Miners nor their attorney advised Farmers of this employment or that the Miners intended to collect the subrogated interest of Farmers. On August 14, 1987, the attorney for the Miners negotiated a settlement with State Farm. The settlement included $10,000.00 compensatory damages and $4,773.17 for medical expenses previously paid by Farmers. Two checks were issued by State Farm, one for $10,000.00, payable to the Miners and the attorney, and a second for $4,773.17, payable to the Miners and Farmers.

The Miners asserted that Farmers was entitled to receive the amount of the second check, less one-third of that amount, in order to compensate them for the attorney fees they had agreed to pay their attorney. Farmers disagreed.

The Miners brought this action against Farmers seeking a declaratory judgment that they were entitled to withhold one-third of the $4,773.17 represented by the second check as attorney fees for obtaining settlement with State Farm. Farmers denied that it owed these attorney fees. The Miners moved for summary judgment, which the trial court granted based on Cedarholm v. State Farm Mutual Insurance Co., 81 Idaho 136, 338 P.2d 93 (1959). Farmers has appealed this summary judgment and has asserted that summary judgment should have been granted to Farmers.

II.

THE MINERS WERE NOT ENTITLED TO WITHHOLD ATTORNEY FEES FROM THE SUBROGATED INTEREST OF FARMERS.

The facts in Cedarholm were somewhat similar to the facts in this case. There, an insurer had paid its insureds for damage to their automobile resulting from an accident caused by another driver. The insureds brought action against the driver of the other automobile seeking recovery for the damage to their car and for damages for personal injuries. While the attorney for the insureds was negotiating a settlement of these claims, he called an agent for the insurer and inquired whether the insurer intended to claim subrogation in the action against the other driver. “The agent replied insofar as he knew his company did not plan to do so.” Id. at 139, 338 P.2d at 94. A settlement was reached by the attorney, and two checks were issued, one for the personal injuries, payable to the insureds and their attorney, and a second for the damage to the automobile, payable to the insureds, their attorney and the insurer.

In deciding whether the insureds were entitled to deduct attorney fees from the second check, this Court adopted the fund doctrine and said:

Recovery by the [insurer] under its right of subrogation ... is subject to reduction by the amount [the insureds] expended for collection.

“The general rule is that the insured may retain out of the fund recovered from the wrongdoer, after the payment of the policy, the costs and reasonable expenses incurred in the litigation, for it would be unjust to require him to incur expenses for the recovery of money for the benefit of the insurer, without being allowed to reimburse himself. * * *” 29 Am.Jur., Insurance, sec. 1346, p. 1008.

[Citation omitted.] There was an express subrogation contract between the parties. Under this express agreement, the [insurer] required [the insureds] to proceed by its inaction and was obligated to pay the necessary expenses which [the insureds] incurred to protect [the insurer] under ... the agreement, and this would therefore harmonize the conclusion reached herein with Felton v. Finely, 69 Idaho 381, 209 P.2d 899 [(1949)].

81 Idaho at 142, 338 P.2d at 96.

We first note that Felton v. Finely, cited in Cedarholm, held that an attorney who represented heirs who successfully challenged a will was not entitled to recover attorney fees from other heirs whom he did not represent. The attorney had made several efforts to induce these other heirs to employ him, but they had refused to do so. The Court concluded that there was neither an express nor an implied contract by these other heirs to pay for the services of the attorney. In Cedarholm the Court distinguished Felton on the ground that in Cedarholm there was an express subrogation contract that obligated the insureds to pursue their claims when the insurer did not do so.

We conclude that Cedarholm is distinguishable from this case. In Cedarholm the attorney for the insureds had contacted an agent for the insurer to inquire whether the insurer intended to claim subrogation. Here, there was no notice to Farmers by the Miners or their attorney that the Miners had employed the attorney to pursue their claims, including the subrogated interest of Farmers. Notice to an insurer is a necessary prerequisite in a case like this before the insured is entitled to charge the insurer for attorney fees for the recovery of the subrogated interest. The cases cited in support of the portion of the Am.Jur. article in Cedarholm confirm this.

In Newcomb v. Cincinnati Insurance Co., 22 Ohio St. 382, 10 Am.Rep. 746 (1872) the court held that the insured was required to account only for “the surplus which may remain in his hands, after satisfying his own excess of loss in full and his reasonable expenses incurred in its recovery; unless the underwriter shall, on notice and opportunity given, have contributed to, and made common cause with him, in the prosecution.” 10 Am.Rep. at 750-51 (emphasis added).

In Svea Assur. Co. v. Packham, 92 Md. 464, 48 A. 359 (1901), the court allowed the insured to retain attorney fees out of the amount recovered that represented the subrogated interest of the insurers, because the insurers had been notified of the litigation and refused to participate. 48 A. at 361.

In Shawnee Fire Ins. Co. v. Cosgrove, 116 P. 819 (Kan.1911), the court pointed out that the insurer was notified that a settlement was being discussed.

Other more modern cases also indicate that notice to the insurer that the insured is pursuing an action or settlement that includes the subrogated interest is necessary before the insured may charge the insurer attorney fees for the collection of the subrogated interest. This principle was succinctly stated by the Wisconsin Supreme Court in State Farm Mut. Auto. Ins. Co. v. Geline, 48 Wis.2d 290, 179 N.W.2d 815, 821 (1970):

“FUND DOCTRINE.”

Because the attorney may not receive payment from his client for that portion of a settlement payable to holders of subrogated or assigned rights and particularly in light of the otherwise unjust enrichment of the holders of those rights, we find the superior merit in the equity approach and accept the rationale of the “fund doctrine” cases.

The adoption of the “fund doctrine” is subject to the following limitations:

NOTICE. It is a prerequisite to seeking or securing a fee from holders of subrogated interests that notice be given to such holders not only that a claim is being asserted or action has been commenced, but also that, unless the holder elects to join in the- action as a party thereto, a reasonable fee for services rendered in accomplishing the collection of its subrogated interest will be requested of the court in any settlement or court disposition. Timely notice is required to give the holder of a subrogated interest the right to join the action and to be represented by legal counsel of its own choosing if it so elects.

In this case there is no assertion by the Miners that either they or their attorney notified Farmers of their intent to collect the subrogated interest of Farmers from the driver of the other automobile involved in the accident. In the absence of this notice, the Miners are not entitled to withhold attorney fees from the subrogated interest of Farmers. Therefore, we reverse the summary judgment granted to the Miners.

III.

FARMERS IS ENTITLED TO SUMMARY JUDGMENT.

Where one party to an action has moved for summary judgment, summary judgment may be granted to a nonmoving party, if there are no genuine issues of material fact and if the nonmoving party is entitled to judgment as a matter of law. Spencer-Steed v. Spencer, 115 Idaho 338, 345, 766 P.2d 1219, 1226 (1988); Juker v. American Livestock Ins. Co., 102 Idaho 644, 645, 637 P.2d 792, 793 (1981).

Here, since there was no assertion that the Miners or their attorney had notified Farmers of their intent to collect the subrogated interest of Farmers, there was no genuine issue of material fact and Farmers is entitled to summary judgment as a matter of law. Therefore, we remand this case to the trial court with instructions to grant summary judgment to Farmers.

IV.

CONCLUSION.

We reverse the summary judgment granted to the Miners and remand this case to the trial court with instructions to grant summary judgment to Farmers.

We award costs, but not attorney fees, on appeal to Farmers.

HUNTLEY, J.,

* and McFADDEN, J., Pro Tern., concur. SHEPARD, J., sat, but did not participate in the opinion due to his untimely death.

For othor case» see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key No. Series & Rep’r Indexes

sired a special finding of such damage, to ask for such a finding. Otherwise, the court said, he would be considered to have accepted the amount of insurance received by him less the expense of presenting that phase of the case as the measure of his obligation as trustee.