The American Rule

The American rule is this: generally, each party must bear his or her own legal expenses.  Rereading Mahler, Winters, and Hamm may not excite like a crime novel, but, you do get a renewed impression of the push and pull that goes into writing insurance policies and the complexities of insurance law.


Case 1: Mahler dealt with a simple factual backdrop: State Farm made a PIP payment to its own insured prior to lawsuit phase. [i]  The Insured went out to fight and got a full settlement to make itself whole.  The insured cannot get double-recovery, so, the insured paid State Farm part of the settlement, PIP reimbursement.  The insured reduced the reimbursement to SF based on the costs and fees of collection that the insured had expended by virtue of becoming the collector.


The Court agreed with the reduction.


Case 2: In the suit that followed and built on Mahler, Winters[ii], the Washington Supreme Court dealt with a slightly different factual backdrop which again came from two different cases with largely analogous facts: Plaintiff was hit, Plaintiff was paid PIP in the amount of $18,480.00.  Plaintiff recovered the policy limits from the at-fault party/ies, but, Plaintiff had more damages resulting from the same incident to the tune of roughly $15,000.00 more. Plaintiff sued its own insurance Company (State Farm again) under Plaintiff’s Under-Insured Motorist policy.[iii]


Plaintiff won an award for $23,000 above the limits amount, ie, $48,000.00.  SF initially refused pay Mahler fees on the 18,000 that it was getting back due to the Plaintiff’s collection efforts.  The Court referred to an equitable principal in the law that when a common fund is created, the two parties served by the fund should share the fees and costs reasonably incurred to generate the fund.  SF was forced to pay the costs of collection for recouping the PIP, but, presumably, it still did not need to pay fees for having taken the case to arbitration as the UIM carrier.  The Winter dissent discusses the American Rule as forbidding payment of the insured attorney fees, but, it places its primary reasoning/justification for seeking to bar payment of fees on the fact that State Farm never recovered any of the PIP money because SF had to pay more out for the UIM award, a seemingly circuitous line of reasoning.


It is interesting that in the cases that followed Mahler, that the insurance Company simply did not take heed of the rule outlined in Mahler which was that when the Insured collects PIP on behalf of the insurance Company, the Insured gets paid attorney fees/costs of collection by the insurance company (deducted from the amount remitted to SF).  The insured in these subsequent had to sue the insurance company to get the collections fees paid.


[i] Mahler v. Szucs, 957 P.2d 632, 135 Wn.2d 398 (Wash. 1998).


[ii] Winters v. State Farm Mut. Auto. Ins. Co., 31 P.3d 1164, 144 Wn.2d 869 (Wash. 2001).


[iii] Uninsured and Underinsured motorist policies are types of coverage that provide a safety net for the possible occurrence of a driver being hit by someone with no insurance at all.  In this  situation the insurance company “steps into the shoes” of the other driver and may put forth a spirited defense against its own customer.  State Farm did that in one of the consolidated cases.


Please Note: The information in this blog/website is provided to further the reader’s research only, and, is not a substitute for consulting with an attorney licensed in your jurisdiction. No attorney-client relationship is formed by virtue of this blog or website nor should any such relationship be implied.


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