Nearly every lawsuit involving an automobile accident in Kansas will present personal injury protection “PIP” lien issues to a liability insurance company. A unique situation arises when the defendant’s insurer had previously paid PIP benefits to a plaintiff. Depending on how the settlement is structured, the liability insurer may owe statutory attorney’s fees to plaintiff’s counsel for the “recovery” of the PIP benefits. This may happen even thought there is no pecuniary benefit to the insurer.
Kansas courts have held that when a single company insures both parties to a settlement agreement, the insurer is not liable for attorney’s fees based on PIP benefits paid unless it actually recovers the benefits by executing the statutory subrogation lien upon itself and internally transfers the funds. Ballweg v. Farmers Insurance Co., 228, Kan. 506, 618 P.2d, 1171 (1980) held that two events needed to activate the attorney fee clause of the statute K.S.A. 40-3113a(e) had occurred in that case – the insurance company included duplicative PIP benefits in its total judgment and also executed the lien against itself through an internal transfer of money. But Servos v. Corbett, 26 Kan. App. 2d 385, 987 P.2d 1132 (1999) held that the attorney fee clause in this statute was not implicated when the insurance company never executed its lien and no internal transfer of PIP moneys occurred. By simply waiving its lien in paying the settlement, the court held that the insurance company prevented an internal transfer of PIP funds.
When an insurance company finds itself in this position, it should try to follow the procedures set out in Servos. Instead of deducting or transferring funds pursuant to the PIP lien as part of the settlement, the insurance company should waive its lien and pay the settlement. In other words, by offering $15,000 to settle a case, then deducting previous PIP benefits of $4,500 paid, for a net settlement of $10,500, an insurance carrier will have to pay attorney fees, typically 1/3 of the PIP amount, to the plaintiff’s counsel. The insurance company, however, can avoid paying the attorney’s fee lien by simply waiving the lien and offering to pay $10,500, rather than executing the lien.