Collins v. United Pacific Insurance

¹⁴³ McAULIFFE, Judge. At issue here is a dispute between a worker’s compensation insurer and a claimant concerning the proper apportionment of attorney’s fees and expenses following a successful action against a tort-feasor who caused the compensable injury. I. Michael L. Collins, Sr. (claimant) suffered injuries as a result of an automobile accident which occurred on 22 November 1978, while the claimant was in the course of his employment with the Board of Education of Baltimore County. Through his attorney, Collins filed a timely claim for worker’s compensation benefits on 17 May 1979.

By order of 31 October 1979, the Workmen’s Compensation Commission allowed the claim. Later orders of the Commission fixed the period of disability of the claimant, and ultimately United Pacific Insurance Company (the insurer) paid worker’s compensation benefits totalling $51,470.21. On 9 July 1981, the attorney representing the claimant in the worker’s compensation case filed a tort action on behalf of the claimant individually, and on behalf of the claimant and his wife for loss of consortium, against the person who had allegedly caused the accident (the tort-feasor). Approximately one month prior to the trial of that action, on 26 March 1985, an amended complaint was filed joining the insurer as a use plaintiff and entering the appearance of the insurer’s attorney.

The action was tried before a jury for five days, and resulted in judgments in favor of the claimant and the insurer for $175,000 and in favor of the claimant and his wife for $50,000. 1 The insurer does not claim any interest in the $50,000 award, but does seek reimbursement from the larger award for compensation benefits paid. The claimant, although conceding that the insurer is entitled to reimbursement from the proceeds of the third ¹⁴⁴ party action, contends that the insurer’s recovery must be reduced by one-third to satisfy the attorney’s fee the claimant paid to his attorney, and must also be reduced by one-half of the costs and expenses necessarily incurred in the successful prosecution of the action. The insurer contends that no deduction should be made from its share of the recovery for attorney’s fees because the insurer hired and paid its own attorney in connection with the action. Concerning the costs and expenses, the insurer argues that it should share the expenses with the claimant in the same proportion that its share of the recovery bears to that of the claimant, i.e. 29 percent.

Because the parties agreed that the carrier was in any event entitled to $31,880.34 (the amount of benefits paid, less one-third attorney’s fees and one-half of costs and expenses), that amount was paid to the insurer and the balance of $19,589.87 was placed in escrow. The claimant then brought an action in the Circuit Court for Baltimore County for declaratory relief, and that action was heard by Judge J. William Hinkel. Judge Hinkel found that the insurer’s claim must be reduced by an appropriate share of the attorney’s fees and expenses. He agreed with the insurer that its liability for the expenses was 29 percent of the total expenses.

Implicitly, he found that the attorney’s fee agreed to by the claimant and his attorney, a contingent fee of one-third of the amount of any recovery, was reasonable. However, he also concluded that a fair allocation of the entire fee was 95 percent to the claimant’s attorney and 5 percent to the insurer’s attorney. Accordingly, Judge Hinkel declared that the insurer was entitled to a credit of 5 percent of the attorney’s fee attributable to the $175,000 judgment. The claimant appealed, and we granted certiorari before this case was considered by the Court of Special Appeals.

II

The legislature has addressed the question of who may bring an action against a third party following an ¹⁴⁵ award of worker’s compensation benefits, and how distribution of a recovery is to be made. Section 58 of Article 101 of the Maryland Code (1957, 1985 Repl.Vol.) makes clear that a claimant does not lose the right to proceed against a tort-feasor by accepting worker’s compensation benefits. 2 Additionally, that section creates a right of subrogation in favor of the insurer for benefits paid. 3 If the insurer brings the action against the third party, it is required to pay to the claimant any “excess” recovery. If the claimant brings the action, the claimant must first satisfy the subrogated interest of the insurer out of the proceeds of any settlement or judgment. 4 Prior to 1947, the legislature fixed the amount of the net subrogated interest of the insurer, i.e., the amount it was entitled to retain if it brought the action or the amount it was entitled to receive if the claimant brought the action, as the amount of compensation benefits paid less the “expenses and costs of action.” Article 101, § 72, Md.Code (1939, 1943 Supp.). Accordingly, in Barrett v. Indemnity Ins.

Co., 152 Md. 253 , 136 A. 542 (1927), our predecessors held that counsel fees incurred by a claimant in obtaining a third party recovery were not chargeable against the statutory lien of the insur ¹⁴⁶ er. This result was changed by ch. 608 of the Acts of 1947, providing that when the claimant accomplished the recovery he should “first retain therefrom the expenses and costs of action incurred" and then pay to the insurer the amount of compensation benefits theretofore paid or awarded, except Court costs and counsel or attorney’s fees, which shall be paid by the [claimant] and the [insurer] in the proportion that the amount received by each shall bear to the whole amount paid in settlement of any claim or satisfaction of any judgment obtained in the case____ As the Court of Special Appeals pointed out in Metz v. Fireman’s Fund Insur., 15 Md.App. 179, 182-83 , 289 A.2d 830 (1972), the statute provides clear guidance when one attorney effects the third party recovery, but does not speak to the situation that arises when the claimant and the insurer are represented by different attorneys in the third party action. In the case before us, although the claimant’s attorney initiated the third party action and controlled it throughout the trial, the insurer’s attorney entered his appearance approximately one month before trial when the insurer was joined as an additional plaintiff, and thus we must address the question left unanswered by the statute. The approach favored by the insurer is that taken by Judge Holtzoff in McCally v. Hartford Accident & Indemnity Co., 247 F.Supp. 444 (D.D.C.1965).

There, the claimant was injured in Maryland and received benefits pursuant to the Maryland Workmen’s Compensation Law. The claimant’s attorney then pursued a claim against the alleged tort-feasor and, after protracted negotiations but before the filing of a third party action, settled the claim for the total amount of the tort-feasor’s liability insurance coverage plus funds contributed by the tort-feasor. Applying Maryland law, Judge Holtzoff correctly noted that § 58 of Art. 101 requires that attorney’s fees incurred by the claimant in connection with the third party claim “are to be apportioned as between the employee and the workmen’s compensation carrier in proportion to the ¹⁴⁷ amounts that they receive out of the proceeds of the third party claim.” McCally, 247 F.Supp. at 446 . With respect to the contention of the insurer that it should not be charged a full proportionate share because a substantial amount of the work that produced the settlement had been accomplished by its Regional Claims Manager, Judge Holtzoff first stated: It is a fact, and the Court finds that [the claims manager] actively participated with [claimant’s attorney] in the negotiations which led to the settlement.

The mere fact, however, that a party assists counsel in the work that the latter does, does not abrogate liability for counsel fees. In many cases counsel is actively aided by his client. It does not follow that the client does not have to pay counsel fees. Id.

The judge went on to note, however, that counsel for the claimant had conceded that “[a]s a matter of equity, ... it is fair that some recognition should be given to [the insurer] for the fact that part of the work that resulted in the settlement was performed by its own representative.” Id. After determining the amount which would constitute a fair fee for the recovery of that portion of the settlement representing the insurer’s claim, Judge Holtzoff decided that only 50 percent of that amount should be deducted from the insurer’s recovery, apparently on the basis that the effort which produced the settlement was equally divided between the claimant’s attorney and the insurer’s representative. The claimant argues that the later case of Thomas v. Aetna Casualty and Surety Company, 473 F.2d 164 (D.C. Cir.1972), represents the better interpretation of Art. 101, § 58. In Thomas , the claimant sustained a compensable injury in Maryland, and the compensation insurer paid $22,-000 in benefits.

Claimant’s attorney then brought a third party action in the District of Columbia, and the tort-feasor ¹⁴⁸ required the joinder of the compensation insurer as a real party in interest. 5 The insurer then retained its own attorney, who prepared answers to interrogatories put to the employer and insurer, participated in some minor pre-trial activities, and made a brief closing argument to the jury. Following a jury verdict in favor of the claimant and insurer for $75,000, the claimant requested that the trial judge determine the amount to be paid to the insurer in satisfaction of its statutory lien. In the post-trial proceedings that followed, the insurer claimed it was entitled to the full sum of $22,000, and that no deduction for a proportionate part of the claimant’s attorney’s fees should be allowed because the insurer had retained and paid its own attorney. The trial judge agreed, but the Court of Appeals reversed and directed that the insurer be charged with the entire portion of the attorney’s fees properly attributed to the lien amount (22/75ths).

The Court said: ¹⁴⁹ The intent of the statute is clear beyond dispute. The party bringing the suit is entitled to have the other party, which has benefited from the suit as a co-plaintiff (albeit initially a reluctant one), contribute its share of attorney’s fees and court costs. The non-instituting party plaintiff may, of course, retain separate counsel to represent its own interest. If the party does, however, it does so voluntarily and its unilateral action has no effect on its statutory obligation to share in the expenses incurred by the instituting party.

To hold otherwise would render the statute meaningless since a party could avoid contribution by simply hiring a lawyer. Thomas, supra, 473 F.2d at 166 . Concerning the necessity for any adjustment of the amount of attorney’s fees apportioned to the insurer by the statute, the Court said: [The insurer] would have been required to act in the role of witness and furnish all relevant information on demand of either party to the lawsuit, whether the carrier was ever named as a real party in interest or not. Thus there is no basis for arguing that answering the depositions was done as an extra service to [the claimant] in furtherance of [his] case.

Without in any way reflecting adversely on [the insurer’s] counsel’s capacity, under the circumstances here there is no reason to think that [the insurer’s] pre-trial efforts or closing statement to the jury aided in the successful conclusion of the case. Certainly both of these activities could have been delegated to [claimant’s] counsel without adversely affecting the outcome. Id. at 167 . The Thomas court distinguished McCally , pointing out that in McCally the insurer had performed important services that benefited the claimant; that the claimant had encouraged the insurer to provide those services; and, that on a theory of quasi-contract the insurer was entitled to a credit for the fair value of those services.

The Thomas court said that in the case before it, “[w]e note it was the defendant ¹⁵⁰ who desired [the insurer’s] presence as a party in the law suit, not [the claimant]. 473 F.2d at 167 . Our Court of Special Appeals considered the problems of apportionment and allocation of attorney’s fees under Art. 101, § 58 in Metz, supra. In that case, the claimant filed a third party action more than two months after he had secured an award of compensation. Although the action was styled in the name of the claimant to his own use and to the use of the compensation insurer, it does not appear that the claimant’s attorney had made any arrangements with the insurer to provide exclusive representation.

After all discovery had been completed, and the trial had twice been postponed, another attorney entered his appearance on behalf of the insurer. Over the vigorous objections of claimant’s counsel, the trial judge allowed the insurer’s attorney to participate at trial and, in addition to full participation by claimant’s counsel, allowed the insurer’s attorney to: deliver an opening statement; cross-examine defense witnesses; call a witness to prove the amount of the insurer’s'lien; and, make a closing argument. 6 The jury returned a verdict in favor of the claimant for $30,000, and for the claimant to the use of the insurer for $4,465. The trial judge was asked to apportion the attorney’s fees and costs in accordance with Art. 101, § 58. He did apportion the costs, but determined that the insurer should not be charged with any portion of the claimant’s