In a case of first impression, Barnes v. Western Heritage Ins. Co., ___ Cal.App.4th ___, 2013 Cal.App.LEXIS 480 (June 20, 2013), the California Court of Appeal, Third Appellate District, held the collateral source rules allow an injured plaintiff to pursue benefits under the medical payments provision of a commercial general liability (“CGL”) policy even after the tortfeasor’s liability insurer settles the injured party’s claims under the liability portion of the insurance contract.
Plaintiff Justin Barnes was injured when a table fell on his back during a recreation program co-sponsored by the Shingletown Activities Council (“Council”). More than a year later, after consulting a medical specialist, he requested payment from the Council’s CGL insurer, Western Heritage Insurance Company (“Western Heritage”). Western Heritage denied the claim on grounds that Barnes failed to report the claim within a year of the accident as the policy required.
Barnes sued the Council for negligence and premises liability, seeking recovery of medical expenses and general damages. Western Heritage settled the action on the Council’s behalf. Barnes subsequently filed suit against Western Heritage for breach of contract and bad faith based on its failure to pay his medical expenses claim.
The trial court entered summary judgment in favor of Western Heritage on the ground, among others, that collateral estoppel barred the action because Barnes’ settlement of the personal injury action resolved the medical payments issue under the insurance contract. The court also ruled that permitting Barnes to recover under the medical payment provision would result in an impermissible double recovery.
The appellate court reversed, finding the insurance policy’s medical payments coverage was separate and distinct from the liability coverage. The court found that the medical expenses part created a direct obligation from Western Heritage to Barnes instead of providing coverage for the Council’s tort liability; accordingly, it held the medical expenses coverage was a collateral source from which Barnes could recover directly from the insurer.
The case is significant because 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. The decision means that a liability insurer whose policy includes a medical payments provision may be on the hook for both the injured party’s medical expenses and the insured’s liability to the injured party which, in turn, can also encompass the injured party’s medical expenses.