Luce Forward Obtains Unanimous California Supreme Court Decision

LawFuel.com – 27 August, California Supreme Court rejects attempt to effectively abolish automobile insurers’ med pay reimbursement rights

SAN DIEGO (August 26, 2009) – Luce, Forward, Hamilton & Scripps LLP, a prominent California law firm, today announced partners John T. Brooks, Peter H. Klee and Charles A. Danaher obtained a unanimous California Supreme Court decision clarifying the rule on attorneys fees in med pay disputes and blocking the plaintiffs’ attempts to recover tens and possibly hundreds of millions of dollars in reimbursement payments that were at risk across the whole automobile insurance industry.

In the case of Quintana v. 21st Century Insurance Co., the Court sided with 21st Century, finding that an automobile insurer is not liable for attorney fees incurred by an insured in order to obtain uncovered damages from a third party tortfeasor. In addition, the Court simultaneously decided companion cases filed against the Interinsurance Exchange of the Automobile Club, Allstate Insurance Company, and Allstate Indemnity Company, all of which were likewise represented by Luce Forward.

Quintana was one of thirteen identical class actions – the so-called “make whole” cases – filed against nearly every major automobile insurer in California. The question presented in the “make whole” cases was this: Can an insurer assert its contractual right to reimbursement of med pay benefits, after the policyholder settles with the at-fault driver, if the policyholder’s attorney fees incurred in obtaining the settlement from the tortfeasor exceed the amount of med pay benefits paid by the insurer?

Quintana argued that an insurer’s right of reimbursement is barred completely by the “make whole” rule anytime the policyholder’s attorney fees exceed the med pay benefits. Because attorney fees almost always exceed the typically small amount of med pay benefits, plaintiff’s argument – if accepted – would have effectively prohibited med pay reimbursement. In contrast, Luce Forward’s Brooks argued on behalf of 21st Century that attorney fees are irrelevant to whether the policyholder has been made whole, and that the proper way to allocate attorney fees is pro rata sharing in accordance with the common fund doctrine.

The class actions sought restitution of millions of dollars of med pay reimbursement payments collected by insurers from policyholders since 2001, the beginning of the class period.

The California Supreme Court, siding with 21st Century, affirmed the unpublished decision of the Fourth District Court of Appeal which had granted writ petitions by 21st Century, Allstate, and the Interinsurance Exchange after the trial courts overruled the insurers’ demurrers. The Supreme Court rejected the contrary conclusion previously reached by a federal district court in Chong v. State Farm Mut. Auto. Ins. Co.

The Quintana decision should be dispositive for all thirteen pending “make whole” class actions in both state and federal court. The result eliminates the risk that insurers will be liable for restitution of med pay reimbursement payments collected.

Founded in 1873, Luce, Forward, Hamilton & Scripps LLP is a full-service California law firm with offices in San Diego, San Francisco, Los Angeles, Carmel Valley/Del Mar, Orange County and Rancho Santa Fe. For more information, visit www.luce.com.

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