Supreme Court of California Justia
Citation 47 Cal. 4th 511, 213 P.3d 972, 98 Cal. Rptr. 3d 516

21st Century Insurance v. Super. Ct.

Filed 8/24/09

IN THE SUPREME COURT OF CALIFORNIA

21st CENTURY INSURANCE
COMPANY,
Petitioner,
v.
S154790
THE SUPERIOR COURT OF SAN
Ct.App. 4/1 D049430
DIEGO COUNTY,
San Diego County
Respondent;
Super. Ct. No. GIC 857010
SILVIA QUINTANA,
Real Party in Interest

Silvia Quintana (Quintana) was injured in an automobile accident with a
third party. She maintained an auto insurance policy with 21st Century Insurance
Company (21st Century) that included first party, no-fault medical payment (med-
pay) insurance coverage in case of an accident. 21st Century paid Quintana
$1,000 under her insurance policy‘s med-pay provision. Quintana then separately
pursued a damages claim against the third party and settled the action for $6,000,
which sum represented her total damages. In obtaining the settlement, she
incurred approximately $2,000 in attorney fees and costs (collectively attorney
fees). Insurance policies typically have, and her policy did have, a provision
requiring her to reimburse her insurer for monies she recovered from a third
person that duplicated her recovery under her policy. Underlying these provisions,
1


the basic idea is that insureds should not recover the same amount twice, once
from their insurance company and again from a third party. In sum, insureds are
entitled to be ―made whole‖ from the insurance proceeds and tort recovery, but
they are not entitled to a double recovery.
The narrow issue before us in this writ proceeding is whether the made-
whole rule includes liability for all the attorney fees insureds must pay in order to
obtain medical payment compensation from a third party tortfeasor. The issue
arises at the intersection of two well-settled legal doctrines: (1) the made-whole
rule, whereby a third party recovery must make the insured whole before he or she
is obligated to reimburse the insurance company, and (2) the ―common fund‖
doctrine, whereby a party that benefits from another person‘s expenditure of
attorney fees is required to bear a proportionate share (but not all) of that
expenditure.
As we explain, we conclude that although the made-whole rule applies in
the med-pay insurance context, and the insured must be made whole as to all
damages proximately caused by the injury, liability for attorney fees is not
included under the made-whole rule. Those fees instead are subject to a separate
equitable apportionment rule (or pro rata sharing) that is analogous to the common
fund doctrine we discuss below. We therefore affirm the Court of Appeal‘s
judgment. 1
FACTUAL AND PROCEDURAL BACKGROUND
On December 8, 2003, Quintana suffered injuries in an automobile accident
with a third party. Quintana‘s insurance company, 21st Century, paid her $1,000

1
Our analysis is limited to auto insurance med-pay cases. The reason is that
automobile insurance coverage may differ in scope from coverage under other
liability policies or homeowner‘s property insurance that may or may not have
reimbursement provisions, insurer participation requirements, or definitions that
apply only to the particular insurance policy terms.
2


under her insurance policy‘s med-pay provisions. Med-pay coverage pays the
insured‘s reasonable and necessary medical expenses incurred due to an accident
up to a relatively low dollar limit, in exchange for relatively low premiums. (See
Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 270
(Progressive West).) The insurer provides coverage on a no fault basis. The
coverage is primarily designed to provide an additional source of funds for
medical expenses for injured automobile occupants without the burdens of a fault-
based payment system. There is no statutory obligation to provide med-pay
coverage. (Nager v. Allstate Ins. Co. (2000) 83 Cal.App.4th 284, 289-290.)
As noted, Quintana separately sued the third party tortfeasor and settled her
action for $6,000. To obtain the settlement, she incurred $2,106.50 in attorney
fees. Under its interpretation of the insurance policy‘s reimbursement provision,
21st Century requested that Quintana repay the $1,000 it had paid her.2 Quintana
paid 21st Century $600, an amount arrived at by taking the $1,000 med-pay
benefits disbursed to her by 21st Century and subtracting attorney fees of $400
(approximately one-sixth of Quintana‘s total attorney fees of $2,106.50, one-sixth
being the relationship between the $1,000 she received from 21st Century and her
$6,000 settlement). 21st Century eventually agreed that amount fully satisfied its
reimbursement claim, because it accounted for 21st Century‘s pro rata share of the
attorney fees Quintana expended in collecting the damages from the third party
tortfeasor.

2
The reimbursement provision states: ―REIMBURSEMENT TO US –
PART II [¶] If we make any payment under this Part and the person insured or for
whom the payment is made recovers damages from another person or
organization, the person insured shall: [¶] 1. hold in trust for us the proceeds of the
recovery; and [¶] 2. reimburse us to the extent of our payment.‖ (Boldface
omitted.)
3


Quintana subsequently filed a class action lawsuit against 21st Century,
alleging four causes of action: (1) violation of Business and Professions Code
section 17200, (2) conversion, (3) unjust enrichment, and (4) declaratory relief.
Quintana asserted that 21st Century could not lawfully require any reimbursement
under its policy terms because she had not been made whole by the third party
damages settlement ($6,000) and medical payments received from the insurer
($1,000) when her attorney fees of $2,106.50 were included as part of her made
whole recovery. She argues that the made-whole rule requires the insurer to take
into account all of the insured‘s litigation expenses when calculating whether or
not the insured‘s recovery from a third party tortfeasor resulted in a surplus
recovery entitling the insurer to some reimbursement. After paying her attorney
fees, Quintana recovered a total of $4,893.50 ($6,000 in settlement proceeds plus
$1,000 in med-pay proceeds minus $2,106.50 in litigation expenses). She alleged
that, because her total gross recovery of $4,893.50 after payment of attorney fees
was less than her total damages of $6,000, she had not been made whole.
Quintana sought to represent the class of all ―California policyholders, past
and present, of [21st Century] who: (1) were not made whole after deducting all
attorney fees from the money they received from the resolution of their claims
against third party tortfeasors; (2) received an amount from 21st Century that was
less than the amount paid by such policyholders for such attorney fees; and (3)
paid 21st Century money in response to its demand for reimbursement of
payments it paid under the med-pay coverage.‖
21st Century demurred to the complaint, asserting that Quintana did not
state a cause of action because California law includes no attorney fees or costs in
the made-whole calculation. 21st Century contended that reimbursement for
attorney fees is separately determined under an equitable apportionment rule
known as the common fund doctrine and its requirement that an insurer pay a pro-
4
rata portion of attorney fees once the insured recovers his or her damages. In other
words, 21st Century claimed that Quintana‘s interpretation of the made-whole rule
conflicted with the common fund doctrine. The trial court overruled the insurer‘s
demurrer.
21st Century filed a petition for writ of mandate with the Court of Appeal
challenging the trial court‘s order. The Court of Appeal issued an order to show
cause and ordered 21st Century‘s writ petition to be considered with four other
writ petitions, all filed in the Fourth Appellate District in San Diego County,
which raised the identical legal issue against different insurers. The Court of
Appeal held that the made-whole rule does not require an insurer seeking
reimbursement to consider the attorney fees the insured expended in recouping his
or her losses from the tortfeasor. Those expenses, the court held, fall under the
common fund doctrine. The court therefore granted 21st Century‘s petition for
writ of mandate and ordered the trial court to vacate its judgment and enter a new
order sustaining the demurrer. We granted Quintana‘s petition for review
challenging the Court of Appeal‘s decision that attorney fees are not properly
considered when calculating an insured‘s liability for reimbursement under the
made-whole rule.
Quintana contends that insurance companies are not entitled to
reimbursement of payments they made under med-pay policy provisions unless the
insured has been reimbursed for 100 percent of its attorney fees. She argues for an
interpretation of the made-whole rule that would require that attorney fees be
deducted from the total amount recovered in the third party tortfeasor litigation.
Quintana urges the court to hold that the made-whole rule is not satisfied when the
insured‘s damages recovery is reduced by its obligation to pay its attorney fees.
By contrast, 21st Century contends that neither California case law nor the policy
5
justifications underlying the made-whole rule and the common fund doctrine
support Quintana‘s position. As we explain, we agree with 21st Century.
DISCUSSION
A. Contractual Subrogation and Reimbursement
Med-pay insurers must seek recovery for personal injury claims through
contractual reimbursement rights against their insureds, because they are not
allowed to assert subrogation claims directly against third party tortfeasors.
(Progressive West, supra, 135 Cal.App.4th at p. 272.) The rule is based on the
premise that personal injury claims are not assignable, and therefore a med-pay
insurer generally has no right to sue the tortfeasor directly and has no standing to
intervene. (See Lee v. State Farm Mut. Ins. Co. (1976) 57 Cal.App.3d 458, 466
(Lee).) Although Progressive West suggests that an insurer may interplead into a
third party action, the interpleader has typically been limited to property damage
cases and has not been allowed in the personal injury context. (See California
Physicians’ Service v. Superior Court (1980) 102 Cal.App.3d 91, 95-97 [rejecting
interpleader in third party action].)
If insureds must reimburse their insurers once they recover from the
tortfeasors, they are prevented from receiving double recovery and the financial
responsibility for their loss is placed on the tortfeasor. (See Helfend v. So. Cal.
Rapid Transit Dist. (1970) 2 Cal.3d 1, 11, fn. 17 (Helfend).) Med-pay insurance
contracts typically contain provisions that grant the insurer a right of
reimbursement for certain payments that the third party who caused the insured‘s
losses makes to the insured. These provisions are often interchangeably referred
to as reimbursement or subrogation provisions but, in the present context, are
6
appropriately called reimbursement provisions.3 (See Progressive West, supra,
135 Cal.App.4th at p. 273.)
B. The Made-whole Rule
The made-whole rule is a common law principle that limits the insurer‘s
reimbursement right in situations where the insured has not recovered his or her
―entire debt.‖ (See Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th
533, 536 (Sapiano); Plut v. Fireman’s Fund Ins. Co. (2000) 85 Cal.App.4th 98,
104 (Plut).) The rule precludes an insurer from recovering any third party funds
paid to the insured until the insured has ― ‗been fully compensated for [his or] her
injuries . . . .‘ ‖ (Plut, supra, 85 Cal.App.4th at p. 104.)
California courts recognize a made-whole rule when — typically due to
underinsurance — the tortfeasor could not pay his or her ―entire debt‖ to the
insured: ―The general rule is that an insurer that pays a portion of the debt owed
to the insured is not entitled to [reimbursement] for that portion of the debt until
the debt is fully discharged.‖ (Sapiano, supra, 28 Cal.App.4th at p. 536, quoting 2
Cal.Ins. Law & Practice (1988) Rev.) § 35.11 [4][b]. pp. 35-47.) Sapiano‘s
definition of the made-whole rule does not consider attorney fees, and is the
―established California rule.‖ (Sapiano, supra, 28 Cal.4th at pp. 536-537.)

3
As Progressive West observed, a leading insurance law commentator has
pointed out a technical difference between subrogation and reimbursement that we
recognize in California. (16 Couch, Insurance (3d ed. 2000) § 222:2, pp. 222-10
through 222-14.) Progressive West acknowledged that the difference, however,
does not affect application of the made-whole rule. ―Subrogation refers to the
right of the insurance company to step into the shoes of the insured and assert the
insured‘s rights against the third party. . . . Reimbursement refers to the right to
receive payment back of what has been expended by the insurance company. . . .
In California, both the subrogation rights and reimbursement rights of the
insurance company fall within the rubric of subrogation. . . . Thus, both of those
rights are limited by the made-whole rule.‖ (Progressive West, supra, 135
Cal.App.4th at p. 273, citations omitted.)
7


Indeed, no California court has ever held that an insured was not made whole
because he or she had to bear the attorney fees incurred in recovering damages not
covered by the insurance contract.
The made-whole rule was extended to med-pay reimbursement claims in
2005. (Progressive West, supra, 135 Cal.App.4th at p. 273.) Progressive West
held that parties may properly contract around the rule so long as the contractual
language clearly specifies that the parties intend to permit the insurer to obtain
reimbursement even if the policyholder has not been made whole. (Id. at pp. 274-
275.) The rule applies in the automobile insurance context; it prevents the
insurer‘s reimbursement rights from conflicting with the insured‘s rights to obtain
full performance under the insurance policy. (American Contractors Indemnity
Co. v. Saladino (2004) 115 Cal.App.4th 1262, 1271.) The rule makes sense in the
underinsurance context because it keeps ―the recovery rights of the [insurer] from
conflicting with the [insured‘s] rights to eventually obtain full performance of the
original, underlying obligation.‖ (Ibid.)
C. Common Fund Doctrine
As noted, 21st Century agrees with the Court of Appeal and contends that
although the made-whole rule applies in the med-pay context potentially to reduce
an insurer‘s reimbursement right, it does not apply to the insured‘s claim for
attorney fees. Rather, 21st Century claims that California law requires only that
the insurer bear a pro rata share of the attorney fees the insured incurred in
obtaining recovery from the tortfeasor. Under the pro rata rule, as derived from
the equitable common fund doctrine, each party bears attorney fees in proportion
to its share of the recovery. As 21st Century notes, under pro rata sharing, the
insurer pays all the attorney fees attributable to recovering the med-pay expenses
for which it seeks reimbursement, while the insured — like any other litigant —
pays fees incurred in pursuing recovery for additional damages (such as for pain
8
and suffering). The rule provides a separate and independent limitation on an
insurer‘s reimbursement rights.
The common fund doctrine originated in the class action context. (Lee,
supra, 57 Cal.App.3d at p. 467.) Under the doctrine, ―[w]hen a number of persons
are entitled in common to a specific fund, and an action brought by a plaintiff or
plaintiffs for the benefit of all results in the creation or preservation of that fund,
such plaintiff or plaintiffs may be awarded attorney‘s fees out of the fund.‖ (Ibid.)
The United States Supreme Court introduced the common fund doctrine into
American jurisprudence over 100 years ago in two decisions that did not involve
insurance reimbursement or subrogation. (See Trustees v. Greenough (1882) 105
U.S. 527; Central R.R. & Banking Co. v. Pettus (1885) 113 U.S. 116.) But it was
not until the landmark decision in United Servs. Auto. Assn. v. Hills (Neb. 1961)
109 N.W.2d 174 that the common fund doctrine was extended to insurance law.4
We first applied the common fund doctrine for attorney fees reimbursement
in the insurance context in Quinn v. State of California (1975) 15 Cal.3d 162
(Quinn). The insured requested an apportionment of attorney fees between
himself and his insurer, which sought reimbursement of worker‘s compensation
benefits paid to the insured. Quinn recognized that American courts ―have never
awarded counsels‘ fees as a routine component of costs, [but] at least one
exception to this rule has become as well established as the rule itself: that one
who expends attorneys‘ fees in winning a suit [that] creates a fund from which
others derive benefits, may require those passive beneficiaries to bear a fair share

4
When an insured, as in this case, recovers damages from a third party
tortfeasor, the insured does not actually create a fund from which others derive
benefits — rather, the ―group‖ derives benefits to the extent that the insurer has a
reimbursement interest in those recovered damages. Accordingly, it would be
more accurate to describe this system of pro rata sharing as a derivative of the
common fund doctrine. (See generally Parker, The Common Fund Doctrine:
Coming of Age in the Law of Insurance Subrogation
(1998) 31 Ind. L.Rev. 313.)
9


of litigation costs.‖ (Id. at p. 167, fn. omitted.) Finding that the insurance
company would otherwise be unjustly enriched, we required the insurer to pay a
pro rata share of the policyholder‘s attorney fees. (Id. at p. 176.)
Shortly after we decided Quinn, the Court of Appeal in Lee, supra, 57
Cal.App.3d at page 464, reexamined the common fund doctrine‘s application. In
Lee, the insurance company disputed the lower court‘s judgment requiring it to
bear a pro rata share of the policyholder‘s attorney fees when seeking
reimbursement of medical payments out of a settlement with a third party
tortfeasor. (Ibid.) As Lee noted, ―[i]t has been clearly established in California
that [med-pay reimbursement provisions] . . . are valid and enforceable.‖ (Id. at
pp. 465-466.) The court emphasized: ― ‗While [the insured] has a right to seek to
be made whole, it is unfair for him to seek enrichment by double recovery which
would result from retention of all proceeds of the settlement of his suit [against the
tortfeasor] . . . and of all medical and hospital benefits paid to him by [the insurer]
under its [insurance] agreement — for the same injuries — all eventually at the
cost of the participating members of the plan.‘ ‖ (Id. at p. 465, quoting Block v.
Cal. Physicians’ Service (1966) 244 Cal.App.2d 266, 273, first and second
brackets added.) Under the common fund doctrine, Lee then affirmed the trial
court‘s order requiring the insurer to ―pay a pro rata share of attorney‘s fees
incurred by [the insured] in securing a settlement or recovery out of which the
reimbursement was required.‖ (Lee, supra, 57 Cal.App.3d at p. 460.) Since Lee
was decided, at least one California court has assumed the common fund doctrine
applies to the insured‘s recovery of attorney fees expended in med-pay
reimbursement claims. (See Samura v. Kaiser Foundation Health Plan Inc.
(1993) 17 Cal.App.4th 1284, 1297 [court will reduce insurer reimbursement right
under a third party liability provision in a contract for health services by insurer‘s
10
pro rata share of insured‘s costs in securing judgment or settlement from third
party].)
D. Relevant Case Law on Recovery Under the Made-whole Rule
California cases have not been explicit on how they apply the made-whole
rule and common fund doctrines to the attorney fees question in the med-pay
reimbursement context we consider here. Indeed, the specific issue of the
appropriate calculation of the insured‘s recovery under the made-whole rule is one
of first impression in this court. For example, in Plut, the insurer under a
homeowner‘s insurance policy paid the insureds $71,378.42 for water damage and
theft caused by a third party. (Plut, supra, 85 Cal.App.4th at p. 101.) The
insureds then sued the third party tortfeasors and settled the action for a total of
$600,000. (Id. at p. 102.) The insurer did not participate in the action or the
settlement, although the insureds apprised it of developments in the action and
invited an insurance representative to the settlement conference. The insureds
ultimately received $380,000 after paying attorney fees. (Ibid.)
In a separate action, the insureds then sued the insurer for breach of
contract and breach of the implied covenant of good faith and fair dealing for its
settlement claims practices. (Plut, supra, 85 Cal.App.4th at pp. 102-103.) A jury
awarded the insureds damages in the amount of $536,876.50, but the trial court
reduced the award to $85,498.08 in light of the settlement and the previous
payments made to the insureds. (Id. at p. 103.)
In reviewing the trial court‘s actions, the appellate court discussed the
made-whole rule at length, noting that because the insurer does not participate in
the action against the third party, the insurer is entitled to reimbursement only after
the insured has recouped its loss and ―some or all‖ of the litigation expenses
incurred in the action against the third party tortfeasor. (Plut, supra, 85
Cal.App.4th at p. 105.) The court did not further elaborate on the phrase ―some or
11
all,‖ or on whether its reasoning conflicted with the common fund doctrine.
Rather, the court held that the jury‘s damage award reflected the insureds‘ total
losses, and thus was intended to make them whole for all claims. (Id. at p. 106.)
In Progressive West, the insurer sued the policyholder for reimbursement of
medical payments after the insured recovered damages from the person who
injured him in a car accident. The insured filed a cross-complaint alleging breach
of contract, tortious breach of the covenant of good faith and fair dealing, and
unfair business practices, arguing that the insurer could not obtain reimbursement
until the insured had been made whole. (Progressive West, supra, 135
Cal.App.4th at pp. 270, 273.) In addition, under the common fund doctrine, the
insured claimed that any reimbursement must be reduced by the amount of
attorney fees attributable to the recovery of the funds. The insurer asserted that
neither the made-whole rule nor common fund doctrine applied.
Progressive West held that the made-whole rule applied to reimbursement
claims and that the policy language did not vitiate the rule‘s application.
(Progressive West, supra, 135 Cal.App.4th at pp. 273, 275.) In discussing
application of the common fund doctrine to the attorney fees, Progressive West
held that under the doctrine, ―an insurance company that does not participate in the
underlying action must pay a pro rata share of the insured‘s attorney fees and costs
when it seeks reimbursement from its insured out of funds obtained by the insured
from the responsible third party. [Citation.] That is, the insurance company‘s
reimbursement must be reduced proportionately to reflect the attorney fees paid by
the insured. [Citation.]‖ (Id. at p. 276.)
E. Application of the Made-whole Rule in Sister States
Although the made-whole and common fund doctrines are each well
established in other contexts, the interaction of these two rules has yet to be
delineated. As noted, Progressive West and Plut observe that the insureds should
12
recoup some or all of their attorney fees. (Progressive West, supra, 135
Cal.App.4th at p. 273; Plut, supra, 85 Cal.App.4th at p. 105.) However, this
language does not definitively indicate whether insureds should recover some
attorney fees, as under the pro rata common fund doctrine, or all attorney fees, as
under an expanded view of the made-whole rule.
Our research indicates that case law of other jurisdictions does not provide
us with much additional guidance on the interaction between these two rules.
Numerous jurisdictions, including California, recognize the made-whole rule in
insurance cases. (See Parker, The Made-whole Doctrine: Unraveling the Enigma
Wrapped in the Mystery of Insurance Subrogation (2005) 70 Mo. L.Rev. 723, 774,
fn. 396.) Like California, these jurisdictions have reached no clear consensus on
the issue here. Alabama, for instance, does not consider attorney fees in
determining whether an insured has been made whole, but allows for pro rata
sharing under the common fund doctrine where an insurer benefits directly from
an attorney‘s efforts in obtaining recovery for his or her client. (CNA Ins. Cos. v.
Johnson Galleries (Ala. 1994) 639 So.2d 1355, 1357.) Wisconsin currently holds
that the made-whole rule is a net rule that permits the insurer to seek
reimbursement of its med-pay expenses and considers the insured made whole
even if he or she must pay attorney‘s fees out of the funds recovered from the
tortfeasor. (See e.g., Ives v. Coopertools (1997) 208 Wis.2d 55 [559 N.W.2d 571,
582]; see also Oakley v. Fireman’s Fund of Wisconsin (1991) 162 Wis.2d 821
[470 N.W.2d 882, 886], distinguishing Garrity v. Rural Mutual Ins. Co. (1977)
253 Wis.2d 537, 544 [253 N.W.2d 512, 515] as not considering new ―net whole‖
Wisconsin rule.) By contrast, Michigan includes ―costs and expenses‖ in
calculating whether an insured has been made whole, although an insurer that
benefits by virtue of a subrogation clause may be required to deduct from its
reimbursement claim a pro rata share of attorney fees under the common fund
13
doctrine. (See Washtenaw Mutual Fire Insurance Co. v. Budd (Mich. 1919) 175
N.W. 231, 232 [made-whole rule]; Foremost Life Ins. Co. v. Waters
(Mich.Ct.App. 1983) 337 N.W.2d 29, 32-33 [common fund doctrine].)5
Without engaging in any extended legal analysis, some jurisdictions seem
simply to have assumed that the made-whole rule should include attorney fees.
(See, e.g., Central National Insurance Group v. Hotte (Fla.Dist.Ct.App. 1975) 312
So.2d 235, 237; Washtenaw Mutual Fire Insurance Co., supra, 175 N.W. at p.
232; St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co. (N.C.Ct.App. 1973)
198 S.E.2d 482, 485; Nationwide Mutual Insurance Co., supra, 28 Pa. D. & C.3d
at p. 629; Gibbs M. Smith, Inc. v. U.S. Fidelity (Utah 1997) 949 P.2d 337, 345-
346.) Montana is the principal jurisdiction adhering to this position that has
analyzed the issue, and the courts there actually appeal to equitable principles as
grounds for their conclusion. (See, e.g., DeTienne Assoc. v. Farmers Union Mut.
Ins. (Mont. 1994) 879 P.2d 704, 708-709; see also Skauge v. Mountain States
Telephone & Telegraph Co. (Mont. 1977) 565 P. 2d 628, 632 (Skauge).)
F. The Federal District Court
Quintana relies on a more recent federal district court decision that
attempted to predict what California courts would do when faced with application
of the made-whole rule when the insured‘s reimbursement obligation arguably
conflicts with his or her right to a full recovery for damages suffered in an
accident. (Chong v. State Farm Mut. Auto Ins. Co. (S.D.Cal. 2006) 428 F.Supp.2d
1136 (Chong).) In Chong, the insured alleged unfair business practices and other

5
Other jurisdictions that appear to follow this view include Pennsylvania,
and Texas. (See Cataldi v. Methodist Hosp. (Pa.Super.Ct. 2000) 747 A.2d 1239,
1241 [common fund]; Nationwide Mutual Insurance Co. v. Butler (1983) 28 Pa.
D. & C.3d 627, 629 [made whole] ; Lancer Corp. v. Murillo (Tex.App. 1995) 909
S.W.2d 122, 126 [common fund]; Ortiz v. Great Southern Fire & Cas. Ins. Co.
(Tex. 1980) 597 S.W.2d 342, 343 [made whole].)
14


common law claims against her insurer for seeking reimbursement of medical
payments after she settled her claim with the third party tortfeasor. (Id. at p.
1138.) The insured argued that the insurer could not seek reimbursement until she
had been made whole for all of her damages and her attorney fees.
Chong interpreted California law and concluded that this court would likely
hold that, absent a contrary contractual provision, the made-whole rule requires
that an insured fully recover his or her damages and litigation expenses, including
all attorney fees, before an insurer who is not participating in the tort litigation
may seek reimbursement from any tort recovery. (Chong, supra, 428 F.Supp.2d at
p. 1146.) The district court reviewed the relevant case law and found that none of
the cited California cases shed light on the issue before it. It noted that Plut and
Progressive West lent some support to the insured‘s claim, but were not
dispositive. (Chong, supra, 428 F.Supp.2d at p. 1143.)
Chong held, however, that in light of the relevant language of Plut and
Progressive West, this court would likely follow the sister state jurisdictions
holding that all of the insured‘s litigation expenses must be taken into account
when determining whether the insured has been made whole. (Chong, supra, 428
F.Supp.2d at p. 1148.) Chong determined that including attorney fees in the
made-whole analysis does not provide the insured with a windfall, but rather
places the insured closer to the situation in which he or she would have been had
the loss not occurred. (Ibid.) The court observed that ―when a policyholder‘s
attorney fees and costs exceed the amount the [insurer] paid in policy benefits,
there is no surplus‖ in the hands of the insured and therefore no obligation to
reimburse the insurer. (Id. at pp. 1145-1146.) Chong concluded that its result was
not unfair to the insurer because ―[i]f either the policyholder or the carrier must to
some extent go unpaid . . . ‗the loss should be borne by the insurer for that is the
15
risk the [insured] has paid it to assume.‘ ‖ (Id. at p. 1145, quoting Skauge, supra,
565 P.2d at p. 632, italics omitted.)
Chong reasoned that insurance companies can avoid this result by
specifically contracting around the common law rules with clear policy language.
(Chong, supra, 428 F.Supp.2d at p. 1145.) A contrary result would be unfair to
insureds because it would allow insurers to ―sit on the sidelines‖ while their
insureds undertake lawsuits against third parties, and then collect reimbursement if
the insureds ultimately obtain favorable judgments. (Ibid.) As a final point,
Chong noted that plaintiffs sometimes account for their attorney fees when
determining an acceptable settlement amount. (Id. at p. 1146, fn. 7.) It indicated
that discovery would likely show whether a settlement reflected only the insured‘s
damages, or damages plus attorney fees.
We find Chong’s reasoning unpersuasive. As 21st Century observes,
Chong concluded that under a pro rata apportionment rule, if the insured must pay
a portion of the attorneys fees, he or she would net less than the total loss, and that
difference ―is the risk the insured has paid it to assume.‖ The court‘s assumption
ignores the limited nature of med-pay insurance. (Chong, supra, 428 F.Supp.2d at
p. 1145.) In addition, Chong’s observation that the law permits the insurer to ―sit
on the sidelines‖ and incur no risk ignores the fact that the insurer is generally
prohibited from intervening in a personal injury case (see Lee, supra, 57
Cal.App.3d at p. 466), and that the insureds‘ attorneys are likely to resist insurer
participation in any event. For these reasons, we cannot adopt Chong’s ultimate
holding as California law.
F. Other Considerations
Because no California case speaks directly to the question, and our sister
states do not provide definitive guidance, we find it helpful to turn to the policy
underlying the doctrines. As we have observed, the primary policy justification
16
for insurance reimbursement provisions is to prevent insureds from receiving
double recoveries for their damages. (Helfend, supra, 2 Cal.3d at p. 8, fn. 7.)
Quintana claims, however, that allowing insured tort victims to receive full
compensation for their attorney fees under the made-whole rule would not give
them double recovery, but would provide them an amount closer to a full recovery
and put them nearer to the position they were in before the injury. (Helfend,
supra, 2 Cal.3d at p. 13; see Note, supra, 77 Cal. L.Rev. at p. 1048.)
As 21st Century points out, Quintana‘s interpretation of the made-whole
rule implicitly relies on Chong’s point that it would be unfair to insureds to allow
insurers to sit out of lawsuits and then collect reimbursement. (Chong, supra, 428
F.Supp.2d at p. 1145.) As we have observed, this justification is erroneous. Med-
pay insurers are generally prohibited by law from participating in personal injury
lawsuits, thus making their participation difficult, if not impossible. Even
assuming these insurers could intervene, they would have no financial incentive to
participate, given the likelihood that the attorney fees would exceed the amount of
reimbursement sought. Also, plaintiffs‘ attorneys may not want insurers to
intervene in lawsuits, as the insurers‘ litigation goals of reimbursement may
conflict with the plaintiffs‘ interest in recovery for losses beyond the low med-pay
amount.
Quintana also relies on Chong to assert that ―[i]f either the policyholder or
the [insurer] must to some extent go unpaid because the policyholder has
recovered less than her total loss, ‗the loss should be borne by the insurer for that
is the risk the [insurer] has paid it to assume.‘‖ (Chong, supra, 428 F.Supp.2d at
p. 1145, quoting Skauge, supra 565 P.2d at p. 632.) Although this reasoning may
hold true in certain insurance situations, in the context of med-pay insurance the
insured has not contracted for the insurer to assume any risk beyond the insured‘s
medical payments. Quintana‘s lower premiums provide her only with medical
17
payments in the event of an accident. If she decides to pursue a claim against the
tortfeasor for her uninsured damages, she should be responsible for the attorney
fees and costs necessary to recover those damages. In sum, Quintana has not paid
21st Century to assume the risk of paying attorney fees for uninsured losses on her
behalf.
Quintana next relies on the collateral source rule, a related doctrine, which
provides that because juries are not informed of the contingent fee arrangement
typical in tort cases, ―plaintiff[s] rarely actually receive[] full compensation for
[their] injuries as computed by the jury. The collateral source rule partially serves
to compensate for the attorney‘s share and does not render ‗double recovery‘ for
the plaintiff.‖ (Helfend, supra, 2 Cal.3d at p. 12.) The important distinction that
Quintana attempts to blur is that Helfend addresses the collateral source rule,
which prohibits the reduction of damages a tortfeasor owes to the plaintiff because
the plaintiff received compensation from an independent source. (Id. at p. 6.) The
collateral source rule, however, addresses the distribution of attorney fees between
a plaintiff and a tortfeasor defendant, not between an insured and an insurance
company.
Quintana also asserts that the implied covenant of good faith and fair
dealing supports her position. We disagree. As Progressive West observed, the
implied covenant does not apply to a dispute over med-pay reimbursement rights.
(Progressive West, supra, 135 Cal.App.4th at pp. 276-281.) We have also held
that one cannot invoke the implied covenant to prohibit conduct that a contract
expressly allows. ―We are aware of no reported case in which a court has held the
covenant of good faith may be read to prohibit a party from doing that which is
expressly permitted by an agreement. On the contrary, as a general matter,
implied terms should never be read to vary express terms.‖ (Carma Developers
(Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 374.)
18
In addition, we have held that courts ―cannot impose substantive duties or limits
on the contracting parties beyond those incorporated in the specific terms of their
agreement.‖ (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350.)
Ultimately, were we to adopt Quintana‘s position we would effectively
shift the burden of paying attorney fees in personal injury actions from insureds to
first party insurers because insurers would have to forgo reimbursement in order to
account for the insureds‘ attorney fees. In turn, the first party insurers would
presumably pass some portion of these additional costs on to consumers by
increasing the premiums due on med-pay policies, thus rendering med-pay
insurance less accessible to those who need it most.
Unlike Quintana‘s interpretation of the made-whole rule, the pro rata
allocation of attorney fees that is made under the common fund doctrine is equally
applicable in the med-pay context because it adequately balances the interests of
insureds and insurers. The insured receives the benefit of expedient medical
payments at lower premiums, and he or she may retain the insurance payments if
he or she does not recover directly from the third party tortfeasor.
On the other hand, if the insured recovers for both insured and uninsured
losses from a third party, the made-whole doctrine enables the insured to receive
full compensation for actual damages before the insurer may receive
reimbursement. In cases like this, where the insured does not dispute that the
settlement adequately compensated her damages, a pro rata apportionment
requires the insurer to account for its fair share of the attorney fees by reducing the
amount of reimbursement to cover some portion of those fees. The responsibility
for attorney fees is therefore properly allocated according to what the parties
contracted for and the risks each party agreed to bear.
19
CONCLUSION
In light of the policy justifications underlying the made-whole rule and
reimbursement principles generally, we conclude that 21st Century states the
better case. The automobile liability insurance company has not been paid to bear
responsibility for the entire amount of attorney fees and costs the insured needed
to spend in order to recover damages. Instead, a pro rata apportionment rule for
attorney fees here better allocates responsibility for attorney fees between the
insured and the insurer. Quintana does not claim that 21st Century‘s $1,000
payment was insufficient to discharge its obligations under the med-pay policy
limit. Nor has she claimed that $400 was less than 21st Century‘s pro rata share of
the litigation costs, or asked for leave to amend should we affirm the Court of
Appeal‘s judgment. Therefore, by accepting the $600 as full reimbursement (and
thus contributing $400 to Quintana‘s attorney fees), 21st Century has properly
discharged its obligation to pay its pro rata share of attorney fees and has ensured
that Quintana has been made whole. In light of this conclusion, we affirm the
Court of Appeal‘s judgment.
CHIN, J.

WE CONCUR:

GEORGE, C.J.
BAXTER, J.
MORENO, J.
CORRIGAN, J.

20





CONCURRING OPINION BY KENNARD, J.

The majority holds that an automobile insurer‘s contractual right of
reimbursement for medical payment benefits is subject to the equitable common
law ―made-whole‖ rule, and that the rule is satisfied when the insurer has
contributed its pro rata share of the litigation costs that the insured has incurred to
recover personal injury damages from a third party tortfeasor.
I agree with the majority‘s conclusions; I write separately to explain why.
In brief, the position urged by the insured in this case is contrary to established
California law, it is inconsistent not only with the ―American rule‖ that parties
normally bear their own litigation costs but also with the scheme for
reimbursement of workers‘ compensation benefits, it would convert medical
payment coverage into legal expense coverage, and it would result in higher
premiums for California purchasers of automobile insurance coverage.
I
In December 2003, plaintiff Silvia Quintana was injured in an automobile
accident with a third party. Her automobile insurer, defendant 21st Century
Insurance Company (21st Century), paid her $1,000 under the policy‘s no-fault
medical payment coverage. Plaintiff then settled her personal injury tort claim
against the third party. Under that settlement, the third party paid plaintiff $6,000
as full compensation for all personal injury damages she sustained in the
automobile accident. In pursuing her claim against the third party, plaintiff
1


incurred $2,000 in attorney fees and $106.50 in other litigation costs. When 21st
Century learned of the full-compensation settlement with the third party, it
invoked the automobile insurance policy‘s reimbursement provision, seeking
reimbursement of the medical payment benefits it had provided. Plaintiff repaid
$600, which 21st Century accepted as full reimbursement after deduction of its pro
rata share ($400) of plaintiff‘s litigation expenses.
Plaintiff then brought this class action lawsuit against 21st Century,
alleging causes of action for unfair competition, conversion, unjust enrichment,
and declaratory relief. She claimed that under the common law made-whole rule,
21st Century was not entitled to any reimbursement because, when litigation costs
were taken into account, she had not been fully compensated for her personal
injury loss caused by the car accident. She reasoned that her total loss was $6,000,
as evidenced by the settlement, and that she had received a total of $7,000 —
$1,000 from 21st Century as medical payment benefits and $6,000 from the third
party as tort damages. From this $7,000, plaintiff deducted the $2,106.50 in
litigation costs she had incurred, leaving her a net recovery of $4,893.50, which
was less than her $6,000 personal injury loss. Plaintiff argued that because her net
recovery after deduction of litigation expenses was less than her personal injury
loss, she had not been ―made whole‖ and therefore was not required to pay any
reimbursement to 21st Century. She sought to represent a class of similarly
situated 21st Century policyholders.
21st Century demurred to the complaint. It argued that, under settled
California law, litigation costs are not deducted from a third party recovery when
calculating whether an insured has been made whole, but instead those litigation
costs are equitably apportioned between the insurer and the insured. 21st Century
argued that plaintiff was made whole when she accepted $6,000 from the third
party tortfeasor as full compensation for her personal injury damages, and that the
2
litigation costs had been appropriately and equitably apportioned between 21st
Century and plaintiff by deducting $400 from the $1,000 in medical payment
benefits, resulting in a net reimbursement to 21st Century of $600.
When the trial court overruled its demurrer, 21st Century sought and
obtained writ review from the Court of Appeal, which ruled in its favor. This
court granted plaintiff‘s petition for review.
II
Plaintiff Quintana contends that, because her litigation costs exceed the
$1,000 that 21st Century paid to her under the medical payment coverage, 21st
Century cannot obtain any reimbursement from plaintiff under the insurance
policy‘s reimbursement provision. This court properly rejects plaintiff‘s
contention, concluding instead that the litigation expenses she incurred in pursuing
her tort claim against the third party should be equitably apportioned between
plaintiff and 21st Century, so that 21st Century pays only those expenses
attributable to recovery of the insured portion of the loss, while plaintiff bears the
expenses attributable to recovery of the uninsured portion of the loss. Here,
plaintiff‘s litigation expenses were equitably apportioned when 21st Century
agreed to accept $600 as full reimbursement of the $1,000 it paid to plaintiff under
the medical payment coverage.
Equitable apportionment (also called pro rata sharing) of litigation expenses
between insurer and insured has been settled law in California for more than 30
years. In Lee v. State Farm Mut. Auto. Ins. Co. (1976) 57 Cal.App.3d 458, an
automobile insurance policy included a provision requiring reimbursement of
medical payments. The Court of Appeal there held that the reimbursement
provision was valid but also that the insurer was required ―to pay a pro rata share
of attorney‘s fees incurred by [the insureds] in securing a settlement or recovery
out of which the reimbursement was required.‖ (Lee v. State Farm Mut. Auto. Ins.
3
Co., supra, at p. 460.) In reaching that result, the Court of Appeal relied in part on
Quinn v. State of California (1975) 15 Cal.3d 162, in which an injured employee,
after receiving workers‘ compensation benefits, had recovered a judgment against
a third party tortfeasor. This court held that the workers‘ compensation insurer
was entitled to reimbursement from the proceeds of the judgment, but also that it
was required ―to bear a fair share of the litigation costs.‖ (Quinn v. State of
California, supra, at p. 167; see also Summers v. Newman (1999) 20 Cal.4th 1021,
1030.)
The settled California law on this point has been described in these words:
―[A]n insurance company that does not participate in the underlying action must
pay a pro rata share of the insured‘s attorney fees and costs when it seeks
reimbursement from its insured out of funds obtained by the insured from the
responsible third party. [Citation.] That is, the insurance company‘s
reimbursement must be reduced proportionately to reflect the attorney fees paid by
the insured. [Citation.]‖ (Progressive West Ins. Co. v. Superior Court (2005) 135
Cal.App.4th 263, 276.)
There is nothing to the contrary in Plut v. Fireman’s Fund Ins. Co. (2000)
85 Cal.App.4th 98. The Court of Appeal‘s decision there cited with approval Lee
v. State Farm Mut. Auto. Ins., supra, 57 Cal.App.3d 458, for the proposition that
an insurer may obtain reimbursement ―only after the insured has recouped his loss
and some or all of his litigation expenses incurred in the action against the
tortfeasor.‖ (Plut v. Fireman’s Fund Ins. Co., supra, at p. 105.) This is an
accurate, albeit imprecise, description of California law on this point. When the
insured portion of the loss comprises only part of the damages that the insured
recovers from the tortfeasor, the insured is entitled to recoup some of the litigation
expenses. To state the rule more precisely, in that situation the insured is entitled
to recoup the litigation expenses attributable to recovery of the insured portion of
4
the loss. When the entire loss is covered by insurance, by comparison, the insured
would be entitled to recoup all of the litigation expenses incurred in the action
against the tortfeasor.1
The settled law requiring pro rata sharing of litigation costs by insurer and
insured is consistent with the theory underlying the ―American rule,‖ which is that
full compensation for a wrongful injury ordinarily does not include reimbursement
of litigation costs. ―Embodied in Code of Civil Procedure section 1021, the
‗American rule‘ states that except as provided by statute or agreement, the parties
to litigation must pay their own attorney fees.‖ (Essex Ins. Co. v. Five Star Dye
House, Inc. (2006) 38 Cal.4th 1252, 1257; accord, Musaelian v. Adams (2009) 45
Cal.4th 512, 516.) Although by statute a personal injury victim has a right to
recover from a tortfeasor ―the amount which will compensate for all the detriment
proximately caused‖ by the tort (Civ. Code, § 3333), that amount ordinarily does
not include attorney fees incurred in bringing the lawsuit against the tortfeasor.
(See Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 506 [noting that,
subject to certain narrow exceptions, there is ―a consistent line of cases decided
since 1872 . . . which . . . deny attorney fees to the prevailing party in an action in
tort‖].) If the burden of attorney fees incurred to obtain a personal injury recovery
for a tort claim may not be shifted to the party who caused the injury and is legally
obligated to fully compensate the victim, what justification is there for shifting all
of that burden to an insurance carrier that agreed to provide medical benefits
coverage for only a small portion of the loss (here, $1,000 of the total of $6,000 in
personal injury damages)? Equitably apportioning attorney fees between insurer

1
Chong v. State Mut. Auto. Ins. Co. (S.D.Cal. 2006) 428 F.Supp.2d 1136 is
contrary to the settled law as I have described it, but it is merely an interlocutory
ruling by a federal trial court attempting to interpret California law, and thus it has
no significant value as precedent.
5


and insured, so that the insurer pays only the litigation expenses attributable to
recovery of the benefits it was contractually obligated to provide, more
appropriately complies with the dictate of the American rule that parties must bear
their own litigation expenses.
Settled California law requiring pro rata sharing of litigation costs by
insurer and insured in the context of automobile insurance is also consistent with
the law applied in the analogous workers‘ compensation situation. As I have
already mentioned, when an injured employee who has received workers‘
compensation benefits obtains a judgment against a third party tortfeasor, a
workers‘ compensation insurer seeking reimbursement from the judgment
proceeds must bear a pro rata share of litigation costs. (Quinn v. State of
California, supra, 15 Cal.3d 162, 167; see Lab. Code, § 3600, subd. (c).) The
equitable sharing approach that this court has determined to be fair and appropriate
for litigation expenses in the context of workers‘ compensation benefits is equally
fair and appropriate here in the context of medical payment benefits under an
automobile insurance policy.
As a practical matter, the rule proposed by plaintiff Quintana would in most
cases preclude, as it would here, any insurer reimbursement for medical payment
benefits provided under an automobile insurance policy. This is because the
policy limits of medical payment coverage, which ―generally rang[e] from $5,000
to $10,000‖ (Nager v. Allstate Ins. Co. (2000) 83 Cal.App.4th 284, 289), are less
than the average litigation costs for a personal injury action. The net effect of
adopting plaintiff‘s proposed rule, therefore, would be to convert automobile
insurance medical payment coverage into litigation expense coverage, thereby
giving insureds a benefit for which they have not paid and forcing automobile
insurers to bear a risk they did not contractually agree to assume.
6
Plaintiff‘s proposed rule, which would deny any reimbursement to the
insurer in this case, and which hereafter would deny any reimbursement to other
automobile insurers in similar cases, would increase the cost of providing medical
payment coverage. To recoup that increased cost, automobile insurers would need
to raise the premiums they charge for this coverage. (See Mercury Casualty Co. v.
Maloney (2003) 113 Cal.App.4th 799, 801 [automobile insurer offered ―more
expensive‖ medical payment coverage that did not include a reimbursement
provision].) In this way, the ultimate effect of plaintiff‘s proposed rule would be
to make medical payment coverage more costly for California purchasers of
automobile insurance.
To sum up, in the medical payment situation the made-whole rule is
satisfied when the insured has received an amount that compensates for all the
personal injury damages to which the insured is entitled under California law.
Here, in accepting the $6,000 third party settlement amount, plaintiff
acknowledged that she had received that full recovery, and the made-whole rule
required nothing more. After deducting the $400 in litigation expenses
attributable to the recovery of the $1,000 insured portion of plaintiff‘s damages,
21st Century was entitled, under the automobile insurance policy‘s reimbursement
provision, to the balance of $600. This means that as to the $1,000 insured portion
of the loss, plaintiff retained the entire amount, and 21st Century paid all of the
litigation expenses attributable to its recovery. As to the $5,000 uninsured portion
of the loss, plaintiff has paid the litigation expenses attributable to the recovery of
that amount, but that payment put her in no worse position than any other
uninsured personal injury plaintiff.
7
For the reasons I have given above, I join in affirming the Court of
Appeal‘s judgment.
KENNARD, J.
8




CONCURRING OPINION BY WERDEGAR, J.
I agree with the majority that the made-whole rule1 does not bar 21st
Century Insurance Company (21st Century) from seeking reimbursement for the
no-fault medical payment (med-pay) insurance proceeds it paid Silvia Quintana,
subject to deduction under the common fund doctrine for its share of the attorney
fees Quintana expended to obtain payment from the tortfeasor. I write separately
to offer an alternative rationale for that conclusion.
As the majority notes (maj. opn., ante, at p. 5), Quintana argues that
attorney fees and costs should be deducted from an insured‘s recovery before
determining whether the insured has been made whole and is obligated to
reimburse the insurer; in contrast, 21st Century argues attorney fees should be
disregarded. As I shall explain, the rule Quintana advocates creates significant
disparities in the treatment of similarly situated insurers, as well as anomalies in

1
― ‗It is a general equitable principle of insurance law that, absent an
agreement to the contrary, an insurance company may not enforce a right to
subrogation until the insured has been fully compensated for [his or] her injuries,
that is, has been made whole.‘ ‖ (Plut v. Fireman’s Fund Ins. Co. (2000) 85
Cal.App.4th 98, 104, quoting Barnes v. Independent Auto. Dealers of California
(9th Cir. 1995) 64 F.3d 1389, 1394.) ― ‗The general rule is that an insurer that
pays a portion of the debt owed to the insured is not entitled to subrogation for that
portion of the debt until the debt is fully discharged. In other words, the entire
debt must be paid. Until the creditor has been made whole for its loss, the
subrogee may not enforce its claim based on its rights of subrogation. [Fns.
omitted.]‘ ‖ (Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533,
536, quoting 2 Cal. Insurance Law & Practice (1988 rev.) § 35.11[4][b], p. 35-47.)
1


the treatment of insureds. The rule 21st Century advocates, in contrast, promotes
uniformity of outcomes and is consistent with the nature and purpose of med-pay
insurance.
I
The conclusion that 21st Century is correct can be seen by considering the
relationship between subrogation and reimbursement.
Subrogation and reimbursement are closely related. In a subrogation case,
an insurer pays its insured on a claim and thereupon succeeds to any rights the
insured might have against a third party for conduct giving rise to the claim, to the
extent of the amount the insurer paid. (Hodge v. Kirkpatrick Development, Inc.
(2005) 130 Cal.App.4th 540, 548; Travelers Indem. Co. v. Ingebretsen (1974) 38
Cal.App.3d 858, 864.) Rather than recovering from its insured, the subrogated
insurer may sue the tortfeasor independently or may intervene in its insured‘s suit
against the tortfeasor. (Hodge v. Kirkpatrick Development, Inc., at p. 550.)
However, because California for public policy reasons bars assignment of claims
in personal injury cases (Fifield Manor v. Finston (1960) 54 Cal.2d 632, 637-643;
Lee v. State Farm Mut. Auto. Ins. Co. (1976) 57 Cal.App.3d 458, 465), such cases
are governed by principles of reimbursement rather than subrogation (Progressive
West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 272-273). In
reimbursement cases, the insurer does not succeed to its insured‘s rights but
instead must wait for the insured to obtain recovery. (Lee v. State Farm Mut.
Auto. Ins. Co., at pp. 465-466.)
The public policy reasons that preclude assignment of personal injury
claims affect the procedure governing how injured parties may recover from a
tortfeasor by dictating the identity of who may sue; they do not alter the principle,
common to reimbursement and subrogation both, that an insured should not obtain
double recovery by obtaining (and retaining) payment for the same loss from both
2
its insurer and a tortfeasor. (See Helfend v. Southern Cal. Rapid Transit Dist.
(1970) 2 Cal.3d 1, 10-11; Anheuser-Busch, Inc. v. Starley (1946) 28 Cal.2d 347,
355 (dis. opn. of Traynor, J.).) Accordingly, I take it as a foundational premise
that, as among an insurer, insured, and third party tortfeasor, the substantive
outcome of proceeding by way of reimbursement should essentially mirror the
outcome that would arise under subrogation.2
That the rule Quintana advocates leads to disparate outcomes in
reimbursement and subrogation cases is thus telling. Consider as a hypothetical a
tortfeasor who causes an insured $6,000 in personal injuries, including $2,000 in
medical expenses. As here, the insured has a $1,000 med-pay policy, files a claim,
and is paid under the policy. Pursuant to the reimbursement model, the insured
then sues the tortfeasor and recovers $6,000, with $1,800 of that going to her
contingency-fee lawyer.3 Under Quintana‘s argument — that in applying the
made-whole rule the attorney‘s fee should be taken into account — the insured has
recovered $5,200 ($1,000 from the insurer and $6,000 from the tortfeasor, less
$1,800 to the attorney), but has not been made whole in light of her $6,000 loss,
and owes nothing to the insurer. She keeps $5,200, while the insurer is out its
$1,000 paid claim.
In contrast, if subrogation were available, the insurer, permitted to intervene
in an action against the tortfeasor (see Hodge v. Kirkpatrick Development, Inc.,
supra, 130 Cal.App.4th at pp. 551-554; Allstate Ins. Co. v. Mel Rapton, Inc.

2
I address only the circumstances (as here) of an insurer that is, for public
policy reasons, precluded from independently proceeding against the tortfeasor
under subrogation, and not whether an insurer who could so proceed, but instead
voluntarily elects to await reimbursement, should be placed in the same position
under reimbursement as under subrogation.
3
Though the hypothetical assumes a 30 percent contingency fee for
simplicity‘s sake, it would not matter if a different rate were charged.
3


(2000) 77 Cal.App.4th 901, 908-909), could recover $1,000 less its transaction
costs for doing so and would be out not the full amount of the claim — $1,000 —
but only its transaction costs. The insured, on the other hand, would receive
$1,000 from her insurer, would retain a $5,000 claim against the tortfeasor, and
after suing, recovering the $5,000, and paying her contingency-fee lawyer $1,500
(30 percent of $5,000), would retain $4,500. Quintana‘s version of the made-
whole rule would, in this hypothetical, result in the insured retaining $700 more
than under subrogation — $5,200 versus $4,500 — and the insurer losing a
corresponding amount. Thus, her application of the rule would add to the
procedural differences between reimbursement and subrogation significant
substantive differences, with insureds recovering and retaining more under
reimbursement than they would under subrogation, and insurers recovering less.
In contrast, under 21st Century‘s proposed application of the made-whole
rule, the results of reimbursement and subrogation are the same, as they should be.
Returning to the hypothetical, under the reimbursement model the insured who
recovered $6,000 would, disregarding attorney fees, have been made whole for her
$6,000 loss and would be obligated to reimburse the insurer its $1,000 payment,
minus — under the common fund doctrine — the $300 attorney fees/transaction
costs of recovering that sum. (See Quinn v. State of California (1975) 15 Cal.3d
162, 167-169; Lee v. State Farm Mut. Auto. Ins. Co., supra, 57 Cal.App.3d at pp.
467-469.) The insured thus would reimburse the insurer $700 and would retain
$4,500 ($6,000 from the tortfeasor and $1,000 from the insurer, less $1,800 to her
contingency-fee lawyer and $700 reimbursed to the insurer), the exact outcome
that would arise under subrogation. The insurer, in turn, would be out not the full
$1,000 claim paid, but only the transaction costs — the $300 attorney fees —
expended to recover that amount from the tortfeasor. 21st Century‘s proposed
4
application of the made-whole rule restores parity between outcomes under
reimbursement and subrogation. For this reason, I think it is the correct rule.
II
That the made-whole rule must be applied without considering an insured‘s
attorney fees is apparent as well because to do otherwise would subtly change the
very nature of the coverage involved in a med-pay policy.
Consider again the hypothetical involving a $6,000 personal injury claim
with $2,000 in medical expenses. In this instance consider two injured insureds,
each with $2,000 med-pay policies, one who sues and recovers from the tortfeasor
under a 40 percent contingency fee arrangement, the other who sues and recovers
under a 30 percent contingency fee arrangement. Were attorney fees a factor in
determining whether the insured was made whole, the amount each insured retains
or reimburses her insurer would be dependent not on the extent of the insured‘s
medical expenses (the putative reason for med-pay coverage) but on the extent of
her attorney fees. The first insured, with a $2,000 med-pay policy, $2,000 in
medical expenses, and $2,400 in attorney fees, would keep the entire amount
received from her insurer; the second insured, with a $2,000 med-pay policy,
$2,000 in medical expenses, and $1,800 in attorney fees, would pay back the $200
of excess recovery. If reimbursement were to hinge not on the amount of medical
expenses ($2,000 in either case) nor on the amount of recovery ($6,000 in either
case) but on the amount of attorney fees, the policy would be converted from a
policy to reimburse for immediate medical expenses to one to reimburse for
eventual legal expenses. This, as the majority correctly notes, is not what med-pay
insurance was designed to do.
5
III
For these reasons, I agree the Court of Appeal‘s judgment should be
affirmed.
WERDEGAR, J.
6
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion 21st Century Insurance Company v. San Diego County Superior Court
__________________________________________________________________________________

Unpublished Opinion

XXX NP opn. filed 6/14/07 – 4th Dist., Div. 1
Original Appeal
Original Proceeding
Review Granted

Rehearing Granted

__________________________________________________________________________________

Opinion No.

S154790
Date Filed: August 24, 2009
__________________________________________________________________________________

Court:

Superior
County: San Diego
Judge: Kevin A. Enright

__________________________________________________________________________________

Attorneys for Appellant:

Luce, Forward, Hamilton & Scripps, Peter H. Klee, John T. Brooks and Charles H. Danaher for Petitioner.

Gibson Robb & Lindh and Joshua E. Kirsch for National Association of Subrogation Professionals as
Amicus Curiae on behalf of Petitioner.

Horvitz & Levy, John A. Taylor, Jr., David S. Ettinger; Robie & Matthai, James R. Robie, Kyle Kveton
and Steven S. Fleischman for Association of California Insurance Companies, National Association of
Mutual Insurance Companies, Personal Insurance Federation of California, Mercury Casualty Company
and Mercury Insurance Company as Amici Curiae on behalf of Petitioner.

__________________________________________________________________________________

Attorneys for Respondent:

No appearance for Respondent.

Law Office of Robert S. Gerstein, Robert S. Gerstein; Huffman & Kostas, James C. Kostas, David
Huffman; Law Offices of Sheldon A. Ostroff and Sheldon A. Ostroff for Real Party in Interest.


Counsel who argued in Supreme Court (not intended for publication with opinion):

John T. Brooks
Luce, Forward, Hamilton & Scripps
600 West Broadway, Suite 2600
San Diego, CA 92101-3372
(619) 236-1414

Robert S. Gerstein
Law Office of Robert S. Gerstein
12400 Wilshire Boulevard, Suite 1300
Los Angeles, CA 90025
(310) 820-1939


Petition for review after the Court of Appeal granted a peremptory petition for writ of mandate. The case includes the following issue: Should an insured's attorney fees and costs incurred to obtain compensation from a third party tortfeasor be taken into account when applying the rule that an insurer cannot seek reimbursement from the insured unless the insured has been "made whole" by the recovery from the tortfeasor and other sources? The court ordered briefing in Allstate Indemnity Co., Allstate Ins. Co., Interinsurance Exchange, and Wawanesa General Ins. Co. deferred pending decision in 21st Century Ins. Co.

Opinion Information
Date:Citation:Docket Number:Category:Status:
Mon, 08/24/200947 Cal. 4th 511, 213 P.3d 972, 98 Cal. Rptr. 3d 516S154790Review - Civil Original Proceedingopinion issued

Parties
121st Century Insurance Company (Petitioner)
Represented by John Tinley Brooks
Luce Forward Hamilton et al.
600 W. Broadway, Suite 2600
San Diego, CA

221st Century Insurance Company (Petitioner)
Represented by Peter H. Klee
Luce Forward Hamilton et al.
600 W. Broadway, Suite 2600
San Diego, CA

3Superior Court of San Diego County (Respondent)
4Quintana, Silvia (Real Party in Interest)
Represented by Robert S. Gerstein
Attorney at Law
12400 Wilshire Boulevard, Suite 1300
Los Angeles, CA

5Associaton of California Insurance Companies (Amicus curiae)
Represented by David S. Ettinger
Horvitz & Levy, LLP
15760 Ventura Boulevard, 18th Floor
Encino, CA

6National Association of Subrogation Professionals (Amicus curiae)
Represented by Joshua Erik Kirsch
Gibson & Robb
100 First Street, 27th Floor
San Francisco, CA


Opinion Authors
OpinionJustice Ming W. Chin
ConcurJustice Joyce L. Kennard, Justice Kathryn M. Werdegar

Disposition
Aug 24 2009Opinion: Affirmed

Dockets
Jul 26 2007Petition for review filed
Silvia Quintana, Real Party in Interest Attorney Robert Gerstein
Jul 27 2007Record requested
Jul 31 2007Received Court of Appeal record
one file jacket/breifs
Aug 13 2007Answer to petition for review filed
counsel for Allstate Ins. Co.
Aug 21 2007Filed:
counsel for petnr, Notice of Errata to Answer to Pet. for Review
Aug 23 2007Reply to answer to petition filed
Silvia Quintana, RPI Attorney Robert S. Gerstein
Sep 13 2007Time extended to grant or deny review
to and including October 24, 2007, or the date upon which review is either granted or denied.
Sep 25 2007Petition for review granted (civil case)
Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, Moreno, and Corrigan, JJ.
Oct 1 2007Certification of interested entities or persons filed
counsel for Real Party in Interest.
Oct 4 2007Certification of interested entities or persons filed
counsel for petnrs.
Oct 22 2007Request for extension of time filed
to file opening brief of real party in interest Silvia Quintana to November 26, 2007
Oct 25 2007Extension of time granted
On application of real party in interest and good cause appearing, it is ordered that the time to serve and file the real party's in interest opening brief on the merits is hereby extended to and including November 26, 2007.
Nov 20 2007Opening brief on the merits filed
RPI., Silvia Quintana
Nov 27 2007Request for extension of time filed
counsel for petnr. requests extension of time to January 21, 2008, to file the answer brief on the merits.
Dec 6 2007Extension of time granted
On application of petitioner and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including January 21, 2008.
Jan 18 2008Answer brief on the merits filed
counsel for petnr. (21st Century Ins. Co.)
Jan 31 2008Request for extension of time filed
counsel for petitioner requests extension of time to March 10, 2008 to file the reply brief.
Feb 5 2008Extension of time granted
On application or real party in interest and good cause appearing, it is ordered that the time to serve and file the reply brief is extended to and including March 10, 2008.
Mar 11 2008Application filed
rpi Silvia Quintana submitted via CRC 8.25 to file Reply Brief that exceeds the limit submitted together with brief
Mar 14 2008Reply brief filed (case fully briefed)
counsel for Real Party in Interest w/permisison
Mar 19 2008Request for extension of time filed
Personal Insurance Federation of California, et al. requests extension of time to April 29, 2008, to file the application for permission to file amicus curiae brief.
Mar 25 2008Extension of time granted
On application fo Personal Insurance Federation of California et al. and good cause appearing, it is ordered that the time to serve and file the application for permisison to file amici curiae brief is extended to and including April 29, 2008.
Apr 10 2008Received application to file Amicus Curiae Brief
National Assoc. of Subrogation Professionals (non-party)
Apr 15 2008Permission to file amicus curiae brief granted
National Association of Subrogation Professionals (non-party)
Apr 15 2008Amicus curiae brief filed
The application of National Association of Subrogatioon Professionals for permission to file an amicus curiae brief in support of petitioner is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
Apr 29 2008Received application to file Amicus Curiae Brief
Association of California Ins. Cos., et al., in support of petitioner.
Apr 30 2008Filed:
counsel for amicus curiae Nat'l Assoc. of Subrogation Profs., Notice of Errata in a/c brief.
May 2 2008Permission to file amicus curiae brief granted
Association of California Insurance Companies, et al., (non-party)
May 2 2008Amicus curiae brief filed
The application of Association of California Insurance Companies et al., for permission to file an amicus curiae brief in support of petitioners is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
May 6 2008Response to amicus curiae brief filed
Real party in Interest Silvia Quintana to a.c. brief of The Nat'l. Assoc. of Subrogation Professionals CRC 8.25
May 21 2008Request for extension of time filed
Rpis' Silvia Quintana to file reply to amicus Curiae Brief filed by Assoc., of California Ins. Co., Nat'l Assoc., of Mutual Ins. Companies, Personal Ins. Federation of California, Mercury Casualty Co., & Mercury Ins. Co., and Declaration of Robert S. Gerstein >>request brief extension to May 30th
May 23 2008Extension of time granted
On application of real party in interest and good cause appearing, it is ordered that the time to serve and file the answer to amicus curiae brief is extended to and including May 30, 2008.
Jun 2 2008Response to amicus curiae brief filed
by RPI Silvia Quintana to brief of Association of California Ins. Co., Nat'l Assoc of Calif. Ins., Nat'l Assoc. of Mutual Ins. Companies, National Assoc., of Mutual Ins. Co., Personal Ins. Federation of California, Mercury Casualty Co., and Mercury Ins. Co.
Apr 22 2009Case ordered on calendar
to be argued Thursday, May 28, 2009, at 1:30 p.m., in San Francisco
May 19 2009Letter brief filed
counsel for real party in interest (Quintana)
May 28 2009Cause argued and submitted
Aug 21 2009Notice of forthcoming opinion posted
To be filed Monday, August 24, 2009 at 10 a.m.
Aug 24 2009Opinion filed: Judgment affirmed in full
OPINION BY: CHIN, J. ---joined by: George C.J., Baxter, Moreno, and Corrigan, JJ. CONCURRING OPINION BY: Kennard, J. CONCURRING OPINION BY: Werdegar, J.

Briefs
Nov 20 2007Opening brief on the merits filed
RPI., Silvia Quintana
Jan 18 2008Answer brief on the merits filed
counsel for petnr. (21st Century Ins. Co.)
Mar 14 2008Reply brief filed (case fully briefed)
counsel for Real Party in Interest w/permisison
Apr 15 2008Amicus curiae brief filed
The application of National Association of Subrogatioon Professionals for permission to file an amicus curiae brief in support of petitioner is hereby granted.
May 2 2008Amicus curiae brief filed
The application of Association of California Insurance Companies et al., for permission to file an amicus curiae brief in support of petitioners is hereby granted.
May 6 2008Response to amicus curiae brief filed
Real party in Interest Silvia Quintana to a.c. brief of The Nat'l. Assoc. of Subrogation Professionals
Jun 2 2008Response to amicus curiae brief filed
by RPI Silvia Quintana to brief of Association of California Ins. Co., Nat'l Assoc of Calif. Ins., Nat'l Assoc. of Mutual Ins. Companies, National Assoc., of Mutual Ins. Co., Personal Ins. Federation
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
Nov 10, 2009
Annotated by Rebecca Nelson

The central issue in this case was whether an insurer must bear a pro rata share of the attorney fees incurred by an insured in obtaining recovery from a tortfeasor (under the equitable apportionment or common fund rule), or whether the insurer may not require reimbursement on the basis that the made-whole rule takes account of attorney fees incurred by an insured in obtaining recovery from a tortfeasor. In the main opinion, Judge Chin held that “liability for attorney fees is not included under the made-whole rule. Those fees instead are subject to a separate equitable apportionment rule (or pro rata sharing) that is analogous to the common fund doctrine…”

Facts and main arguments: Sylvia Quintana, who was injured in an automobile accident, recovered $1000 from her med-pay insurer (21st Century Insurance Company). She then subsequently recovered $6000 under a settlement with the third party tortfeasor, but incurred $2106.50 in attorney fees. She paid $600 to 21st Century by way of reimbursement, which is required to prevent double recovery on the part of the insured. (Note that $600 equates to Quintana’s recovery from 21st Century, less the cost of Quintana’s attorney fees multiplied by the ratio of the value of her recovery from 21st Century to her settlement, namely one-sixth). The dispute between Quintana and 21st Century arose when Quintana subsequently filed a class action lawsuit against 21st Century, arguing (among other things) “that the made-whole rule requires the insurer to take into account all of the insured’s litigation expenses when calculating whether or not the insured’s recovery from a third party tortfeasor resulted in a surplus recovery entitling the insurer to some reimbursement”. In this case, Quintana argued that because her total gross recovery of $4893.50 was less than her total losses, she had not been made whole, and therefore 21st Century could not lawfully require reimbursement. 21st Century argued that reimbursement of attorney fees is determined under an equitable apportionment (or common fund) rule, and that California law does not include attorney fees in the made-whole calculation. The Court of Appeal had found in favor of 21st Century.

The two competing doctrines: Under the made-whole rule, if attorney’s fees are considered within the calculation (as Quintana urged), an insured would not be made whole if her recovery less attorney fees were less than the loss she sustained, and accordingly the insurer could not require reimbursement. Under the common fund doctrine, each party would bear attorney fees in proportion to its share of the recovery, so the insurer would pay the attorney fees attributable to the expenses for which it seeks reimbursement.

Court: In the main opinion, Judge Chin upheld the arguments of 21st Century, and the finding of the Court of Appeal, which held that “the made-whole rule does not require an insurer seeking reimbursement to consider the attorney fees the insured expended in recouping his or her losses from the tortfeasor”, and that attorney are instead subject to the equitable apportionment rule, or pro-rata sharing. Noting that previous caselaw did not address the question of the interaction between the made-whole rule and the common fund doctrine, and that other jurisdictions have reached no clear consensus on this point, His Honor reasoned that the finding was supported by (among other things) the fact that Quintana’s insurance policy insured her only in relation to medical payments, and not in relation to legal expenses; and because the common fund doctrine “adequately balances the interests of insureds and insurers … The responsibility for attorney fees is therefore properly allocated according to what the parties contracted for and the risks each party agreed to bear.”

Note that the main opinion is expressed to be “limited to auto-insurance med-pay cases”, since the relevant scope of coverage may be different from that of other types of insurance (see note 1 of the opinion).

In a concurring opinion, Judge Kennard supported the majority decision on the grounds that it is supported by the “American rule” that parties normally bear their own litigation costs; that the equitable apportionment rule is consistent with the scheme for reimbursement of workers’ compensation benefits, that otherwise medical expenses coverage would be converted into legal expenses coverage; and that otherwise the premiums for automobile insurance coverage would increase.

In a further concurring opinion, Judge Werdegar supported the majority decision on the basis that it promotes uniform outcomes between a proceeding by way of reimbursement and a proceeding by way of subrogation (which His Honor takes to be a foundational objective) and “is consistent with the nature and purposes of med-pay insurance”.

Accordingly, the Supreme Court upheld the Court of Appeal’s judgment.