Third Party Attorney Fees: Is Recovery Limited by the Insurance Policy?

Mar. 2020

Kasal v. Stryker – Court of Appeals

Decided March 17, 2020.

Facts: Applicant worked for Aurora Healthcare and was injured in 2016 when a product made by Stryker Industries broke.  Sentry represented Aurora Healthcare and paid worker’s compensation benefits to Applicant during her healing period.  Applicant filed a subsequent negligence claim against Stryker for the injuries caused by their product.  Aurora and Sentry agreed to help, but did not assist as Applicant anticipated.  They were added as parties to the negligence claim for their failure to assist.  Applicant learned, through discovery, that a Stryker employee had removed the injury causing product prior to Aurora or Sentry being given notice.  Thus, the negligence claim against them was dismissed, but Sentry remained a party to suit in order to recover the worker’s compensation benefits paid to Applicant.  Sentry also brought a claim for punitive damages against Stryker and began their own investigation independent of Applicant.  Applicant settled her claim with Stryker in January 2019.  The settlement approved by the trial court apportioned settlement funds to Sentry to reimburse for the WC benefits and to pay Applicant’s attorney fees and costs.  Sentry was not reimbursed for their attorney fees and costs.  Sentry argued that under Sec. 102.29 Stats., they should be, Applicant said because Sentry’s policy was silent as to fees and costs, they should not be reimbursed.

Issue: When an insurance policy outlines specific reimbursement terms for third party claims contrary to the relevant statute (Sec. 102.29 Stats.), which should be followed?

Discussion:  The trial court stated that Sentry’s own policy, which did not discuss reimbursement of attorney’s fees and costs, should be followed because they had the opportunity to include this language in the policy, but did not.  The Court of Appeals agreed citing American Family Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶23, 268 Wis. 2d 16, 673 N.W.2d 65. Specifically they said the court’s job when interpreting an insurance policy is to “determine and give effect to the intent of the contracting parties” and must be construed “as they would be understood by a reasonable person in the position of the insured.”  Moreover, the court pointed to the language in the statute that allows for the apportionment of attorney’s fees and costs for all parties involved in the claim “unless otherwise agreed upon.”  They expanded stating Sentry’s policy and failure to address reimbursement of attorney’s fees and cost fell into the “unless otherwise agreed upon” category; thus, the Court of Appeals upheld the trial court judgement stating “it is reasonable to conclude that if Sentry had intended to mandate the recovery of attorney’s fees and costs in worker’s compensation cases, it would have included similar language in its policy”

Practical Takeaway: If an insurer wants to recover attorney fees and costs in third party actions, the policy either needs to adopt the language set forth in Sec. 102.29, Stats., as a whole or if they have a specific policy, outlines all the terms of recovery so it is clearly understood prior to litigation.