As a Matter of First Impression, in the “Med-Pay” Automobile Insurance Context, the “Made Whole” Rule does not Include Liability for Attorney Fees California Supreme Court Holds
Plaintiff filed a putative class action in California state court against auto insurance company, 21st Century Insurance, alleging violations of the state’s Unfair Competition Law (UCL), conversion, unjust enrichment and declaratory relief. 21st Century Ins. Co. v. Superior Court, 47 Cal.4th 511, 518-19 (Cal. 2009). According to the allegations underlying the class action complaint, plaintiff was injured in a car accident; her auto insurance policy, issued by 21st Century, “included first party, no-fault medical payment (med-pay) insurance coverage in case of an accident,” and she received $1,000 under this provision. Id., at 518. Plaintiff filed suit against the driver of the other vehicle and settled that lawsuit for $6,000, “which sum represented her total damages. In obtaining the settlement, she incurred approximately $2,000 in attorney fees and costs,” id. Her insurer sought reimbursement of the $1,000 previously paid under the policy; the parties ultimately agreed on the return of $600 by plaintiff, which represented the insurer’s pro rata share of attorney fees expended by the insured in pursuing the third party. Id., at 519. Plaintiff then filed her class action against 21st Century, alleging that “21st Century could not lawfully require any reimbursement under its policy terms because she had not been made whole by the third party damages settlement ($6,000) and medical payments received from the insurer ($1,000) when her attorney fees of $2,106.50 were included as part of her made whole recovery.” Id. Defense attorneys demurred to the complaint on the ground that California law does not require an insurer to include attorney fees or costs in its made-whole calculation. Id., at 520. The trial court rejected this argument, but the Court of Appeal granted defendant’s petition for writ relief and reversed, holding that attorney fees fall under the “common fund doctrine.” Id. The California Supreme Court granted plaintiff’s petition for review. The Court explained, “The narrow issue before us in this writ proceeding is whether the made-whole rule includes liability for all the attorney fees insureds must pay in order to obtain medical payment compensation from a third party tortfeasor.” Id., at 518. It held that “although the made-whole rule applies in the med-pay insurance context, and the insured must be made whole as to all damages proximately caused by the injury, liability for attorney fees is not included under the made-whole rule.” Id. Rather, “[t]hose fees instead are subject to a separate equitable apportionment rule (or pro rata sharing) that is analogous to the common fund doctrine,” id. The Court therefore affirmed the appellate court decision requiring dismissal of the class action.
The California Supreme Court explained at page 518, “Insurance policies typically have, and her policy did have, a provision requiring her to reimburse her insurer for monies she recovered from a third person that duplicated her recovery under her policy. Underlying these provisions, the basic idea is that insureds should not recover the same amount twice, once from their insurance company and again from a third party. In sum, insureds are entitled to be ‘made whole’ from the insurance proceeds and tort recovery, but they are not entitled to a double recovery.” The Supreme Court’s holding is fully summarized above, and we do not discuss it further. We note, however, that the Court stressed the limited application of its decision: “Our analysis is limited to auto insurance med-pay cases. The reason is that automobile insurance coverage may differ in scope from coverage under other liability policies or homeowner’s property insurance that may or may not have reimbursement provisions, insurer participation requirements, or definitions that apply only to the particular insurance policy terms.” 21st Century, at 518 n.1.