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Lemmer v. Karp

OPINION FILED DECEMBER 30, 1977.

JOSEPH LEMMER, PLAINTIFF-APPELLANT,

v.

GARY KARP, DEFENDANT-APPELLEE. — (HARTFORD INSURANCE COMPANY, APPELLEE.)



APPEAL from the Circuit Court of Kane County; the Hon. JOHN S. PETERSEN, Judge, presiding.

MR. JUSTICE BOYLE DELIVERED THE OPINION OF THE COURT:

Joseph Lemmer, hereinafter "plaintiff," brought an action for injuries against the defendant, Gary Karp. After an arbitration hearing, plaintiff was awarded $7,750 in settlement of his action.

Prior to this settlement, on plaintiff's motion, an order was entered denying all lien rights of plaintiff's insurer, Hartford Insurance Company (hereinafter "Hartford"). Thereafter, the trial court vacated this order on Hartford's petition. The trial court also entered an order that the subrogation provisions of the insurance contract between plaintiff and Hartford were in full force and effect and that Hartford had a valid lien for the full amount of the benefits paid to the plaintiff. Plaintiff's request for a credit against the lien of the subrogee (Hartford) of $716.38 for one-third of the attorney's fees and a proportionate share of litigation expenses incurred by plaintiff in obtaining Hartford's portion of the settlement was denied by the trial court. From the gross settlement amount of $7,750, plaintiff paid one-third to his attorneys for attorneys' fees and reimbursed his attorneys $1,237.20 for expenses incurred in maintaining the litigation. The trial court ordered plaintiff to pay Hartford's claim for subrogated medical expenses of $345 and income continuation payments of $1,804.16, for a total of $2,149,16 arising out of the insurance contract subrogation provisions.

The sole issue presented for review is whether the trial court erred in denying plaintiff's request for a credit against the lien of an intervening party for the intervenor's proportionate share of attorneys' fees and litigation expenses incurred by the plaintiff in maintaining his personal injury action.

The plaintiff contends that Baier v. State Farm Insurance Co. (1977), 66 Ill.2d 119, 361 N.E.2d 1100, a recent Illinois Supreme Court decision, is dispositive of this issue.

In Baier, the supreme court held that a plaintiff's attorney, who negotiated a settlement which included a direct payment to the subrogee, is entitled to recover reasonable compensation from the subrogee "in proportion to the benefit received by the subrogee." (Baier, 66 Ill.2d 119, 124.) The supreme court found that "[t]his theory of recovery by an attorney, known as the `fund doctrine,' is based on the equitable concept that an attorney who performs services in creating a fund should in equity and good conscience be allowed compensation out of the whole fund from all those who seek to benefit from it." Baier, 66 Ill.2d 119, 124.

We note first that the Baier case is not directly on point to our factual situation. The equitable considerations expressed therein are, however, equally applicable here.

• 1, 2 In Baier, the court's decision was based on the "fund doctrine," where an attorney may recover for his services in the creation of a fund from all those who benefit from the fund. In our case, it is the plaintiff who has brought the action to recover the subrogee's proportionate share of attorneys' fees and expenses which plaintiff paid in full to his attorney for the creation of the fund and from which the subrogee received its subrogated share. Thus, plaintiff cannot assert the "fund doctrine" because his attorney has already been compensated in full for his services out of the whole fund. In addition, plaintiff is unable to rely upon the "fund doctrine" because its application in Illinois has been confined only to attorneys and not plaintiffs who have not been fully compensated for their services and expenses in creating the fund. Baier, 66 Ill.2d 119, 124.

This limited interpretation of the "fund doctrine" does not preclude this court from applying the same equitable considerations contained therein to eliminate inequitable constraints upon the rights of the plaintiff. In our opinion, it promotes legal nepotism to allow recovery for the attorney from the subrogee when he has not been paid in full for his legal services in the creation of the fund and yet deny recovery based on the same equitable approach to his client who has paid his attorney in full out of the proceeds of the whole fund and has not been reimbursed by the subrogee for its proportionate share of legal fees and expenses in the creation of the fund. Such a legal result, in our opinion, flies in the face of equity.

A review of decisions in other jurisdictions shows that our equitable approach to the allocation of attorneys' fees and expenses among parties, one of whom does not participate in the creation of the fund but benefits thereby, is well accepted.

The Nebraska Supreme Court stated it thusly in United Services Automobile Association v. Hills (1961), 172 Neb. 128, 133, 109 N.W.2d 174, 177:

"[t]he applicable rule is that where the holder of the subrogation right does not come into the action, whether he refuses to do so or acquiesces in the plaintiff's action, but accepts the avails of the litigation, he should be subjected to his proportionate share of the expenses thereof, including attorney's fees."

The court further determined that its decision was based on the equitable theory that one who incurs expenses for the recovery of money for the benefit of an equitable subrogation right holder should be allowed reimbursement for a proportionate share of the expense which was for the benefit of the holder of the subrogation right.

In a New York case, Herbert Rosenthal Jewelry Corp. v. St. Paul Fire & Marine Insurance Co. (1966), 17 N.Y.2d 857, 218 N.E.2d 327, the court allowed the allocation of attorneys' fees and litigation expenses between the insurer, who had brought the action, and the insured, who had recovered an additional sum due to the insurer's efforts in creating the fund. Thus, the amount of the insured's ...


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