State Farm Loses Big in Bama

Recently the Alabama Court of Civil Appeals issued an interesting decision on medical payments subrogation. The case is Mitchell v. State Farm. The facts are that the Plaintiff hired an attorney who ultimately secured a settlement for the Plaintiff. State Farm contributed nothing towards effectuating the settlement. It was solely the work of the Plaintiff’s attorney negotiating with the defendant’s insurance company, Cotton States. State Farm paid out $5,000.00 in medical payments coverage to Plaintiff under their contract of insurance with the Plaintiff (for which Plaintiff paid good money in the form of premiums).

Like a good neighbor, State Farm sought full repayment of $5,000.00 from the Plaintiff’s settlement. Never mind that the insured paid premiums for the medical payments coverage to be there when the Plaintiff needed it; never mind that State Farm did absolutely nothing in generating the settlement funds from which they sought full repayment; never mind that this was their own insured from whom they sought to take money meant to compensate the insured for their injuries.

Unfortunately for State Farm, an attorney stood up against this unfairness and won. The Court held that State Farm had to reduce its medical payments claim for reimbursement by the amount of the Plaintiff’s attorney fee. This is a textbook application of what is called the “common-fund doctrine.” The doctrine says that if an attorney creates a pool of money—like in a personal injury settlement—then someone who seeks reimbursement from that fund must share in paying the attorney’s fee. The principle is quite simple, really. If someone’s work benefits you, you have to pay them. It’s just not fair otherwise.

The opinion, however, is not without its flaws. The court seems to suggest that State Farm could simply modify its policy language to disavow the common-fund doctrine. That would mean that an insured would have to pay back what State Farm paid out for medpay benefits that the insured already pays a premium for. However, there is also language in the opinion that the common-fund doctrine might still apply under equitable (“fairness”) principles. We will have to wait and see what the Court does in the future. For now, insurance companies must SHARE in the cost when a Plaintiff’s attorney works and settles a case.

Of course the attorneys at Gary Bruce, P.C. are always happy to discuss your case with you if you have been hurt in a wreck. It is often difficult to determine who has a valid claim for reimbursement on a given settlement. The attorneys at Gary O. Bruce, P.C. know many techniques used to defeat or substantially reduce claims for reimbursement on your settlement. Call us for a free consultation.