What is the Common Fund Doctrine

The common fund doctrine is an equitable rule in an overwhelming majority of the states, including California. The state has no common fund statute. It’s founded on the proposition that an entity that seeks to benefit from litigation without contributing to its costs or the legal work involved in pursuing the case is unjustly enriched. Specifically if it’s allowed to retain all of the proceeds that he or she claims from a fund that multiple parties have an interest in.

That’s because the attorney who performed all of the work and created the fund is entitled to legal fees from the person who is trying to obtain 100% of what is claimed to be owed to him or her by the fund but did little or nothing at all to create it.

Elements of the Common Fund Doctrine

There’s nothing complicated about what an attorney most show in order to recover under the common fund doctrine. He or she must show the following:

• The case occured as a result of the attorney’s services.
• Creation of the case as a result of the attorney bringing the case.
• The insurer claiming an interest in the common fund did little or nothing to create it
• The insurance company has benefitted or will benefit from the creation of the fund.

Fairness and Equity Require Compensation

The common fund doctrine also helps clients in maximizing the net proceeds that they derive from a settlement or award. That’s because lawyers can receive compensation from the fund rather than taking their contingency fee from a client’s gross proceeds. If an insurance company is being reimbursed, it should compensate the lawyer.

As stated in Consumer Cause, Inc. vs. Mrs. Gooch’s Natural Food Markets, Inc. (2005) 127 Cal. App. 4^th 387, “based on the commonsense notion that the one who expends attorney fees in winning a suit which creates a fund from which others derive benefits may require those passive beneficiaries to bear a fair share of the litigation costs.” Of course, a fund from which attorney fees might receive compensation is an essential prerequisite to the common fund doctrine.

Subrogation and the Common Fund

The term “subrogation” describes a contractual right provided for in many insurance policies. It allows an auto or heath insurance company to pursue a third party for a loss to its insured person. The insurer paid benefits for its policyholder. Therefore, it allows the insurance company to “stand in the shoes” of its insured person. As such, it can pursue the sums that it paid to the insured person or another entity for a loss. Subrogation is common in motor vehicle accident cases. After an insurer covers expenses like medical bills that were caused by the negligence of somebody else, it wants its money back. It can do that through the law of subrogation when it notifies the opposing insurer of its right to subrogation by virtue of its lien notice.

Lazy Subrogation

Aside from notifying the opposing insurer of its lien, the personal injury claimant’s insurer typically does little or nothing to pursue its subrogation interest. It knows that its name is going to included be on a check with multiple payees sometime in the future, so it just waits for that check. Then, when the check comes, it wants its purported full share of it, notwithstanding the fact that it utterly failed to participate in its insurer person’s litigation. That’s where fairness, equity and who created a common fund come into the case.

Deal or No Deal?

If the attorney for the claimant and the claimant’s insurance company are unable to amicably resolve an issue involving the applicability of the common fund doctrine, a judge can resolve the issue for them. Given the fact that the doctrine is an equitable issue, a judge will have broad discretion in ruling on it. A knowledgeable and experienced California car accident lawyer from Maison Law would argue on behalf of his or her client in a hearing on whether common fund doctrine applies in the client’s case. If the insurer spent little or no effort in creating the fund, overcoming the burden of participation will be somewhere between difficult and impossible for that insurer.

The Insurer’s Partial Participation in the Case

Had the insurer’s attorneys actively participated in the creation of the fund, the doctrine might not even be raised. If the insurance company’s lawyer only participated in some of the case but not all of it, the judge might decide what percentage, if any, that attorney’s client received from the fund. Remember, judges have broad discretion in ruling on the common fund doctrine. If a ruling goes against insurance, it must show an abuse of discretion in appellate court. That’s another difficult burden to overcome.

The common fund doctrine can help you maximize the net proceeds that you deserve from a settlement or award. That’s our California car accident lawyer’s objective too here at Maison Law. After sustaining an injury, protect your rights and interests. We’re going to listen to you carefully and answer your questions. After that, we’ll explain all of your legal options. Upon retaining us, we’ll make every effort at maximizing any settlement or award that we obtain on your behalf.

Contact a California Personal Injury Lawyer Today