In a case of first impression, the California Court of Appeal for the Sixth District held that a plaintiff who sued a defendant and settled the case can later sue the defendant’s insurer directly for breach of contract and bad faith concerning a medical expense provision.  This unprecedented decision potentially opens a new avenue for injured plaintiffs to pursue redress directly from insurers for injuries caused by their insureds.

Barnes v. Western Heritage Insurance Co., __ Cal.App.4th __, 2013 Cal. App. LEXIS 480 (June 18, 2013) involves a Plaintiff who was injured in 2001 when a table fell on his back during a recreational program co-sponsored by the Defendant.  Plaintiff made a claim against the Defendant.  But when Plaintiff subsequently requested payment from Defendant’s insurer, Western Heritage Insurance Company, more than one year after the accident for consultation with a medical specialist, the insurer denied the request under the insured’s Comprehensive General Liability Policy.  The insurer asserted that to qualify for medical payment coverage under the applicable policy, Plaintiff had to report a claimed medical expense to the insurer within one year of the accident

Plaintiff settled a separate personal injury lawsuit against the Defendant regarding his medical expenses.  However, the insurer was not a party to that lawsuit.  Five years later, Plaintiff initiated an action against Defendant’s insurer for breach of contract and breach of the implied covenant of good faith and fair dealing based on the denial of his request for medical payment coverage.

The trial court granted summary judgment in favor of the insurer.  Among other things, the trial court ruled Plaintiff’s lawsuit against the insurer was barred by collateral estoppel because he settled his claims in the underlying personal injury action, including any claim for medical expenses; allowing Plaintiff to recover under the medical payment provision of the policy would result in impermissible double recovery;  the insurer  was not equitably estopped to assert the policy’s one-year deadline as a defense because it had no duty to disclose the deadline to Plaintiff and Plaintiff did not rely to his detriment on any failure to disclose; and certain evidentiary objections asserted by the insurer have merit.

Plaintiff asserted on appeal that the trial court erred.  He argued (1) collateral estoppel did not bar this action because the issues raised, litigated and necessarily determined in the personal injury action are different from those raised, litigated and to be determined in this action; (2) permitting him to recover under the medical payment provision would not result in double recovery because the insurer owed him a separate and direct duty under the medical payment provision; (3) the insurer was equitably estopped from asserting the one-year deadline in the policy because it did not inform him of the deadline; and (4) certain evidentiary objections asserted by the insurer should have been overruled.

The Court agreed with Plaintiff that the trial court erred in granting the insurer’s summary judgment.  Specifically, the Court concluded:  (1) collateral estoppel did not bar the present action because the issues asserted were not litigated or determined in the prior personal injury action; (2) a recovery would not amount to an impermissible double recovery because Plaintiff was now claiming that the insurer breached its direct duty to him under the medical payment provision of the insurance policy, a duty distinct from the obligation the insurer owed the insured Defendant under the liability provision of the policy; and (3) there was a triable issue of material fact regarding whether the insurer was equitably estopped to assert the policy’s one-year deadline as a defense.  Accordingly, the Court of Appeal determined that the insurer’s summary judgment motion should not have been granted based on the record and reversed the trial court’s judgment.

The Court’s decision in Barnes is significant in that it found for the first time that an injured plaintiff may pursue a claim against a defendant’s insurer for bad faith and breach of contract under a medical payments provision after settling the underlying lawsuit against the insured.  This plaintiffs’ friendly and novel decision expands the ability of injured plaintiffs to recover for harm caused by an insured defendant.