Calculating Attorney Fees in U.S. Subrogation Claims.

by Mark Belanger

As a personal injury lawyer in British Columbia, you may have come across the odd client or opposing party that has a Washington State-based insurance policy, creating a subrogation lien on your client’s claim for damages. In Washington State, your client is entitled to a reasonable attorney fee in having their lawyer collect on that U.S. subrogation interest.

In the United States, where insurance is for the most part a private industry, there is often language in a policy agreement between the insurer and insured to the effect that upon any payments made for medical benefits (called Personal Injury Protection or “PIP”), akin to Part 7 benefits in British Columbia, the insurer will agree to pay a portion of the legal fees to the Plaintiff’s lawyer for acting on behalf of the carrier in collecting their PIP expenses.

Thiringer v. Am. Motors Ins. Co., 91 Wn.2d 215, 588 P.2d 191 (1978) announces Washington’s public policy in favour of full compensation for injured persons. No insurance company has a right of reimbursement unless the plaintiff has first been fully compensated for his or her injuries.

The off-spring of Thiringer came in the form of the Washington State Supreme Court decisions in Mahler v. Szucs, 957 p.2d 632(1998); Winters v. State Farm Mut. Auto. Ins. Co., 144 Wn.2d 869, 31 P.3d 1164 (2001); and Hamm v. State Farm Mut. Auto. Ins. Co., 151 Wn.2d 303, 88 P.3d 395 (2004). These three cases make it clear that if an insurer is entitled to reimbursement, the amount of the reimbursement must be reduced by a pro rata share of the attorneys’ fees and costs expended by the insured in obtaining the funds from which reimbursement is made possible.

The formula that arose from the cases of Mahler, Winters and Hamm is very easy to use from the practitioners’ perspective. It must be noted the formula applies to any common subrogation interest scenario that can arise in a Washington State subrogation claim¹. The formula is:

FR = CR - ((CR/CF) * (F + C))

FR – The final reimbursement (the amount your client pays the insurer on their subrogation claim).

CR – The amount of the claimed reimbursement.

CF – This is the common fund of recoveries from all sources of liability insurance, including any underinsured motor vehicle policy amounts.

F – The actual attorney (lawyer) fees charged.

C – The actual amount of costs charged.

As a B.C. lawyer, a Washington State insurance carrier will likely assume you do not know about the Mahler formula. In most instances, the insurance company will provide you with their share of the attorney fees for collecting their subrogation claim. It is our advice to take great caution in blindly accepting their amount. In a typical soft tissue damage case, where damages may not be that high, the reduction of any lien on the claim can sometimes be the difference between your client wanting to settle, or not. By using the Mahler calculation, you will be in a position to not only advise your client appropriately, but to provide them a greater net return on their settlement.

¹ Thiringer, Mahler, Winters, and Hamm apply to common law reimbursement under state law. These cases do not apply to statutory rights of reimbursement such as the statutory right of reimbursement for Washington Department of Labor and Industries, Washington Department of Social and Health Services, or Federal statutory rights of reimbursement.

Mr. Belanger is licensed to practice law in both Washington State and British Columbia. To contact Mr. Belanger visit www.crossborderlaw.com.

This article was published in the December 2009 issue of BarTalk. © 2009 The Canadian Bar Association. All rights reserved.