Illinois Appellate Court Spells Out Significance of Attorney-Client Contingency Contract in Uninsured or Underinsured Motorist Claims

The defendant attorney appealed from a Circuit Court order that reduced his contingent fee for legal representation in a motor-vehicle settlement case. The order had been entered in McDonough County, Ill. The plaintiff, the injured party, William K. Kelso, deceased, by his wife and executor, cross-appealed, arguing that the defendant attorney was, at most, entitled to quantum meruit recovery of his attorney fees.

Sharon Kelso, the plaintiff, and her late husband, William Kelso, were involved in a car crash in Arizona in February 2011. He died as a result of the accident, and his wife was seriously injured. The incident was the fault of the other driver, Shauna Nowicki. Nowicki was underinsured, with limits of $15,000 per person and $30,000 per accident. The Kelsos had their own insurance policy with $1 million underinsured coverage through Auto Owners Insurance.

On March 21, 2011, Sharon signed a contingency contract retaining the services of the defendant Richard Beuke for her claim. She signed a second, virtually identical, contract on April 13, 2011, as William’s wife, to recover for William’s injuries. Beuke was a friend of the Kelsos’ son. Both contracts stated that Sharon was retaining Beuke to prosecute a claim or cause of action against Nowicki and/or others responsible for the Kelsos’ injuries (and his death) in the crash. The contract stated that Beuke and his law firm were being retained to “prosecute a claim or cause of action against Shauna L. Nowicki and Daniel Raymond Porth, and/or other persons or entities responsible for the injuries sustained by” Sharon Kelso (in the first contract) and William Kelso (the second contract).

The contract provided that Beuke would be reimbursed for costs and expenses and attorney fees in the amount of 1/3 of any gross amount received by trial, settlement or otherwise.

At some point in this litigation, Nowicki’s insurance carrier agreed to pay $30,000 policy to Sharon. However, the company went into receivership soon after that agreement, and Sharon never received that money. Beuke considered some other avenues of recovery, including the medical malpractice action and an action against a third driver but determined those to be dead ends. Whether that was explained to Sharon is unclear. Thereafter, Beuke negotiated the settlement of the underinsured motorist claim with Auto Owners Insurance for the policy limit of $970,000 ($1 million less Nowicki’s $30,000 policy).

Sharon testified that, after the settlement was reached with Auto Owners but before the check was received, she fired Beuke. Sharon filed a three-count complaint against Beuke. Count I sought construction of the contingent fee agreement, Count II was pled in the alternative for rescission of contract, and Count III was pled in the alternative for breach of contract. Beuke filed a counterclaim claiming he was entitled to one-third of the recovery.

The case proceeded to a hearing, and the trial court issued an opinion. The trial concluded that the contingency fee agreement was not ambiguous: Sharon agreed to pay Beuke if he recovered for negligence of Nowicki, and the source of funding for that recovery did not change the intent of the parties, although it may impact the reasonableness of the fee. The trial court found that Sharon did fire Beuke, but not until the settlement was reached, when the case was all but completed. The trial court evaluated whether the full contingency fee was reasonable and concluded that it was not. The court reduced the fee to 25% of the $970,000 recovery.

Sharon agreed that the contracts were valid but argued that they were not applicable to the underinsured and uninsured motorist provisions of her insurance policy. Alternatively, she argued that the contracts were ambiguous and that parole evidence should be considered to determine if the Kelsos’ insurance policy was outside the scope of the contract. Beuke contended that the trial court correctly determined that both representation contracts were unambiguous and enforceable but argued that the trial court erred in reducing the agreed-upon one-third contingency fee to one-fourth of the settlement amount.

The contract stated that Beuke and his firm were being retained “to prosecute a claim or cause of action against Shauna L. Nowicki and Daniel Raymond Porth and/or other persons or entities responsible for the injuries sustained by” Sharon Kelso and William Kelso.

Under the terms of the contracts, Beuke pursued different avenues of recovery. He investigated the possibility of a medical malpractice suit but determined that was not a valid claim. He considered whether Porth and his employer could be liable, but that was determined not to be the case. He negotiated medical liens. He negotiated with, and ultimately reached settlement with, Auto Owners based upon Nowicki’s negligence.

Sharon does not dispute that Beuke reached a settlement with Auto Owners on her behalf but contended that, since it was paid by her own insurance policy, it was not within the ambit of the attorney-client contracts. The trial court found, however, that the contracts were clear and unambiguous and that Beuke obtained a settlement based upon Nowicki’s negligence and that the source of the payment for Nowicki’s negligence was not relevant.

Contingency fees are generally enforced unless they are unreasonable, In re Estate of Sass, 246 Ill.App.3d 610, 614 (1993). Courts have the authority to scrutinize contingency fee agreements to ensure that they are reasonable and do not result in the collection of an excessive fee. However, under Illinois law, a client has the right to terminate her attorney at any time. Will v. Northwestern University, 378 Ill.App.3d 280, 303 (2007).

In this case, the trial court found that Beuke worked on the case for about eighteen months and obtained the maximum recovery available. Beuke did all the work from the confines of his office, and he did not have to file suit, initiate arbitration, or participate in discovery. He did explore other recovery options and successfully negotiated the Medicare lien. Also, Beuke was discharged after the settlement had been reached.

Thus, the trial court determined that a one-third recovery was not feasible under the circumstances. Rather, the trial court determined that a one-fourth recovery of the settlement amount of $970,000 was a reasonable fee. The majority in the appellate court found no abuse of discretion in that decision. Sharon argued that Beuke was not entitled to anything more than nominal fees because he did not maintain time records. However, Beuke had a contingency fee agreement; he was not required to do so to recover on the contingency fee agreement or a claim of quantum meruit. Will v. Northwestern University, 378 Ill.App.3d 280 (2007).

In conclusion, the judgment of the Circuit Court of McDonough County was affirmed.

There was a dissent filed in this case, which is important for attorneys handling contingent fee cases. The dissent states that the majority’s premise in holding the way it did was incorrect because it equates the Kelsos’ underinsurance to the tortfeasors’ damages. Auto Owners was not a tortfeasor in this case; it was contractually obligated to pay the Kelsos pursuant to their underinsured motorist (UIM) policy, for which they paid premiums. Regardless of the contractual conditions for payment, Auto Owners was not “responsible for” the injuries. Auto Owners had a contractual obligation to the Kelsos; it had no obligation to any potential tortfeasor in this case. Not even a sophisticated lay person would construe the language “entities responsible for injuries sustained” to include his/her own insurance carrier.

Because of that strong dissent set forth in this case, it is highly recommended that each and every contingency contract that lawyers draft, particularly in personal injury lawsuits, be carefully crafted to include reference to the client(s)’ insurance companies for underinsured or uninsured motorist coverage. In that way, there is an unambiguous contract that also includes recovery for a tortfeasor as well as an uninsured or underinsured motorist claim. In other words, prepare contingency contracts that plainly set forth that the services to be performed under the agreement include any claims the client may have against his or her own insurer by virtue of insurance contracts.

Kelso v. Beuke, 2018 IL App (3d) 170161 (Oct. 25, 2018).

Kreisman Law Offices has been handling automobile accident lawsuits, catastrophic injury lawsuits, personal injury lawsuits, motorcycle accident cases, bicycle accident cases and pedestrian accident cases for individuals, families and loved ones who have been injured, harmed or killed by the carelessness or negligence of another for more than 40 years in and around Chicago, Cook County and its surrounding areas, including New Lenox, Mundelein, Sauk Village, Rolling Meadows, Tinley Park, Lincolnwood, Lincolnshire, Peoria, Dolton, Des Plaines, Crete, Beecher, Blue Island, Broadview, Brookfield Justice, Northfield, Northlake, Zion, Worth, Wheaton, Elgin, Joliet, Chicago (Lakeview East, Lakewood-Balmoral, Lincoln Park, Lincoln Square, Little Village, Noble Square, Englewood, Chatham, Pullman, Lake Calumet, Hegewisch, East Side, Woodlawn, Washington Park, West Loop, Greektown, Goose Island, West Town, Garfield Park, Austin, Hermosa, Clybourn Corridor, Lakeview, Edgewater, Rogers Park, West Ridge, Pulaski Park, Albany Park), Park Ridge, Elk Grove Village and Elmhurst, Ill.