Legally Entitled to Recover? The case of Geerdes v. West Bend Mutual Insurance Company

The case Geerdes v. West Bend Mutual Insurance Company was decided by the United States Court of Appeals for the Eighth Circuit on June 20, 2023. The decision helps interpret the phrase "legally entitled to recover" under Iowa insurance law. In 2018, Iowa residents Gregg Geerdes and Mary Murphy (“Plaintiffs”) purchased home and automobile insurance from West Bend. The policy covered Plaintiffs as well as their son. The following year, Plaintiff’s son tragically died from injuries he sustained while a passenger on a charter bus that crashed in British Columbia, Canada. The charter bus’s insurance paid all the no-fault motorist insurance benefits that it was legally obligated to pay under the policy. Plaintiffs did not sue the bus company as personal jurisdiction for any such action would be in British Columbia. Plaintiffs did however sue West Bend seeking uninsured/underinsured benefits and additional umbrella coverage they believed they were entitled to under their policy. The West Bend Policy states policyholders are entitled to uninsured/underinsured coverage for payment of compensatory damages for bodily injury caused by an accident that an insured is “legally entitled to recover from the owner or operator.” However, Iowa case law states the benefits plaintiffs are entitled to recover from uninsured/underinsured umbrella policies are limited to the amount they would be able to recover in a tort action against the tortfeasor where the accident occurred or in the tortfeasors’ home state. Applying this law, the District Court dismissed the case via summary judgment because Plaintiffs are not “legally entitled to recover” under British Columbia law as it does not permit recovery of non-economic damages.

On appeal, Plaintiffs contended that Iowa law requires the court to interpret the phrase “legally entitled to recover” liberally, not literally. Plaintiffs introduced cases where Iowa courts have found plaintiffs were “legally entitled to recover” damages from the tortfeasor even when they may not have been able to in the tortfeasor’s home state or in the state the injury occurred. The Eighth Circuit explained that these circumstances occurred when plaintiffs were being precluded from recovery based on procedural law, not substantive law.

British Columbia’s substantive law does not permit recovery for non-economic damages. Thus, the Eighth Circuit Court affirmed the District Court's judgment, concluding that Plaintiffs were not “legally entitled to recover” and therefore the policy did not award coverage.

The Eighth Circuit’s opinion should catch the eye of Iowa insurers when it comes to how “legally entitled to recover” is interpreted and applied.

Erickson|Sederstrom Law Clerk Emily Todd assisted with drafting this article and her help is greatly appreciated.

Nebraska Supreme Court Clarifies the Common Fund Doctrine

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

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

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

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

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