Attorney General: Honorable Robert Googins, Department of Insurance, 1991-014 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

April 11, 1991

Honorable Robert Googins
Commission of the Department of Insurance
153 Market Street
Hartford, CT 06106

Dear Commissioner Googins:

This is in response to your predecessor's letter of August 7, 1990, requesting an opinion regarding the proper assessment of attorney's fees to personal injury recoveries which include basic reparations benefits (BRB), under Conn. Gen. Stat/ 38 -325(b).1 It had been called to Commissioner Kelly's attention that some attorneys collect the standard one-third fee from the entire personal injury award and collect an attorney's fee from the BRB. Since this practice reduces the net award to the insured by an amount equal to the BRB attorney's fee, you have inquired as to whether this practice violates Conn. Gen. Stat. 38-325(b). It is the opinion of this office that a collection of the standard attorney's fee from the entire personal injury award and a collection of an attorney's fee from the BRB is contrary to law.

Conn. Gen. Stat. 38-325(b) provides as follows:

Whenever a person who receives basic reparations benefits for an injury recovers damages, either by judgment or settlement, from the owner, registrant, operator or occupant of a private passenger motor vehicle with respect to which security has been provided under this chapter or from a person or organization legally responsible for his acts or omissions, the insurer is entitled to reimbursement for the claimant to the extent that said basic reparations benefits have been paid, minus an amount which represents the insurer's contribution toward attorney's fees for the collection of basic reparations benefits. Such amount shall be computed by multiplying the total amount of such reasonable attorney's fees and costs, by a fraction, the numerator of which shall be the amount of basic reparations benefits received by the claimant and the denominator shall be the amount of damages recovered by the claimant, less court costs. In no event shall such amount exceed one-third the amount of the basic reparations benefits to be reimbursed to the insurer. The insurer shall have a lien on the claimant's recovery for the amount to which he is entitled for such reimbursement; provided no such lien shall attach until such time as the proceeds of such recovery are in the possession and control of such claimant.

Conn. Gen. Stat. 38-325(b) provides that when an injured party recovers from a tortfeasor for damages suffered in an automobile accident, and where his insurance company has paid no-fault BRB, the insurer is entitled to reimbursement out of the total recovery for the amount of BRB paid. Shelby Mutual Ins. Co. v. Della Ghelfa, 200 Conn. 630, 635 (1986).

As originally enacted, 38-325(b) did not allow the insured to deduct from the reparations benefits reimbursed to the insurer an amount reflecting the insurer's share of the legal fees incurred by the insured in recovering from the tortfeasor. In 1980, the legislature amended 38-325(b) to allow insured to reduce the amount of the reimbursement by an amount reflecting the insurer's contribution to the attorney's fees expended by the insured in obtaining the damage award. See Public Acts 1980, No. 80-131.

Dugas v. Lumbermens Mutual Casualty Co., 217 Conn. 631, 637 (1991). See also Kosloff, Kosloff & Bieder v. Allstate Ins. Co., 187 Conn. 451, 456 (1982). The statute provides the formula for computing the insurer's contribution.

You have asked us whether Conn. Gen. Stat. 38-325(b) allows the insurer's contribution toward attorney's fees for collection of the BRB to be retained by the attorney or requires the contribution to be disbursed to the client.

The following examples, where the total recovery is $50,000 and the BRB is $5,000, illustrate your question:

Example 1 - Computation of insurer contribution and disbursement to attorney:

Total Award: $50,000

Attorneys Fees: $16,500 (!/3 of 50,000)

Insurer Contribution: $1,650

($16,500 x $5,000

50,000)

Total Attorneys Fees: $18,150

(16,500+1,650)

Total to Insurer: $3,350

($5,000-$1,650)

Total to Insured: $28,500

($50,000-$16,500-$5,000)

Example 2 - Computation of Insurer Contribution and Disbursement of Insured:

Total Award: $50,000

Attorneys Fees: $16,500

(1/3 of $50,000)

Insurer Contribution: $1,650

($16,500 x $5,000

$50,000)

Total Attorneys Fees: $16,500

Total to Insurer: $3,350

($5,000-$1,650)

Total to Insured: $30,150

($50,000-$16,500-$5,000+$1,650)

We conclude that Example 2 is the correct method of calculating the amount of attorney's fees in such cases.

The Supreme Court has discussed the purposes and public policy underlying the statute. "[T]he primary motivation leading to the enactment of the 1980 amendment to 38-325(b) was the legislature's concern that it was unfair to allow an insurer to benefit from damage awards obtained by an insured party from a tortfeasor without requiring the carrier to bear some of the legal costs incurred in effecting that recovery." Dugas v. Lumbermens Mutual Casualty Co., 217 Conn. 631, 645 (1991).

When enacted the 1980 amendments, the legislature acted upon an awareness that Section 38-325(b) placed an unfair burden on insurers and granted a windfall to insurers. Dugas v. Lumbermens Mutual Casualty Co., 22 Conn. App. 27, 34 (1990), rev'd on other grounds, 217 Conn. 631 (1991). Since the effective date of these amendments, the statute has required insurers to make a pro-rata contribution toward the expenses borne by the insured in procuring the recovery. 22 Conn. App. at 35.2

Based upon the Court's discussion of the public policy underlying Conn. Gen. Stat. 38-325(b), we conclude that a lawyer may not deduct an attorney's fee from the total recovery and deduct another fee from the BRB amount reimbursed to the insurance company. Otherwise, the public policy of Section 38-325(b), requiring the insurance company to contribute to the insured's costs of recovering the BRB, would be violated. The unfair burden of paying the cost of recovering the BRB would remain upon the insured. The windfall granted to insurers under Section 38-325(b) prior to 1980 would become a windfall to attorneys.

Moreover, Conn. Gen. Stat. 52-251c3 limits the amount of attorney's fees to a maximum of thirty-three and one-third percent of the gross amount of damages awarded or settlement amount received by the insured, in all claims for personal injury, wrongful death or property damage occurring on or after October 1, 1987. When the insured's attorney collects a fee of thirty-three and one-third percent of the total recovery, and also retains the insurer's contribution to the insured's expenses in recovering the BRB, the attorney has taken a total fee in excess of statutory limit. In example 1 above, the attorney's fee is over thirty-six percent of the total award, exceeding the thirty-three and one-third percent allowed by Conn. Gen. Stat. 52-251c.

In the examples above, where the attorney contracts for a fee of thirty-three and one-third percent of the total recovery, the attorney may assess this percent against the amount of the total recovery, which amount includes BRB. The amount of BRB paid is deducted from the total award to be paid over to the insurer. From the amount of BRB, the insurer's contribution to attorneys fees, computed per Section 38-325(b), is deducted prior to disbursement. This amount is disbursed to the insured, accomplishing the statutory directive that the insurer contribute to the insured's costs in recovering attorney's fee.

We trust this satisfactorily answers Commissioner Kelly's inquiry.

Very truly yours,

RICHARD BLUMENTHAL
ATTORNEY GENERAL

Robert M. Langer
Assistant Attorney General

RB/RML/ps


1 Title 38 of the General Statutes (Rev. 1989) has been transferred, and its sections renumbered, to title 38a of the General Statutes (Rev. 1991). Section 38-325(b) has been renumbered Section 38a-369. This opinion shall refer to the relevant statutes in their previous numerical form under Title 38.

2 See generally 23 S. Proc., Pt. 4, 1980 Sess. pp. 1266-73 ("It really doesn't mean any more money for the attorneys. It really means more money for the insured... the extra money goes to the insured." Remarks of Sen. James J. Murphy); 23 H.R. Proc., Pt. 12, 1980 Sess., pp. 3629-33; Conn. Joint Standing Committee Hearings, Judiciary Pt. 2, 1980 Sess., pp.341-345, 416-20.

3 Sec 52-251c. Limitation on attorney contingency fees in personal injury, wrongful death and property damage actions. (a) In any claim or civil action to recover damages resulting from personal injury, wrongful death or damage to property occurring on or after October 1, 1987, the attorney and the claimant may provide by contract, which contract shall comply with all applicable provisions of the rules of professional conduct governing attorneys adopted by the judges of the superior court, that the fee for the attorney shall be paid contingent upon, and as a percentage of: (1) Damages awarded and received by the claimant; or (2) settlement amount pursuant to a settlement agreement.

(b) In any such contingency fee arrangement such fee shall be the exclusive method of payment of the attorney by the claimant and shall not exceed an amount equal to a percentage of the damages awarded and received by the claimant or of the settlement amount received by the claimant as follows: (1) Thirty-three and one-third per cent of the first three hundred thousand dollars: (2) twenty-five per cent of the nest three hundred thousand dollars; (3) twenty percent of the next three hundred thousand dollars; (4) fifteen percent of the next three hundred thousand dollars; and (5) ten per cent of any amount which exceeds on million two hundred thousand dollars.

(c) For the purpose of this section, "damages awarded and received" means in a civil action in which final judgment is entered, that amount of the judgment or amended judgment entered by the court that is received by the claimant; "settlement amount received" means in a claim or civil action in which no final judgment is entered, the amount received by the claimant pursuant to a settlement agreement; and "fee" shall not include disbursements or costs incurred in connection with the prosecution or settlement of the claim or civil action, other than ordinary office overhead and expense.


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