On June 18, 2013, the California Court of Appeal for the Third Appellate District issued its opinion in Barnes v. Western Heritage Ins. Co., a case of first impression in the State of California. The Court held that medical expenses coverage in a tortfeasor’s commercial liability insurance contract is a collateral source that an injured party may pursue, even after the tortfeasor’s insurer has settled the injured party’s claims under the same contract’s liability provisions.
Plaintiff Justin Barnes filed suit against the Shingletown Activities Council (“the Council”) after he was injured in 2011 as a result of a table falling on his back during a recreational program partially sponsored by the Council. Over one year after the accident, Barnes made a claim against the Council’s insurer, Western Heritage, for consultation with a medical specialist. Western Heritage denied Barnes’ claim on the basis that Barnes had not made his claim for medical expenses within the one year time period.
Barnes ultimately settled his lawsuit against the Council concerning his medical expenses resulting from the negligence of the Council. Thereafter, Barnes filed suit against Western Heritage for breach of contract and breach of the implied covenant of good faith and fair dealing based on Western Heritage’s denial of his request for medical expenses coverage. The trial court granted summary judgment in favor of Western Heritage, ruling (1) that collateral estoppel barred Barnes’ claim due to Barnes’ prior settlement with the Council and (2) that permitting Barnes to recover would result in impermissible double recovery.
The Court of Appeal reversed the grant of summary judgment. In doing so, the Court discussed the two provisions of the insurance policy between the Council and Western Heritage. The Court found that the insurance policy obligated Western Heritage to pay certain sums that the Council became legally obligated to pay, i.e., the liability provision, and also to pay up to a certain amount per person for medical expenses, regardless of the Council’s fault.
Specifically, the Court held, “An insurer’s obligation to indemnify its insured under the liability provision of an insurance policy is separate and distinct from its obligation to pay for medical expenses under a medical payment provision of the same policy.” Because the Court found that Western Heritage owed separate and distinct duties to Barnes, on the one hand, and Western Heritage, on the other hand, there would be no double recovery.
Practically, the Court of Appeal laid the groundwork for a plaintiff to bring a claim against an insurer for bad faith and breach of contract under an insurance policy’s medical expenses provisions, even after settling an underlying lawsuit against the insured defendant.
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