Sinkler v. American Family Insurance Co. (Cost of Collection)

In Sinkler v. American Family Insurance Co. (2019AP88), the Court of Appeals District III upheld an award of $0 in attorney’s fees to a worker’s compensation insurer and declined to adopt a rule dividing costs of collection on a pro rata basis – in proportion to their recoveries – between the employee’s and the insurer’s attorneys in third-party liability actions.

Plaintiff Brian Sinkler was injured in a work-related automobile accident and received worker’s compensation benefits from EMCASO Insurance Co. (EMC). Sinkler also hired law firm Habush Habush & Rottier to pursue a third-party liability claim against the other driver in the accident. Sinkler entered into a contingency fee agreement with Habush in which the firm would receive one-third of the recovery from the case.

Named as a defendant in Sinkler’s case, EMC hired attorneys from the Ron Harmeyer Law Office and also entered into a contingency fee arrangement with the firm.

Sinkler settled with the other driver’s insurer, but EMC and Sinkler disputed the distribution of the settlement proceeds.

Wis. Stat. § 102.29(1)(b) provides a formula for dividing third-party liability claim proceeds like Sinkler’s settlement. First, the parties deduct amounts for loss of consortium claims – in this case, 30 percent of the recovery was awarded to Sinkler’s wife. The remaining proceeds go to:

  1. Cost of collection
  2. The injured person (one-third of proceeds remaining after step one)
  3. The worker’s compensation insurer (reimbursement for all benefits paid)
  4. The injured person (any proceeds remaining after steps one through three)

Regarding cost of collection, the Sinklers argued that one-third of all the proceeds remaining after the loss of consortium claim, plus costs, should go to their attorney Habush. EMC argued that one-third of all the proceeds remaining should be distributed between Habush and EMC’s attorney Harmeyer on a pro rata basis based on their clients’ recoveries.

The appeals court upheld the circuit court’s decision in favor of the Sinklers, awarding no portion of the reasonable cost of collection to EMC’s attorney. The court found Habush’s attorney fees were reasonable because contingency fee arrangements are typical for plaintiffs in third-party liability actions, Habush had extensive experience in these types of actions, and Habush “aggressively pursued” the case on behalf of the Sinklers. In contrast, EMC’s attorney Harmeyer’s participation in the settlement negotiations was minimal and the Harmeyer attorneys had less expertise. Additionally, the court found worker’s compensation insurer EMC’s contingency fee arrangement with Harmeyer “non-customary” and thus found Harmeyer’s attorney fees were unreasonable.

The court declined to adopt a rule dividing the cost of collection on a pro rata basis between the injured employee and worker’s compensation insurer in third-party liability actions, when both parties hire lawyers on a contingency fee basis. According to the court, the statutes and previous case law grant courts wide discretion in dividing the cost of collection, and pro rata distribution would be unreasonable.