Illinois Underinsured Motorist Claims-Common Fund Doctrine

Illinois attorneys handling Underinsured Motorist Claims should be aware that there are setoffs that the insurance companies are claiming that need to be challenged. In a typical situation, plaintiff sustains serious injuries caused by the negligence of another driver. Plaintiff settles her claim for the policy limits of $100,000 from the negligent driver’s insurance company. Plaintiff makes a claim against her won insurance company for additional benefits under the underinsured motorist coverage of her own policy. Her insurance policy has limits of $300,000 for underinsurance motorist coverage. The plaintiff’s insurance company will routinely seek a credit for the full $100,000 paid by the neglligent driver’s insurance company, therby leaving only an additional $200,000 available to compensate the seriosly injured plaintiff.

The common fund doctrine allows a party that creates a fund from which others benefit to seek reimbursement from those other parties. Scholtens v. Schneider, 173 Ill. 2d 375, 671 N.E. 2d 657 (1996). The common fund doctrine most often appears in situations where an insurer obtains a recovery for medical expenses they paid through the plaintiff’s attorney’s efforts in securing the fund. However, the common fund doctrine is not limited to insurance subrogation cases. Chapman v. Kitzman, 193 Ill. 2d 560. 739 N.E. 2d 1263 (2000). The general requirements for applying the common fund doctrine are: (1) the fund for which fees are sought was created as a result of legal services performed by the plaintiff’s attorney, (2) the claimant of the fund did not participate in its creation, and (3) the claimant will benefit from the fund. Taylor v. State Universities Retiremement System, 203 Ill. App. 3d 513, 560 N.E. 2d 893 (1990).

In a very interesting partial concurrence and disssent Justice Chapman addresses the intersection of the common fund doctrine and underinsured motorist benefits and concludes that: “the common-fund doctrine is applicable.” James v. Western States Ins. Co., 335 Ill. App. 3d 1109, 1127, 738 N.E. 2d 37, 51(2001). Using the example above with the $100,000 settlement with negligent driver’s insurance company, the underinsured motorist policy of $300,000 would receive a credit of $66,666 ($100,000 minus $33,333 in fees or $66,666), instead of the full $100,000 credit. Using this approach achieves a $33,000 additional benefit to the client.

Young v. Mory, 294 Ill. App. 3d 839, 690 N.E. 2d 1040 (1998), provides persuasive authority for this approach. In Young, the court held that the State Employees Retirement System could not claim a full offset of worker’s compensation benefits paid to injured worker, but only that portion of benefits that the injured party actually received after the deduction of attorneys fees. This issue should be pressed in the trial court, and if unsuccessful, an appeal should be taken. I am hopeful that the Appellatte Court may follow the reasoning of Justice Chapman and the holding of Young and apply the common fund doctrine to undersinsured motorist claims. Why should injured parties pay attorneys fees to provide a benefit to insurance companies without requiring the companies to pay some of the freight-this is what the common fund doctrine is all about!