The common fund doctrine is a legal principle that protects an injured victim from having to bear the entire cost of attorney fees without help from the insurance company.
Protecting the Client
This doctrine is not actually designed to protect lawyers, it is designed and used to protect clients. It prevents injured victims:
- from having an insurance company
- who did not participate or assist in the lawsuit
- from submitting a subrogation claim
- without helping to pay the costs of attorney fees.
The idea is that the victim's attorney did the work and won a settlement and that this creates a "common fund" from which both the attorney and the insurance company can collect.
This prevents clients from having to pay the insurance company in full and also paying attorney fees when the insurance company did nothing to help you win the lawsuit.
Our California personal injury attorneys discuss the following frequently asked questions about the common fund doctrine:
- 1. What is the "common fund" doctrine in the United States?
- 2. Why does the common fund doctrine exist under American and California law?
- 3. What is subrogation and what does it have to do with the "common fund" doctrine?
- 4. When will the doctrine be applied to my case?
- 5. What if the insurance company and its lawyer actively participated in the trial?
The common fund doctrine:Makes insurance companies pay part of the money they recover to the accident victim's attorney if the insurance company does not have its own attorney that participated in the case.
Because it was the accident victim's attorney that put in the effort to resolve and win the case, including benefits to the insurance company, the insurance company should have to help pay for that recovery.1
If the client hired his or her own attorney to pursue the personal injury claim, the client expended costs either in billable hours or through the use of a contingency agreement (where a lawyer is paid a portion of whatever is recovered).
The client should never have to pay the insurance company every penny it wants and also bear the full cost of the attorney fees. The insurance company benefited from the attorney's hard work as well, and it should be responsible for a portion of the costs of that representation.
This doctrine helps give accident victim attorneys even more incentive to handle an insurance company subrogation claim. It allows an attorney to rest comfortably that he or she will be paid properly but without harming the client.
A good attorney wants to be paid for his or her hard work but most importantly wants to protect the best interests of his or her client. Requiring insurance companies to pay under the common fund doctrine helps create this protection for the client.2
The common fund doctrine is a product of U.S. and California common law, which means that it is not part of any state statute but is part of American case law generally as established and confirmed by American courts through the years.
It recognizes a common-law historic power in equity that permits:
- a trustee of a fund or property or a party preserving a fund for the benefit of another
- to recover his or her costs,
- including attorney fees,
- from the fund.3
The doctrine has three reasons it is commonly upheld by American and Californian courts of law:
- fairness to the successful litigation whose recovery would otherwise be consumed by expenses;
- prevention of unfair advantage to insurance companies entitled to a share in the fund but did not share the burden of expenses; and
- encourage insurance companies to take a more active role in helping to recover a judgment and to prepare for litigation.4
This fairness protects the interests of both the client and his or her attorney and protects against greedy insurance companies who want all of their money back through a subrogation claim but do not want to help pay for the costs of litigation and attorney fees.
Subrogation has been described as:
- the right of an insurance company to recover money for damages the liable party paid to you.5
- the right of an insurance company to be put in the position of the accident victim so it can pursue recovery from the responsible party.6
- the substitution of the insurance company in place of the accident victim to whose rights they take over. By agreeing to pay money to the accident victim, the insurance company is given the right to take the place of the accident victim and get reimbursed by the responsible party.7
These rights to compensation stem from the accident victim's right to compensation.
Insurance companies cover the costs initially and when a victim is paid for the same costs the insurance company paid out, the insurance company wants to be reimbursed. Subrogation is a way to make sure the insurance company covers the medical care of the injured party and, in return, the injured party pays back his or her insurance company if the same amount is won at court whereby the injured party was "made whole."
This doctrine is about fairness but it does get abused by insurance companies.
Example: Ally is hurt after a balcony she was on collapsed and she fell two stories. She suffered $50,000 in medical costs, which her insurance company paid to the hospital. Ally brings a lawsuit against the owner of the hotel she was staying at for negligence and wins $50,000 in medical costs.
Her insurance company wants to recover the full $50,000 back from her. However, it did not help pay for the attorney or use its own attorney. It will be required to pay a portion of the attorney fees in order to collect its subrogation claim.
The common fund theory is an equitable theory and in order for the doctrine to apply, certain requirements must be met.8
- the party applying for attorney's fees and
- the party from whom fees are sought
- must be similarly situated
- with mutual interests and rights to recover from the common fund.9
A person will not be able to recover under this doctrine if:
- the successful party litigant did not incur any liability or cost for attorney's fees in winning the suit;10
- other interested parties are represented by attorneys in the same litigation;11 or
- the party seeking damages did not win in the proceeding.12
Ultimately, it is up to the judge to decide if the common fund doctrine will apply and how much will be awarded as a result. Judges have a great deal of discretion in considering and deciding upon this issue.13
As shown above, there are certain requirements for the common fund doctrine to apply. An experienced personal injury attorney can present evidence to the judge that all the elements are satisfied in order to make sure the insurance company pays its fair share and that the rights of the client are protected.
When the insurance company, through its attorney or attorneys, actively participated in the lawsuit, the common fund doctrine may not apply.14
The common fund doctrine is meant to prevent passive beneficiaries from recovering without payment of the legal costs involved. If the insurance company was not passive, the doctrine may not apply against it.15
Some companies will participate minimally and then argue that they should not be held responsible for the victim's attorney fees. When the participation in the lawsuit is minimal, the court can consider this in determining whether to award attorney's fees from the common fund and in what percentage.
Example: Anna is injured as the result of a car accident. Her insurance company's attorney actively works on the case to help her recover alongside the personal attorney Anna hired. The two attorneys work nearly equally on the case and win a large settlement. Because the insurance company took such an active role in the litigation and expended costs as a result, the common fund doctrine may not apply.
Example: Sheldon is injured in a boating accident because the boat operator was negligent and sues the owner of the boating company that he rented the boat from. He hires a personal injury attorney, who does all of the work in getting the large settlement he is awarded. The lawyer for the insurance company came to some pretrial hearings and filed a few pleadings but otherwise has not participated in the trial.
When it comes time to ask the judge to limit the insurance company's subrogation claim, the insurance company argues it "participated" in the trial, so it should not have to pay any of the attorney costs. Because the participation was so minimal, the judge may find that the common fund doctrine applies, and offset some of these costs from the insurance company's subrogation award.
Call us for help...
For questions about the common fund doctrine or to confidentially discuss your case with one of our skilled California personal injury attorneys, do not hesitate to contact us at the Shouse Law Group.
We have local law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.
- Progressive West Ins. Co. v. Yolo County, 37 Cal. Rptr. 3d 434, 440 - Cal: Court of Appeal, 3rd Appellate Dist. 2005 ("The “common-fund doctrine” is a limitation on an insurance company's ability to recover funds from its insured where the insured obtains a judgment or settlement from the third party tortfeasor; under this rule, when a number of persons are entitled in common to a specific fund, and an action brought by a plaintiff or plaintiffs for the benefit of all results in the creation or preservation of that fund, such plaintiff or plaintiffs may be awarded attorney's fees out of the fund.")
- Same as 1.
- CAJUR COSTS 121, William Lindsley, J.D. California Jurisprudence 3d (Common fund doctrine).
- Quinn v. State of California, 15 Cal. 3d 162, 124 Cal. Rptr. 1, 539 P.2d 761 (1975); Gabrielson v. City of Long Beach, 56 Cal. 2d 224, 14 Cal. Rptr. 651, 363 P.2d 883 (1961); In re Stauffer's Estate, 53 Cal. 2d 124, 346 P.2d 748 (1959).
- California Department of Insurance, Resources for Accident Victims.
- Fireman's Fund Ins. Co. v. Maryland Cas. Co. (1998) 77 Cal. Rptr. 2d 296, 302
- Same as 6.
- Abouab v. City and County of San Francisco, 141 Cal. App. 4th 643, 46 Cal. Rptr. 3d 206 (1st Dist. 2006).
- Lindsey v. County of Los Angeles, 109 Cal. App. 3d 933, 167 Cal. Rptr. 527 (2d Dist. 1980).
- Bruno v. Bell, 91 Cal. App. 3d 776, 154 Cal. Rptr. 435 (1st Dist. 1979) (plaintiff volunteered his own time and energy as counsel in propria persona).
- Estate of Korthe, 9 Cal. App. 3d 572, 88 Cal. Rptr. 465 (2d Dist. 1970); In re Lagersen's Estate, 210 Cal. App. 2d 788, 26 Cal. Rptr. 783 (1st Dist. 1962); In re Bullock's Estate, 133 Cal. App. 2d 542, 284 P.2d 960 (2d Dist. 1955).
- Residents Ad Hoc Stadium Com. v. Board of Trustees, 89 Cal. App. 3d 274, 152 Cal. Rptr. 585 (3d Dist. 1979).
- Grant v. Hartman Ranch Co., 193 Cal. App. 2d 497, 14 Cal. Rptr. 531 (2d Dist. 1961); Bank of America Nat. Trust & Savings Ass'n v. West End Chemical Co., 37 Cal. App. 2d 685, 100 P.2d 318 (1st Dist. 1940).
- CAJUR COSTS 123, William Lindsley, J.D. California Jurisprudence 3d (Common fund doctrine--Limitations).
- Walsh v. Woods, 187 Cal. App. 3d 1273, 232 Cal. Rptr. 629 (1st Dist. 1986).