Opinion Information Sheet

			

   IN THE SUPREME COURT OF THE STATE OF WASHINGTON

olga matsyuk, individually, and on behalf 
of all those similarly situated,
                             Petitioner,
              v.
                                                           NO. 84686-3
state farm fire & casualty company,                        (consolidated with NO. 85012-7)
                             Respondent.
                - - - - - - - - - -
                                                           EN BANC
KAREN WEISMANN,
                             Petitioner,
              v.                                           Filed February 9, 2012
SAFECO INSURANCE COMPANY OF 
ILLINOIS, a foreign insurance company,
                             Respondent.

       STEPHENS, J. -- These consolidated cases invite us to clarify the pro rata fee 

sharing rule announced in Mahler v. Szucs, 135 Wn.2d 398, 957 P.2d 632, 966 P.2d 

305 (1998), and elaborated upon in Winters v. State Farm Mutual Automobile

Insurance Co., 144 Wn.2d 869, 31 P.3d 1164 (2001), and Hamm v. State Farm 

Mutual Automobile Insurance Co., 151 Wn.2d 303, 88 P.3d 395 (2004).  This  

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

equitable rule is based upon the common fund exception to the well-known 

"American rule" on attorney fees, and it requires a personal injury protection (PIP) 

insurer to share pro rata in the attorney fees incurred by an injured person when the 

recovery benefits the PIP insurer.  

       The plaintiffs here recovered PIP funds as insureds, under policies held by the 

tortfeasors, and then incurred attorney fees in recovering from the tortfeasors'

liability insurance provided by the same carrier.  The insurance companies 

attempted to offset the funds expended under the PIP policies by reducing the 

plaintiffs' award under the tortfeasors' liability insurance.  Relying on Young v. Teti, 

104 Wn. App. 721, 16 P.3d 1275 (2001), the Court of Appeals held that, in this 

factual scenario, neither plaintiff was entitled to recoup a pro rata share of attorney 

fees.  While Young is on point, it was decided before Hamm and Winters and is 

inconsistent with those opinions.  We therefore reverse the Court of Appeals and 

hold that the pro rata fee sharing rule applies in this context.  We further hold that 
Karen Weismann is entitled to Olympic Steamship1 fees on appeal and that Olga 

Matsyuk's bad faith claim against State Farm  Fire and Casualty Company was 

improperly dismissed.

                               Facts and Procedural History
Matsyuk

       Matsyuk was injured in an automobile accident while a passenger in a car 

driven by Omelyan Stemditskyy.  Stemditskyy was at fault.  As a passenger, 

       1 Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991).

                                              -2- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

Matsyuk was an insured under Stemditskyy's State Farm policy.  Matsyuk received 

$1,874 in PIP benefits.  As a claimant, she then sought to recover under 

Stemditskyy's liability policy provided by State Farm.

       Matsyuk apparently reached a settlement with Stemditskyy and State Farm 

for $5,874, to be paid by State Farm in its capacity as Stemditskyy's liability 

insurer.  State Farm indicated it would seek reimbursement of its previous PIP 

payments through an offset to the liability payment it was making on Stemditskyy's 

behalf and provided a check for $4,000 ($5,874 minus $1,874).  Matsyuk demanded 

that State Farm bear a pro rata share of the legal expenses she incurred in obtaining 

the liability recovery, including the PIP offset.  State Farm refused.

       Matsyuk brought suit against State Farm for failing to share in her legal 

expenses, claiming bad faith, conversion, breach of contract, and Consumer 

Protection Act (ch. 19.86 RCW) violations.  State Farm made a motion to dismiss 

Matsyuk's complaint for failure to state a claim on which relief can be granted under 

CR 12(b)(6).  Matsyuk moved for partial summary judgment on the attorney fees 

question.  The trial court denied the motion for summary judgment and granted State 

Farm's CR 12(b)(6) motion.  Matsyuk appealed to Division One of the Court of 

Appeals, which affirmed the trial court, relying on Young, 104 Wn. App. 721, and 

distinguishing  Hamm,  151 Wn.2d 303, and Winters, 144 Wn.2d 869.  Matsyuk v. 

State Farm Fire & Cas. Co., 155 Wn. App. 324, 332, 229 P.3d 893 (2010).  

Matsyuk petitioned for review.
Weismann

                                              -3- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

       Weismann was operating her motorized wheelchair when she was struck by 

motorist Darlene Kangas.  Kangas was insured by Safeco.  As a pedestrian, 

Weismann was an insured under Kangas's PIP policy and received $9,012.95 in PIP 

benefits.  Weismann sued Kangas, and Safeco Insurance Company, Kangas's 

liability insurer.  The parties agreed that Weismann's damages totaled $44,521.19.  

Weismann v. Safeco Ins. Co. of Ill., 157 Wn. App. 168, 172, 236 P.3d 240 (2010).  

Safeco offered Weismann $35,508.24, representing the difference between 

$44,521.19 and the money Weismann received in PIP benefits, $9,012.95. Because 

it offset the PIP amount, Safeco refused to pay a proportionate share of the attorney 

fees Weismann incurred in recovering from Kangas.  

       The parties entered into an agreement reserving Weismann's right to bring an 

action against Safeco on the question of its obligation to pay pro rata attorney fees.  

The matter proceeded to summary judgment on Weismann's motion.  She argued 

that under Winters, 144 Wn.2d 869, and Hamm, 151 Wn.2d 303, Safeco was 

required to pay pro rata attorney fees.  Safeco made a cross motion for summary 

judgment, arguing that under Young, 104 Wn. App. 721, it was not required to share 

in Weismann's legal expenses.  The trial court agreed with Weismann that Young

was no longer good law in light of this court's decisions in Hamm and Winters and 

granted her motion for summary judgment.  It also granted Weismann's motion for 

attorney fees and costs under Olympic Steamship.  Safeco appealed.  Division Two 

reversed, relying on Young and distinguishing it from Hamm and Winters.  It also 

reversed the trial court's award to Weismann of Olympic Steamship attorney fees.  

                                              -4- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

We granted Weismann's          petition for review and consolidated this case with 

Matsyuk.

                                           Analysis

       The American rule on attorney fees provides that litigants must bear their own 

legal expenses.  But many exceptions to this rule exist, and this court announced one 

such exception in Mahler, later expanding upon the exception in Winters and then 

Hamm.  These cases recognize the obligation of a PIP insurer to share pro rata in 

the legal expenses incurred by an injured person in recovering a common fund that 

accounts for PIP benefits.  This has become known as the "Mahler rule."                 Before 

Winters and Hamm were announced, the Court of Appeals limited the reach of the 

Mahler rule in Young, concluding that it did not apply in this precise factual 

scenario, where the PIP and liability insurance are provided by the same insurer.  

We take this opportunity to disapprove of Young, as its rationale is inconsistent with 

the Mahler rule.  Winters strongly suggests, and Hamm plainly requires, application 

of the equitable fee sharing rule here.  We also reinstate the trial court's award of 

Olympic Steamship        attorney fees to Weismann and reverse the dismissal of 

Matsyuk's bad faith claim.

   A. A common fund is created, thereby triggering the so-called Mahler rule, when 
       the injured party recovers under a PIP policy held by the tortfeasor and also 
       recovers under the tortfeasor's liability policy

       An insurer that pays funds to an insured through a PIP policy may seek 

reimbursement if the PIP insured collects directly from an at-fault party.  Winters, 

144 Wn.2d at 876.         When liability insurance is involved, one mechanism for 

                                              -5- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

achieving such reimbursement is through an "'offset,'" which is "a credit to which 

an insurer is entitled for payments made under one coverage against claims made 

under another coverage within the same policy."  Id.  Reimbursement is appropriate 

so long as the injured party is made whole before any right to reimbursement is 

fulfilled.  Id.

       When an insured recovers funds from the at-fault party to which an insurer is 

entitled to reimbursement, those funds may constitute a common fund.  The common 

fund doctrine provides an exception to the American rule on legal expenses.  It 

"applies to cases where litigants preserve or create a common fund for the benefit of 

others as well as themselves."  Mahler, 135 Wn.2d at 427.  "'[W]hen one person 

creates or preserves a fund from which another then takes, the two should share, pro 

rata, the fees and costs reasonably incurred to generate that fund.'"  Winters, 144 

Wn.2d at 877 (quoting Winters v. State Farm Mut. Ins. Co., 99 Wn. App. 602, 609, 

994 P.2d 881 (2000)).  "[T]he rule requiring a pro rata sharing of legal expenses is 

based on equitable principles and not on construction of specific policy language."  
Hamm, 151 Wn.2d at 320 (citing Winters, 144 Wn.2d at 878-79).2

       1. Overview of Our Cases Applying the Equitable Sharing Rule

       2 As the Mahler court observed:
       "It is grossly inequitable to expect an insured, or other claimant, in the 
       process of protecting his own interest, to protect those of the [insurer] as 
       well and still pay counsel for his labors out of his own pocket, or out of the 
       proceeds of the remaining funds.  And this is precisely the view taken by 
       the overwhelming majority of decisions, in that a proportionate share of 
       fees and expenses must be paid by the insurer or may be withheld from its 
       share."
Mahler, 135 Wn.2d 425 n.17 (quoting 8A John A. Appleman & Jean Appleman, 
Insurance Law and Practice § 4903.85, at 335 (1981)).

                                              -6- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

       This court has applied the equitable sharing rule in a number of contexts in 

the auto insurance world, beginning with Mahler.  A brief review of our decisions is 

helpful.
       Mahler v. State Farm

       In  Mahler, a no-fault injured person recovered under her State Farm PIP 

policy and later recovered from the tortfeasor's liability insurance carrier, American 

States.  Mahler, 135 Wn.2d at 406-07.  State Farm                       asserted a right to 

reimbursement for its PIP but maintained it need not share in Mahler's legal 

expenses incurred in recovering from American States.  Id. at 407.  This court 

concluded that State Farm was entitled to take reimbursement only if it paid its pro 

rata share of the attorney fees incurred by the injured person in recovering from the 

tortfeasor.  Id. at 427.  This share was measured by the proportion of the total 

recovery that represented the PIP payments. 
       Winters v. State Farm

       In  Winters, a no-fault injured party recovered under her State Farm PIP 

policy.  144 Wn.2d at 873.  The tortfeasor was underinsured, so in addition to 

recovering some funds from the tortfeasor's liability insurance, the injured party 

recovered from her underinsured/uninsured motorist (UIM) policy, also through 
State Farm.3  Id.  In seeking reimbursement for its PIP expenditure, State Farm 

       3 Like Mahler, Winters was a consolidated case.  The other plaintiff was Kyle 
Perkins.  Both Winters and Perkins recovered under a combination of PIP, UIM, and the 
tortfeasor's liability insurance.  Winters, 144 Wn.2d at 874-75.  It should be noted, 
however, that Perkins was not driving his own automobile, but that of Glenn Smith.  
Thus, Perkins recovered under the tortfeasor's PIP and UIM policies through State Farm, 
not his own.  Id.

                                              -7- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

contested its obligation to pay a pro rata attorney fee in this scenario.  This court 

rejected that notion, holding that a common fund was created even though State 

Farm was on both sides of the ledger.  Id. at 881.  "[Here] the insured secured the 

proceeds from the at-fault driver or the driver's insurer and then recovered from his 

or her respective UIM carrier.  These pooled funds became the common fund from 

which the PIP insurer was able to recoup payments it had made."   Id.  In so 

concluding, the Winters court recognized that "UIM payments are treated as if made 

by the tortfeasor."  Id. at 880.

       Hamm v. State Farm

       In Hamm, a no-fault motorist was injured in an accident with an uninsured 

tortfeasor (as opposed to in Winters, where the tortfeasor was underinsured).  151 

Wn.2d at 306.  She recovered under her State Farm PIP policy and then sought 

recovery from her UIM policy through State Farm.  State Farm attempted to offset 

its PIP payment from Hamm's UIM award.  This court held that in order to do so, 

State Farm must pay its pro rata share of the insured's legal expenses.  Id. at 312.  

The Hamm court rejected the notion that because the UIM policy and the PIP were 

provided by the same carrier, State Farm received no "benefit" from the UIM 

payment.  The court observed that the PIP and UIM policies were separate policies 

and concluded that "[t]he offset at issue in this case, just as in Winters, is a benefit 

to the PIP carrier, not the UIM carrier."  Id. at 313.  The court recognized its 

holding was a natural extension of its earlier cases, noting that "Winters already 

rejected the notion that a PIP carrier does not receive reimbursement from UIM 

                                              -8- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

payments when the PIP carrier and the UIM carrier are the same company."  Id. at 

313 n.5.

       From these three cases, it is clear that the Mahler rule requires equitable fee 

sharing between an insured and insurer across the range of scenarios involving PIP 

reimbursement, including when the insured (1) recovers from the tortfeasor's 

liability policy provided by a different carrier than the PIP carrier (Mahler), (2) 

recovers from the insured's underinsured motorist policy provided by the same 

carrier as the PIP carrier (Winters), or (3) recovers from the insured's uninsured 

motorist policy provided by the same carrier as the PIP carrier (Hamm).
       Young v. Teti

       The question we must resolve, then, is whether Young aligns with our case 

law developing the equitable fee sharing rule.  As noted, the Court of Appeals 

issued its opinion in Young before Winters and Hamm were published.  

       In Young, an injured passenger, Patricia Young, received PIP benefits under 

an Allstate Indemnity Company policy of the at-fault driver, Victor Teti.  Young 

also sued Teti for negligence.  A jury awarded her $20,000.  Teti proposed to offset 

the jury award by Allstate's earlier PIP payment to Young, and Young agreed,

provided she be able to "deduct from the offset her attorney fees and costs under 

Mahler."  Young, 104 Wn. App. at 723.  The trial court agreed with Young and 

reduced Teti's offset to reflect a pro rata share of the attorney fees, but the Court of 

appeals reversed.  It reasoned:

       [H]ere there is no contractual or legal basis for requiring Teti to share 

                                              -9- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

       Young's litigation expenses in suing him and recovering damages.  First, 
       Young, the injured-plaintiff, was not Allstate's insured.  Rather, Teti, the 
       tortfeasor-defendant, was Allstate's insured, and Young was a third-party 
       beneficiary under Teti's PIP coverage when his tortious conduct caused her 
       harm.  Second, under Teti's policy, Allstate was obligated to share an 
       injured person's expenses in recovering PIP payments only if Allstate also 
       benefited.  But here, Allstate did not benefit from Young's lawsuit against 
       Teti; rather, the lawsuit worked to Allstate's detriment when its insured, 
       Teti, became liable to pay more money to Young.  
              Unlike    Mahler, Young's litigation against Allstate's insured 
       produced no additional party from whom Allstate could recoup any money.  
       Thus,  Mahler awards are inappropriate here, where an injured, faultless 
       third person recovers only from the insured tortfeasor, rather than also from 
       the injured party's own insurer.

Young, 104 Wn. App. at 726-27 (footnotes omitted).  

       The first rationale advanced by the court in Young for denying the equitable 

sharing rule in a situation such as the one at bar is that the injured plaintiff was not 

insured by the carrier but is a third-party beneficiary under the tortfeasor's PIP 
coverage.  Id.4       To the extent this rationale is premised on the contractual 

relationship between insurer and insured, it is unsupported by Mahler, Winters, and 

Hamm.  The equitable sharing rule derives from principles of equity, not contract 

language.  Hamm, 151 Wn.2d at 320 (citing Winters, 144 Wn.2d at 878-79).  

Indeed, one of the plaintiffs in Winters was also not a named insured, but rather 

covered under someone else's policy, and that fact made no difference to the 

Winters court. See Winters, 144 Wn.2d at 874-75 (Perkins case). 

       Young's second rationale is equally untenable.  It reasoned that Allstate did 

not benefit from Young's lawsuit because the insurer had to pay twice (PIP and 

       4 The assertion that Young was merely a third-party beneficiary of Teti's policy is 
questionable.  An injured passenger is generally insured under the driver's PIP, as in the 
present cases.  There is no mention in Young of the terms of Teti's policy as to additional 
insureds.

                                              -10- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

liability).  Young, 104 Wn. App. at 727.  This rationale is fundamentally the same as 

the rationale advanced by the insurer and rejected in Winters and again in Hamm.  

There, we held that an insurer receives a benefit when it is able to reimburse its PIP 

through funds from its UIM policy.  Hamm, 151 Wn.2d at 313 n.5.  The trial court 

in Young got it exactly right when it explained that

       "there is special funding under the PIP coverage in an insurance policy and 
       there's funding under the liability coverage in an insurance policy. And 
       they're not the same. They're two different categories under the insurance 
       policy. . . . And if [Young] had not brought the case, Allstate would not get 
       any setoff against any judgment.  If there was no judgment, there would be 
       no need for setoff.  But [s]he brought the action, [s]he got the judgment, 
       and you [Teti] are entitled to a setoff, I agree, but your setoff is going to be 
       reduced."

Young, 104 Wn. App. at 724 (most alterations in original) (quoting  Report of 

Proceedings (June 25, 1999) at 12). The Court of Appeals decision in Young must 

be disapproved in light of Winters and Hamm, and we take this opportunity to do 

so.

       2. A common fund is created when an injured person recovers under the 
       tortfeasor's liability coverage after having recovered under a PIP policy by 
       the same insurer

       Winters and Hamm recognize that PIP and UIM policies are distinct policies, 

even when provided by the same insurer.  The same is true of liability coverage.  

Each policy is a separate silo, so to speak.  Each offers discrete coverage, fulfills a 

particular need of the insured, and is based on a separate premium.  See Rones v. 

Safeco Ins. Co. of Am., 119 Wn.2d 650, 654-55, 835 P.2d 1036 (1992) (liability 

insurance); Blackburn v. Safeco Ins. Co., 115 Wn.2d 82, 88-92, 794 P.2d 1259 

                                              -11- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

(1990) (liability and UIM); Keenan v. Indus. Indem., 108 Wn.2d 314, 322, 738 P.2d 

270 (1987) (UIM and PIP), overruled on other grounds by Price v. Farmers Ins. 

Co. of Wash., 133 Wn.2d 490, 946 P.2d 388 (1997).  The distinction between a PIP 

and a UIM policy is what caused a majority of this court to twice reject the notion 

that reimbursing PIP payments with funds obtained from UIM coverage is merely 

moving money from one pot to another with no benefit to the insurer.  See Hamm, 

151 Wn.2d at 313 n.5 (citing Winters).

       There is no principled reason why the mechanism of a PIP offset against 

liability insurance payments should be treated differently from the mechanism of 

intercompany arbitration (at issue in Mahler) or a nonduplication of benefits clause 

between PIP and UIM coverage (at issue in Winters and Hamm).  In each case, the 

insured's recovery of liability funds provides a benefit to the PIP insurer, creating a 

common fund.   Accordingly, the equitable fee sharing rule applies.  The Court of 

Appeals in these consolidated cases erred -- just as the Court of Appeals in Young

did -- when it held otherwise.

       Although the insurers do not advance a principled distinction between a UIM 

policy and a liability policy, they do advance a number of other arguments in 

defense of their position.  First, they argue that the common fund doctrine is 

grounded in subrogation principles and that, in this scenario, they are left with no 

third party to subrogate.  State Farm Fire & Cas. Co.'s Suppl. Br. at 17; Safeco's 

Appellants' Br. at 19-21.  But the availability of subrogation is not relevant to the 

question of whether the equitable fee sharing rule applies when an insurer recovers 

                                              -12- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

PIP benefits by means of reimbursement or offset.  See, e.g., Hamm, 151 Wn.2d at 

319-20 (insurer's retention of right to pursue subrogation from tortfeasor does not 

eliminate obligation to pay proportional share of legal expenses for reimbursement 

of PIP benefits); Winters, 144 Wn.2d at 876 (reimbursement provisions of policy 

permit insurer to recover PIP benefits from money the insured collects from the 

tortfeasor, notwithstanding absence of viable subrogation claim against tortfeasor);

see also Mahler, 135 Wn.2d at 411-18 (discussing subrogation principles in relation 

to insurer's right to reimbursement).

       Next, Safeco asserts that the collateral source rule compels a result in its 

favor.  This argument also fails.  Safeco's Suppl. Br. at 16-18.  "The collateral 

source rule provides that a tortfeasor may not reduce its liability due to payments 

received by the injured party from a collateral source"                when that source is 

independent of the tortfeasor.  Maziarski v. Bair, 83 Wn. App. 835, 841 n.8, 924 

P.2d 409 (1996).  Thus, argues Safeco, if Weismann and Kangas went to trial, 

Kangas would be able to ask the jury to reduce her liability by the amount paid 

under the PIP, with no accounting for attorney fees.  The Court of Appeals in 

Matsyuk endorsed this argument.  Matsyuk, 155 Wn. App. at 334-35.  Mahler, 

Winters, and Hamm do not address the collateral source rule as such, but nothing in 

these cases supports the view that the collateral source rule somehow trumps the 

equitable sharing rule in certain contexts.  The collateral source rule is an 

evidentiary principle, not a cause of action.  See Mazon v. Krafchick, 158 Wn.2d 

440, 452, 144 P.3d 1168 (2006).  The rule's application or nonapplication does not 

                                              -13- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

defeat a claim for equitable fee sharing.

       State Farm also argues that the nonduplication of benefits clause in its policy 

vitiates application of the equitable sharing rule.  But as Matsyuk points out, the 

nonduplication clause here does not apply because it provides that State Farm will 

not provide PIP benefits if the PIP insured has already received payment under 

liability coverage for the same damages as covered by the PIP.  Matsyuk's Suppl. 

Br. at 10.  More importantly, 

       such clauses are valid only to the extent they serve as mechanisms to 
       accomplish the PIP right to reimbursement when the same carrier provides 
       PIP and UIM coverage.  An insurance company, however, cannot avoid the 
       pro rata sharing principle by characterizing such clauses as a limitation on 
       UIM coverage rather than a reimbursement offset based on previously paid 
       PIP benefits.

Hamm, 151 Wn.2d at 311 n.4.  The nonduplication clause does not excuse State 

Farm's obligation under the equitable sharing rule.

       We hold that under Mahler, Winters, and Hamm, the liability funds recovered 

here created a common fund triggering the equitable fee sharing rule.  To the extent 

the insurers here have recovered or seek to recover an offset against their PIP 

payouts, they must share in the plaintiffs' attorney fees on a pro rata basis.  The 

contrary view of the Court of Appeals in Young is disapproved.

   B. Weismann is entitled to Olympic Steamship attorney fees

       Weismann requests her reasonable attorney fees, including on appeal, under 

RAP 18.1 and Olympic Steamship Co. v. Centennial Insurance Co., 117 Wn.2d 37, 

811 P.2d 673 (1991).  Weismann Pet. for Review at 23.  Under Olympic Steamship, 

                                              -14- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

"[a]n insured who is compelled to assume the burden of legal action to obtain the 

benefit of its insurance contract is entitled to attorney fees."       117 Wn.2d at 54.  An 

insured cannot claim attorney fees where the dispute is over the extent of the 

insured's damages or factual questions of liability.  Godfrey v. Hartford Cas. Ins. 

Co., 142 Wn.2d 885, 899, 16 P.3d 617 (2001).  RAP 18.1 provides a party may 

recover attorney fees on appeal if such fees are otherwise allowed by law and if the 

requirements of RAP 18.1 are met.  See, e.g., RAP 18.1(a)-(b) (requiring a 

requesting party to devote a section of its opening brief to the request).  Weismann 

has met the procedural requirements under RAP 18.1 so the remaining question is 

whether she is entitled to recover the fees under law.

       Weismann relies on this court's decision in Safeco Insurance Co. v. Woodley, 

150 Wn.2d 765, 82 P.3d 660 (2004).  There, as here, the court considered a dispute 

about whether the insurer was required to pay a pro rata share of attorney fees under 

Winters.  Id. at 772.  Having concluded that Safeco was so required, the court next 

turned to Woodley's request for attorney fees.

              This case does not involve a dispute over the extent of Woodley's 
       damages or factual questions regarding liability. Instead, it involves 
       Woodley's right to receive the full benefit of her PIP and UIM coverages, 
       which includes, under Winters, a pro rata share of the legal expenses she 
       incurred in creating the common fund from which her PIP carrier received 
       reimbursement. If Safeco were not compelled to pay its pro rata share of 
       legal expenses, Woodley would not receive the full benefit of her coverage. 
       Accordingly, this case appears "more akin to a dispute over the vindication 
       of policy provisions to which the insured is entitled (for which fees may be 
       awarded) than a dispute over the amount of coverage (for which fees are 
       not available)."

Id. at 774 (quoting Godfrey, 142 Wn.2d at 899).

                                              -15- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

       But before Woodley, the court in Mahler suggested that cases such as these 

do not involve a coverage dispute, but rather a dispute about the value of the right to 

reimbursement, for which Olympic Steamship fees are not appropriate.  Mahler, 135 

Wn.2d at 430-32 (concluding that the dispute between Mahler and State Farm was 

not a coverage dispute, but rather a dispute about the value of the right to 

reimbursement).  Woodley did not discuss this portion of Mahler, nor has it been 

relied upon since.  

       As a matter of construction, when there is conflicting case law, Woodley

should control, as this court's more recent pronouncement on the subject.  See 

Lunsford v. Saberhagen Holdings, Inc., 166 Wn.2d 264, 280, 208 P.3d 1292 (2009) 

(observing "[a] later holding overrules a prior holding sub silentio when it directly 

contradicts the earlier rule of law").  

       But more importantly, the scenario we are faced with here is properly 

characterized as a coverage dispute, not as a dispute about the value of the 

reimbursement right.  The question is a legal one involving interpretation of the 

insurance policy, not a factual one focused on the size of the covered loss.  This 

court said in Colorado Structures, Inc. v. Insurance Co. of the West:

        Since the question is a legal one, which required Structures to litigate to 
        obtain a declaratory judgment ruling regarding the meaning of the contract, 
        it is a coverage dispute. Generally, when an insured must bring suit against 
        its own insurer to obtain a legal determination interpreting the meaning or 
        application of an insurance policy, it is a coverage dispute. This case 
        would be in the nature of a claims dispute if West had agreed to pay under 
        the bond, but had a factual dispute with Structures as to the amount of the 
        payment. 

                                              -16- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

161 Wn.2d 577, 606, 167 P.3d 1125 (2007) (first and second emphasis added)
(citing Dayton v. Farmers Ins. Group, 124 Wn.2d 277, 280, 876 P.2d 896 (1994)).5

       The court in Colorado Structures then quoted Judge Morgan's opinion in the 

case, which observed, "'Olympic Steamship applies when an insurer or similar 

obligor contests the meaning of a contract, but not when it contests other questions 

as, for example, its liability in tort or the amount of damages it should pay.'"

Colorado Structures, 161 Wn.2d at 606-07 (quoting Colorado Structures, Inc. v. 

Ins. Co. of the W., 125 Wn. App. 907, 928, 106 P.3d 815 (2005)).

       The equitable considerations that form the basis of the Olympic Steamship

rule also counsel in favor of its application here.  This court in McGreevy v. Oregon 

Mutual Insurance Co., 128 Wn.2d 26, 39-40, 904 P.2d 731 (1995) held that, "when 

an insurer unsuccessfully contests coverage, it has placed its interests above the 

insured.  Our decision in Olympic Steamship remedies this inequity by requiring that 

the insured be made whole." The Olympic Steamship rule is principally designed to 

remedy the power disparity between parties.  

       Other courts have recognized that disparity of bargaining power between an 
       insurance company and its policyholder makes the insurance contract 
       substantially different from other commercial contracts. Hayseeds, Inc. v. 
       State Farm Fire & Cas., 352 S.E.2d 73, 77 (W. Va. 1986). When an 
       insured purchases a contract of insurance, it seeks protection from expenses 
       arising from litigation, not "vexatious, time-consuming, expensive litigation 
       with his insurer." 352 S.E.2d at 79. Whether the insured must defend a suit 
       filed by third parties, appear in a declaratory action, or as in this case, file a 

       5 We recognize that Colorado Structures does not have a majority rule on its main 
proposition regarding attorney fees, whether Olympic Steamship fees are available in the 
context of a performance bond as opposed to an insurance contract.  But because we are 
squarely presented with an insurance contract here, we properly rely on Colorado 
Structures' discussion of the distinction between coverage and value in an Olympic 
Steamship dispute.

                                              -17- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

       suit for damages to obtain the benefit of its insurance contract is irrelevant. 
       In every case, the conduct of the insurer imposes upon the insured the cost 
       of compelling the insurer to honor its commitment and, thus, is equally 
       burdensome to the insured. Hayseeds, Inc. v. State Farm Fire & Cas., 352 
       S.E.2d 73, 77 (W. Va.1986); cf. Security Mut. Cas. Co. v. Luthi, 303 Minn. 
       161, 226 N.W.2d 878, 884 (1975). Further, allowing an award of attorney 
       fees will encourage the prompt payment of claims. 352 S.E.2d at 79.

Olympic S.S., 117 Wn.2d at 52-53 (footnote omitted).

       The present case falls under the third category identified in Olympic 

Steamship, wherein an insured must file a suit for damages to obtain the benefit of 

the insurance contract.  In the absence of Olympic Steamship fees, Weismann would 

not be made whole because the coverage she is entitled to would be diminished by 

the attorney fees she incurred to obtain it.  Moreover, an insurer would have little 

economic incentive to provide coverage without a fight because the most the insurer

would be required to pay if it lost the legal battle is what it should have paid in the 

first place.  See Colorado Structures, 161 Wn.2d at 607 ("Without the application 

of  Olympic Steamship and awarding attorney fees in addition to [coverage], an 

insurer would have absolutely no incentive to refrain from litigation over even the 

most clear coverage provisions.").  The situation here is thus akin to the many cases 

where coverage was disputed and we found Olympic Steamship fees appropriate.  

See, e.g., Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693 

(2010) (duty to defend case where coverage was found and Olympic Steamship fees 

ordered). 

       Consistent with Woodley  and our case law discussing coverage disputes, 

Weismann is entitled to recover reasonable attorney fees, including on appeal under 

                                              -18- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

RAP 18.1.

   C. Matsyuk's bad faith claim against State Farm may go forward

       Matsyuk included a claim of bad faith in her complaint.  The trial court 

dismissed the complaint based on CR 12(b)(6).  "A trial court should grant a motion 

to dismiss pursuant to CR 12(b)(6) only 'if it appears beyond a reasonable doubt 

that no facts exist that would justify recovery.'"  Atchison v. Great W. Malting Co., 

161 Wn.2d 372, 376, 166 P.3d 662 (2007) (quoting Cutler v. Phillips Petroleum 

Co., 124 Wn.2d 749, 755, 881 P.2d 216 (1994)).

       Matsyuk asserts that State Farm "refused to effectuate the agreed liability 

settlement on behalf of Stemditskyy unless plaintiff released her claims as a PIP 

insured against State Farm."      Compl. at 3 (App. 1 to State Farm Fire & Cas. Co.'s 

Suppl. Br.).  This is the basis of her bad faith claim:  State Farm improperly 

leveraged its position as the holder of liability settlement funds.  See Matsyuk Suppl. 

Br. at 11-12.  State Farm contends that it simply asked Matsyuk to execute its 

standard liability release, and Matsyuk refused because she feared it would release 

her equitable fee sharing claim.  State Farm claims the parties then negotiated a 

settlement that reserved any fee sharing claim.

       The facts relating to this claim are disputed, but Matsyuk states a potential 

breach of State Farm's duty to treat its insured fairly, honestly, and in good faith.  

Because there is a viable legal claim and the facts are contested about the nature of 

the release sought, the trial court should not have dismissed Matsyuk's bad faith 

claim.  On this point, we reverse the Court of Appeals and remand to the trial court

                                              -19- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

for consideration of Matsyuk's bad faith claim.

                                         Conclusion

       This court's decisions in Mahler, Winters, and Hamm require application of 

the equitable fee sharing rule in this context.  The Court of Appeals in Young erred 

when it held no common fund was created.  We disapprove of Young and hold that a 

common fund is created, thereby triggering the Mahler's equitable fee sharing rule, 

when the injured party is insured under a PIP policy held by the tortfeasor and also 

recovers from the tortfeasor's liability policy.  Further, Weismann is entitled to 

reasonable attorney fees under Olympic Steamship, including her fees on appeal 

under RAP 18.1.  Finally, Matsyuk's bad faith claim was improperly dismissed and 

we remand it to the trial court for further proceedings consistent with this opinion.

                                              -20- 

Matsyuk v. State Farm Fire & Cas. Co.; Weismann v. Safeco Ins. Co., 84686-3

AUTHOR:
       Justice Debra L. Stephens

WE CONCUR:

       Justice Charles W. Johnson

       Justice Tom Chambers                             Justice Charles K. Wiggins

       Justice Susan Owens

       Justice Mary E. Fairhurst

                                              -21-