Block v. California Physicians' Service

• Decision Date: 16 August 1966
• Citation: 53 Cal.Rptr. 51,244 Cal.App.2d 266
• Parties: Roy L. BLOCK, Plaintiff and Appellant, v. CALIFORNIA PHYSICIANS' SERVICE, Defendant and Respondent. Civ. 29594.
• Court: California Court of Appeals Court of Appeals

Page 51

53 Cal.Rptr. 51

244 Cal.App.2d 266

Roy L. BLOCK, Plaintiff and Appellant, v. CALIFORNIA PHYSICIANS' SERVICE, Defendant and Respondent.

Civ. 29594.

District Court of Appeal, Second District Division 1, California.

Aug. 16, 1966.

John R. Nimocks, Long Beach, for appellant.

Peart, Baraty & Hassard, San Francisco, and John J. Balluff, and Merrill Albert, Los Angeles, for respondent.

LILLIE, Justice.

In an action for declaratory relief plaintiff sought a declaration by the court that a clause entitled 'PART SEVEN, C. ACTS OF THIRD PARTIES,' contained in a Group Health Service agreement issued by defendant California Physicians' Service, and an order of payment signed by him thereunder are illegal and void as against public policy, and that the sum of $1,714.34 held in trust by his counsel, Everett E. Demler, belongs to him. Defendant cross-complained for declaratory relief, breach of contract and money had and received. The cause was submitted to the trial judge on a stipulation of fact. Plaintiff appeals from the judgment decreeing 'PART SEVEN, C. ACTS OF THIRD PARTIES' to be a valid and legally enforceable clause in the agreement; and ordering that plaintiff take nothing by reason of his complaint and reimburse defendant in the amount of $1,714.34 out of sums collected by him in a personal injury action brought and settled on his behalf by Demler, and that on its cross-complaint defendant recover said amount from Demler.

The following facts are undisputed. California Physicians' Service is a non-profit California corporation. Group Health Service agreement (CPS 516--6730) issued by defendant Service provides:

'PART SEVEN, C. ACTS OF THIRD PARTIES

'If the Member is injured through the act or omission of another person CPS shall provide the benefits of this Agreement, only on condition that the Member shall agree in writing:

'(1) to reimburse CPS to the extent of benefits provided, immediately upon collection of damages by him, whether by action at law, settlement or otherwise, and

'(2) to provide CPS with a lien, to the extent of benefits provided by CPS. The lien may be filed with the person whose act caused the injuries, his agent or the Court.

'If the Member recovers from the third party the reasonable value of services rendered as a benefit of this Agreement, the Member Physician who rendered such services shall not be required to accept the fees paid him by CPS as full payment, but may charge the difference, if any, between the fee paid to him by CPS and the amount collected by the injured Member for such professional services.' On January 17, 1963, plaintiff was injured in an automobile accident, following which he retained Everett E. Demler to represent him in an action for damages against Leslie C. Gray. In August 1963, plaintiff made a claim against defendant for payment of certain medical and hospital expenses incurred by him as a result of his injuries, and on August 22, 1963, plaintiff delivered to defendant the following document signed by him:

'ORDER FOR PAYMENT OF MEDICAL BILLS

'I, ROY L. BLOCK, hereby authorize and direct my attorney, Everett E. Demler, to reimburse California Physicians' Service in the amount of any professional and hospital service costs paid by them pursuant to the Acts of Third Parties clause in the California Physicians' Service Contract; such payment to be made from the sum or sums due me as my share of any recovery of my claim for personal injuries against, Leslie C. Gray, in the event such settlement or recovery be forthcoming.'

Subsequent thereto, defendant paid on behalf of plaintiff's hospital and medical bills the sum of $1,714.34; plaintiff recovered a sum of money in his action against Gray by way of settlement, and his counsel, Demler, holds $1,714.34 in trust pending the outcome of this action.

The sole issue is the validity and enforceability of 'PART SEVEN, C. ACTS OF THIRD PARTIES' in Group Health Service agreement executed by defendant Service. Running through appellant's argument is the thread of a theory, previously held to be untenable (California Physicians' Service v. Garrison, 28 Cal.2d 790, 172 P.2d 4, 167 A.L.R. 306), that while proclaiming that it is 'a nonprofit corporation performing only a public service,' defendant Service is really an insurance company and the agreement is 'one of insurance and governed by the same laws as any other insurance contract.' He predicates his claim, that the operation of the clause at issue and the order executed by him thereunder amounts to an assignment of a cause of action for personal injuries or an equitable subrogation prohibited by law, on a series of unanswered questions calling for speculative answers, all outside of the record, purporting to show the ingenuity of 'insurance carriers' 'to devise language to circumvent' the applicable statutory prohibitions.

In 1946, the Supreme Court established the status of California Physicians' Service as a nonprofit corporation incorporated under section 593a, Civil Code (re-enacted as 9201, Corp.Code) and expressly held that it is not engaged in the business of insurance within the meaning of the regulatory insurance statutes of this state. (California Physicians' Service v. Garrison, 28 Cal.2d 790, 172 P.2d 4, 167 A.L.R. 306.) The court followed the many unsuccessful efforts of the Legislature to meet the 'great social need for adequate medical benefits at a cost which the average wage earner can afford to pay' (p. 801, 172 P.2d p. 11) and described the undertaking of that responsibility by the medical profession and the enactment of section 593a, Civil Code, authorizing the organization of corporations such as defendant Service. Holding that it does not fall within the scope of insurance regulations and is not engaged in the insurance business, the court ruled that California Physicians' Service 'clearly * * * assumes no risk' but 'is a mere agent or distributor of funds' created by the monthly dues of the beneficiary members, that 'all risk is assumed by the physicians, not by the corporation' (pp. 804--805, 172 P.2d p. 13), and 'looking at the plan of operation as a whole, 'service' rather than 'indemnity' is its principal object and purpose,' 'indemnity' is its principal object and purpose.' pointed up in Garrison, supra, the distinction between the services rendered to its members by defendant Service, as a nonprofit corporation organized to provide medical and hospital expenses to them at the lowest posible cost on a nonprofit basis, and the money payment benefits afforded to the assureds by insurance companies which for profit, undertake the writing of insurance against risk on a premium basis.

As most emphatically urged by appellant, it is the established rule in California that an assignment of a cause of action for personal injuries is void and that, in the absence of statute, a cause of action for tortious injury to the person is not subject to subrogation. ((§ 956, Civ.Code) § 573, Prob.Code; Fifield Manor v. Finston, 54 Cal.2d 632, 639--640, 7 Cal.Rptr. 377, 354 P.2d 1073, 78 A.L.R.2d 813; Peller v. Liberty Mut. Fire Ins. Co., 220 Cal.App.2d 610, 612, 34 Cal.Rptr. 41; see also Bilyeu v. State Employees' Retirement System, 58 Cal.2d 618, 624, 25 Cal.Rptr. 562, 375 P.2d 442; and Mills v. Farmers Ins. Exchange, 231 Cal.App.2d 124, 128, 41 Cal.Rptr. 650.) It is appellant's position that regardless of the 'tag' placed on the clause in the agreement, the results flowing therefrom are the same as those flowing from assignment, subrogation and equitable subrogation, the ultimate effect of which is to pass the title to a cause of action from one person to another. He quotes from Fifield Manor v. Finston, 54 Cal.2d 632, 7 Cal.Rptr. 377, 354 P.2d 1073, 78 A.L.R.2d 813, and Peller v. Liberty Mut. Fire Ins. Co., 220 Cal.App.2d 610, 34 Cal.Rptr. 41.

Applying the rule of these authorities and the definitions contained therein to the express language of PART SEVEN, C. ACTS OF THIRD PARTIES, it is at once apparent that the clause constitutes neither an assignment of a personal chose in action nor an equitable subrogation, for thereunder there is transferred no cause of action for personal injuries. In Fifield Manor v. Finston, 54 Cal.2d 632, 7...