Mahler is a landmark Washington personal injury case. The Washington Supreme Court held that insurance companies under some circumstances have to pay part of the injury victim’s attorney fees and costs.

If you have personal injury protection (PIP) coverage on your auto insurance you are covered for medical expenses related to an auto accident injury. personal injury protection limits are usually $10,000.  In Washington you have this coverage unless you expressly waive it.

Normally you do not have to pay back an insurance company for benefits paid under a policy. The policy benefits are what you paid for with your premium payments. But, if you collect from an at-fault party, your insurance has a right to be reimbursed, too. This legal rule is called subrogation.

If you hire a personal injury attorney, your PIP insurance must pay its fair share of the attorney fees and litigation costs. Otherwise, they get paid back because of the personal injury attorney’s efforts, but the injury victim pays from the personal injury settlement all the attorney fees and the costs of investigation and litigation. To avoid this windfall the PIP insurance company must pay a share of the attorney fees and other costs that created the settlement. This is the Washington Supreme Court holding in Mahler.

Important notes. Note that Mahler does not always apply. In some situations different law applies a different reduction for a pro-rata share of attorney fees and costs. In some situations, the injury victim does not have to reimburse their own insurance at all. In still other situations, the injury victim must pay back every dollar. And in any type of situation it may (or may not) be possible to negotiate a different and more favorable amount. It is best to have a consultation with an attorney to sort out how this all works in your particular circumstances.

Whose money is it, anyway?  Finally, although there is some disagreement on this point—we regard the Mahler reduction as money belonging to the personal injury client.

The Washington Supreme Court in the Mahler opinion noted that the amount to pay the insurance company was being held in trust by the attorney and this money “belongs entirely to Mahler [the personal injury client].”

The rationale is that it is unfair for the personal injury victim to fully compensate the attorney and pay all expenses out of the injury settlement—and yet the insurance company gets a check, too. This inequity is avoided if the injury victim does not pick up the whole bill.  

Mahler math. Contrary to a common fallacy, the Mahler calculation is not a flat percentage. Instead, it is a ratio. You start with amount the PIP paid, then divide that by the gross settlement amount. Whatever percentage that comes out to, the PIP insurance company must pay that percentage of the attorney fees and costs. The Mahler pro-rata share of expenses is simply taken out of the check that reimburses the insurance company.

Mahler Calculator. Our Mahler calculator is below. An example is shown. You can plug in your own numbers. Please note that this is just an example, and should not be used as a substitute for legal advice.

Additional notes. 

The example uses an attorney fee that is 1/3 of the gross settlement, which is common. The actual attorney fee may vary depending on the fee agreement terms and other factors, and may be more than or less than one-third of the gross settlement. You can override the one-third calculation by manually entering a different attorney fee amount.

The costs figure is arbitrary for the purposes of a simple demonstration. The actual costs might be lower if litigation is avoided, but would be considerably more if litigation cannot be avoided—something not always in the control of the personal injury attorney or client.

Note again that this is based on the personal injury law of Washington state. The laws in other states vary.