Summary
The Washington Supreme Court held that an insurer providing both personal injury protection (PIP) and underinsured motorist (UIM) coverage must pay a pro rata share of the insured’s legal expenses before taking a PIP reimbursement offset against UIM benefits. The court extended the equitable common-fund rule from Mahler and Winters to cases involving an uninsured tortfeasor and recovery solely from the insured’s UIM carrier. The court reversed the Court of Appeals.
Topics
Practice areas
Questions Presented
- Whether the pro rata sharing rule requiring a PIP carrier to pay a proportionate share of an insured's legal expenses before obtaining reimbursement applies when the tortfeasor is uninsured and the insured recovers solely from a UIM carrier.
- Whether an insurer providing both PIP and UIM coverage may avoid the pro rata sharing obligation by characterizing the PIP reimbursement as a reduction of its UIM obligation rather than as a PIP reimbursement offset.
Holdings
- The equitable pro rata sharing rule applies. A PIP carrier that seeks reimbursement from a UIM recovery must pay a pro rata share of the legal expenses the insured incurred to obtain that recovery, even when the recovery consists solely of UIM benefits.
- State Farm could not avoid the pro rata sharing obligation by labeling the transaction a reduction of UIM benefits. The offset was a mechanism for State Farm, in its PIP capacity, to obtain reimbursement of PIP benefits.
Key quotations
“We extend our earlier decisions in Mahler v. Szucs, 135 Wn.2d 398, 957 P.2d 632, 966 P.2d 305 (1998), and Winters v. State Farm Mutual Automobile Insurance Co., 144 Wn.2d 869, 31 P.3d 1164, 63 P.3d 764 (2001), and hold that in order to take a PIP reimbursement offset, the insurance carrier must pay a pro rata share of the legal expenses incurred by the insured to arbitrate the UIM claim.” (303)
“An insurance company providing both PIP and UIM coverage to the same insured may receive its PIP reimbursement, after the insured is fully-compensated, through the use of an offset against its UIM obligations.” (321)
“An insurance company may not, however, style this offset as a reduction of any amount owed under UIM coverage, rather than a PIP reimbursement, in order to avoid paying a pro rata share of the insured’s legal expenses.” (321)
“The common fund, for purposes of the pro rata sharing rule for legal expenses articulated in Mahler and Winters, may consist of funds from a tortfeasor recovery, a UIM recovery, or a combination of both.” (321)
Factual background
Rebecca Hamm was injured in an automobile accident with an uninsured motorist and was insured by State Farm under both PIP and UIM coverages. State Farm paid $8,669.71 in PIP benefits, and an arbitrator later determined that Hamm's total UIM damages were $16,000. State Farm offset the PIP payments against the UIM award, but the parties disputed whether State Farm had to pay a pro rata share of the $6,634.06 in legal expenses Hamm incurred obtaining the UIM recovery.
Procedural history
Hamm received PIP benefits from State Farm and later obtained a $16,000 UIM arbitration award after an accident with an uninsured motorist. State Farm offset the PIP benefits against the UIM award. The trial court allowed the offset but required State Farm to pay a pro rata share of Hamm's arbitration expenses. The Court of Appeals reversed, the Supreme Court remanded for reconsideration in light of Winters, and after the Court of Appeals declined to change its decision, the Supreme Court granted review again and reversed.