Common Fund Doctrine: Definition & How to Help Maximize Your Settlement

Purpose of the Common Fund Doctrine

The common fund doctrine exists to promote fairness in personal injury settlements, especially when subrogation is involved. Subrogation allows an insurance company to seek reimbursement from a third party (typically the at-fault party) after paying for your medical expenses. In personal injury cases, this often means your health insurer may demand repayment from your settlement, even though they didn’t assist in the legal process that secured it.

Without the common fund doctrine, this practice could unfairly reduce your take-home compensation. Imagine paying your attorney a standard contingency fee and still being required to reimburse your insurer in full. That would mean your insurer recovers their costs at no expense to themselves, while you shoulder all the financial and legal burdens.

Here’s how the common fund doctrine helps:

• Fairness to the injured party: It ensures that you, the client, aren’t financially penalized by your own insurer’s reimbursement claims. It reduces how much you owe them by requiring them to pay their fair share of the attorney’s fees.
• Preventing unjust enrichment: Insurance companies should not get a "free ride" on the efforts of your legal team. If they benefit from a recovery, they should share in the expense.
• Incentivizing cooperation: The doctrine encourages insurers to participate in the litigation process, or, at the very least, to respect the role your attorney plays in recovering compensation.
• Checks on subrogation abuse: Subrogation rights, while legal, can sometimes be overly aggressive or excessive. The common fund doctrine acts as a safeguard to prevent insurers from reclaiming more than their fair share, particularly when they didn't help recover compensation.

By enforcing cost-sharing through the common fund doctrine, courts aim to balance the scales, ensuring that insurers don’t disproportionately benefit from subrogation while leaving the injured party with a smaller share of the settlement.

3 Examples of the Common Fund Doctrine in Personal Injury

Take a look at three hypothetical examples that illustrate how the common fund doctrine might come into play in a personal injury case. Please note these are hypothetical examples for the purpose of explaining this concept. 

1. Car Accident With Health Insurance Reimbursement

You’re hit by another driver and suffer serious injuries. Your health insurance pays $30,000 for your treatment. You hire a personal injury attorney who recovers a $150,000 settlement from the at-fault driver. 

The insurance company demands repayment of its $30,000. Thanks to the common fund doctrine, your attorney negotiates a reduction in that repayment, as the insurer must contribute to attorney fees, often reducing their claim by 25-35% (subrogation amounts can vary).

2. Slip and Fall

You slip and fall on a wet floor at a grocery store and break your wrist. Your employer’s health plan pays $10,000 in medical bills. Your attorney secures a $50,000 settlement from the store’s insurance company. 

Your health plan wants to subrogate and reclaim the $10,000. Under the common fund doctrine, your attorney negotiates that amount down to $7,500, accounting for the legal costs the insurer avoided.

3. Dog Bite With Medicaid Involvement

You suffer a dog bite that requires emergency medical care. Medicaid covers your medical expenses. After your personal injury attorney obtains a $75,000 settlement from the dog owner’s homeowner’s policy, Medicaid seeks reimbursement. 

While government agencies like Medicaid sometimes operate under different reimbursement rules, courts may still apply common fund principles to ensure fairness, particularly in states that recognize the doctrine in public benefit programs.