The common fund doctrine is a long held common law principle that allows recovery of reasonable attorney fees when legal services are used to recover money to which multiple people share an interest. The doctrine is typically applied where an insurance company makes a payment to its insured to cover certain out-of-pocket expenses. Then, when the insured files suit against the responsible party and recovers these out-of-pocket expenses, the insurance company has a right to recoup its earlier payments made pursuant to the policy, less the fees that the insured incurred to make that recovery.

While the doctrine has been around for decades, there still remain some gray areas in its application. One such gray area is whether the doctrine applies to an insurer's subrogation claim for medical payments under Neb. Rev. Stat. § 44-3,128.01. The Nebraska Supreme Court recently addressed that gray area and has provided some clarity.

In Hauptman O’Brien v. Auto-Owners Ins. Co., the insurer argued that an insurer who makes medical payments under an automobile liability policy is entitled to full reimbursement upon settlement of the case, without reduction for the attorney fees of the insured's lawyers. The basis for this argument was the insurer's position that § 44-3,128.01 preempts the common fund doctrine because the statute and doctrine were inconsistent and incompatible. The Court disagreed.

Applying rules of statutory construction, the Court found that is silent as to recovery of reasonable attorney fees under the common fund doctrine, and that by giving the insurer the right to recover medical payments in subrogation, the legislature did not necessarily rule out a reduction for attorney fees under the common fund doctrine. The Court decided that the legislature's silence in this regard meant that the common fund doctrine applies to allow for a reduction to account for attorney fees where a law firm secured a common fund in a pretrial settlement. The insurer was thus entitled to recover its $1,000 medical payment, less the 1/3 ($333) fee, to which the insured's counsel was entitled.

Thanks to law clerk Ross Serena for assistance in drafting this article. Matt Reilly and Erickson | Sederstrom’s litigation attorneys are ready to assist with a range of civil disputes and can be reached at 402-397-2200.