Understanding Mahler Fees in Washington

Understanding Mahler Fees in Washington

Nothing throws a monkey wrench into finalizing a settlement like a last-minute request from opposing counsel for the defense carrier to pay Mahler fees.  It is important to understand the different players involved in a settlement implicating Mahler fees in order to determine whether Mahler fees must actually be paid, and by whom.

 

Mahler, Hamm, Winters, and Matsyuk

Mahler and its subsequent cases create an exception to the general rule that both sides bear their own attorney fees.  This line of cases requires Personal Injury Protection (PIP) carriers to share a plaintiff’s attorney fees when the plaintiff’s settlement benefits the PIP carrier.  A common fund is created if a plaintiff recovers a settlement amount from which someone else (a PIP carrier) may also benefit – all those who benefit from the common fund must share the legal expenses proportionately.

Mahler was the first in a line of cases to implement this pro rata fee sharing rule.[i]  Mahler established a PIP carrier was only entitled to take reimbursement from a plaintiff’s settlement if it shared in the attorney fees the plaintiff incurred to obtain that settlement.  The fee-sharing rule was extended to cases where a PIP policy sought reimbursement from an underinsured motorist policy, even though both policies were from the same carrier.[ii]  Three years later, the fee sharing rule was extended again to an uninsured motorist policy taking an offset to the settlement for PIP benefits paid by the same carrier.[iii]  Finally, the rule was extended to situations where a plaintiff recovered PIP benefits as a passenger or pedestrian, then also from the bodily injury liability policy.[iv]

 

Three Major Takeaways for Analyzing a Request for Mahler Fees

  1. Mahler requires a PIP carrier to pay fees if a benefit is taken from a plaintiff’s settlement. If no benefit is taken, no fees are owed.
  2. The benefit to a PIP carrier can be in the form of actual reimbursement or an offset.
  3. The PIP carrier, as the entity receiving a benefit, would owe a pro rata share of the plaintiff’s attorney fees. The liability or UIM carrier does not receive a benefit, therefore does not owe fees.

 

How to Calculate Mahler Fees

To calculate Mahler fees, follow this formula:

(Plaintiff’s attorney fees + costs) x (PIP benefit paid / gross settlement) = PIP’s pro rata fees

Example: If a plaintiff settles for $30,000, and the PIP carrier requests an offset or reimbursement for $10,000 in medical bills it covered, the Mahler fees would be calculated as follows:

($10,000 + $2,000) x ($10,000 / $30,000) = $4,000

(1/3 settlement + costs)     x  (PIP paid / gross settlement) = PIP’s share of fees

 

Takeaways When Addressing Mahler Fees in Settlement Negotiations

Mahler fees can complicate a settlement when the same insurance policy provides the PIP coverage and relevant liability coverage (UM, UIM, or bodily injury).  If Mahler fees are requested, the negotiations will be much clearer if you keep the relevant policies separate, even if the policies are through the same carrier – the PIP policy/carrier may be obligated to pay fees, but never the liability policy/carrier.

Remember the PIP carrier must receive an actual benefit from the liability settlement – Mahler fees are based on the idea of a common fund that PIP benefited from.  If the PIP carrier receives no benefit from the liability settlement, either in the form of repayment or an offset, the PIP carrier is not obligated to pay a share of the plaintiff’s attorney fees.

 

 

 

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Sources


 

[i] Mahler v. Szucs, 135 Wn.2d 398, 957 P.2d 632 (1998).

[ii] Winters v. State Farm Mut. Auto. Ins. Co., 144 Wn.2d 869, 31 P.3d 1164 (2001).

[iii] Hamm v. State Farm Mut. Auto. Ins. Co., 151 Wn.2d 303, 88 P.3d 395 (2004).

[iv] Matsyuk v. State Farm Fire & Cas. Co., 173 Wn.2d 643, 272 P.3d 802 (2012).