Hatchwell v. Blue Shield of California

• Citation: 198 Cal.App.3d 1027,244 Cal.Rptr. 249
• Court: California Court of Appeals
• Decision Date: 28 January 1988
• Parties: Michael M. HATCHWELL and Denise Hatchwell, Plaintiff and Appellant, v. BLUE SHIELD OF CALIFORNIA, the State of California, and L.K. Lloyd and Associates, Defendants and Respondents. Civ. B020734.

Page 249

244 Cal.Rptr. 249

198 Cal.App.3d 1027

Michael M. HATCHWELL and Denise Hatchwell, Plaintiff and Appellant, v. BLUE SHIELD OF CALIFORNIA, the State of California, and L.K. Lloyd and Associates, Defendants and Respondents.

Civ. B020734.

Court of Appeal, Second District, Division 3, California.

Jan. 28, 1988.

As Modified Feb. 24, 1988.

Review Denied April 27, 1988.

Peter R. Di Donato, Beverly Hills, Allan I. Shatkin, San Francisco, for plaintiff and appellant Denise Hatchwell.

Hassard, Bonnington, Rogers & Huber, James H. Thompson, Jr., San Francisco, for defendants and respondents.

ARABIAN, Associate Justice.

INTRODUCTION

This case raises the issue of whether a spouse who is not a party to the insurance

contract has standing to maintain a bad faith action and related causes of action against the insurance company for wrongful denial of benefits to her insured husband. Plaintiff Denise Hatchwell appeals from the judgment entered against her following the grant of the motion of defendants Blue Shield of California (Blue Shield) and L.K. Lloyd & Associates (Lloyd) for summary adjudication on the ground that Denise was an improper party to the action arising out of a claim for medical benefits for her husband's open heart surgery. Denise contends that as an intended beneficiary or as a "co-insured" of the insurance contract, she is a proper party to the action. Defendants contend that Denise is neither a party nor an express third party beneficiary to her husband's insurance contract and therefore lacks standing. We conclude Denise does lack standing and, accordingly, affirm the judgment.

FACTS

In November, 1981, Michael M. Hatchwell and Denise Hatchwell filed their second amended complaint against Blue Shield, Lloyd and the State Bar of California for breach of contract, fraud, bad faith conduct by an insurance company (Ins.Code, § 790.03, subd. (h)), breach of fiduciary duties, breach of implied warranty and negligence.

The Hatchwells alleged the following: About September 1, 1979, Michael was enrolled in Plan "A" of Blue Shield's health care program, in reliance upon representations made by agents of defendants and their literature to the effect that Blue Shield utilized a system of health care payment based upon the "usual, customary, or reasonable fee" (UCR fee) as determined by Blue Shield. Blue Shield also represented that regional directories with listings of Physician Members were available. About April 30, 1980, in anticipation of Michael's impending heart surgery, Denise contacted Ms. Nadaka, a representative of Blue Shield's customer service department to request a list of cardiologists who were subscribers of the Blue Shield plan. Ms. Nadaka "failed and refused to provide such a list," resulting in breach of the contract and preventing the Hatchwells from being able to take full advantage of Plan "A" which would pay 100% of his costs instead of the usual, customary, or reasonable fee for a non-subscriber cardiologist. Michael had his operation on May 8, 1980, and submitted claims to Blue Shield for bills in the amount of $6,565. Blue Shield paid $4,137.72. About June 1, 1980, Denise against contacted Ms. Nadaka, who informed her that payment would be based on the UCR fee schedule and that she could now send a list of subscriber cardiologists. Hatchwells continued to incur bills for post-operative care.

The complaint also alleged that Blue Shield and Lloyd made the representations and promises with no intention that the promises be performed, justifying punitive damages; Blue Shield violated Insurance Code section 790.03, subdivisions (h)(1), (3), (5), (6), (7), (11) and (13), ¹ and breached its In October 1985, the defendants moved for summary adjudication seeking to dismiss plaintiff Denise on the ground that as a matter of law she had no contractual right to require Blue Shield to pay for her husband's health care benefits. Defendants supported the motion with evidence of the terms of the Blue Shield plan which defined an Eligible Member as "an individual member of the State Bar of California ..."; a Subscribing Member as "an Eligible Person who has been enrolled and accepted by Blue Shield as a Member and has maintained his Blue Shield membership in accordance with this contract"; a Dependent Member as "a Subscribing Member's dependent who has been enrolled and accepted by Blue Shield as a Subscriber ..."; and Covered Person as "either a Subscribing Member or a Dependent Member."

fiduciary duties to plaintiffs; as administrator of the Blue Shield plan for members of the State Bar, Lloyd breached the implied warranty, and the State Bar and Lloyd negligently approved, supervised and administered the plan for Bar members.

The Hatchwells opposed the motion, submitting excerpts from Denise's depositions and her declaration. Denise testified that she had previous work experience in the insurance business, telephoned Lloyd for information regarding changing insurance carriers, and spoke with Ms. Nadaka regarding subscriber cardiologists. ² She also declared that all premiums paid to Blue Shield were paid with community funds.

The trial court granted defendants' motion for summary adjudication as to Denise, pursuant to the holding of Fryer v. Kaiser Foundation Health Plan (1963) 221 Cal.App.2d 674, 34 Cal.Rptr. 688. Denise appeals. ³

ISSUE AND CONTENTIONS

The sole issue upon review of the summary judgment is whether there is a triable issue of fact concerning Denise's standing to bring this action based upon the denial of medical benefits to her husband. ⁴

Denise contends she that she was an intended beneficiary of the insurance contract. She also contends that she may maintain this action pursuant to her status as either a co-insured with her husband, Michael, or as a dependent beneficiary.

Blue Shield and Lloyd contend as follows:

"Under California law a person may pursue an independent cause of action for alleged bad faith only if she is a party to, or an express beneficiary of, the allegedly breached contract. Mrs. Hatchwell is neither.

'.....................

'A. To have standing, Mrs. Hatchwell must prove a contractual relationship.

"B. Mrs. Hatchwell is not a party to Mr. Hatchwell's contract.

"C. Mrs. Hatchwell is not an express third party beneficiary of Mr. Hatchwell's contract.

"D. Mrs. Hatchwell's community property interest does not give her standing.

"E. Mrs. Hatchwell's potential secondary liability for Mr. Hatchwell's debts does not give her standing.

"F. Mrs. Hatchwell is not an 'insured.'

"G. Foreseeability of possible harm to Mrs. Hatchwell does not give her standing."

DISCUSSION

A motion for summary judgment must be granted if the papers properly submitted by the parties show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. (Code Civ.Proc., § 437c, subd. (c).)

"The summary judgment procedure, inasmuch as it denies the right of the adverse party to a trial, is drastic and should be used with caution. (Eagle Oil & Ref. Co. v. Prentice (1942) 19 Cal.2d 553, 556 .) Summary judgment is properly granted only when the evidence in support of the moving party establishes that there is no issue of fact to be tried. (Code Civ.Proc., § 437c; Lipson v. Superior Court (1982) 31 Cal.3d 362, 374 [182 Cal.Rptr. 629, 644 P.2d 822].)" (Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35, 210 Cal.Rptr. 762, 694 P.2d 1134.)

General principles of standing to sue for bad faith were summarized in Austero v. National Casualty Company (1976) 62 Cal.App.3d 511, 515, 133 Cal.Rptr. 107.

"It is now established that the unreasonable and bad faith refusal of an insurer to pay the valid claim of its insured gives rise to the insurer's liability in tort not only for the insured's pecuniary loss but also for his consequential emotional distress. (Silberg v. California Life Ins. Co. [1974] 11 Cal.3d 452, 460-461 [113 Cal.Rptr. 711, 521 P.2d 1103]; Gruenberg v. Aetna Ins. Co. [1973] 9 Cal.3d 566, 573-575 [108 Cal.Rptr. 480, 510 P.2d 1032]; Fletcher v. Western National Life Ins. Co. [1970] 10 Cal.App.3d 376, 401-402 ; see also Merlo v. Standard Life & Acc. Ins. Co. [1976] 59 Cal.App.3d 5, 16 .) The theory upon which liability is predicated is that such conduct constitutes a tortious breach of the implied-in-law duty of good faith and fair dealing arising out of the insurance policy. (Silberg v. California Life Ins. Co., supra; Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 573-574 [108 Cal.Rptr. 480, 510 P.2d 1032]; Fletcher v. Western National Life Ins. Co., supra.) Although an action for bad faith breach of the covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing derives from and exists solely because of the contractual relationship between the parties. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 576, 577-578 [108 Cal.Rptr. 480, 510 P.2d 1032]; Truestone, Inc. v. Travelers Ins. Co. [1976] 55 Cal.App.3d 165, 170 .) Thus, one who is not a party to the underlying contract may not be held liable for breach of an implied covenant of good faith and fair dealing for as to him no such implied covenant exists. ( Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 576 [108 Cal.Rptr. 480, 510 P.2d 1032].)" ( Austero v. National Cas. Co., supra, 62 Cal.App.3d 511, 515, 133 Cal.Rptr. 107.)

1. Even if Denise is a "co-insured" or an intended beneficiary, she lacks standing.

Denise claims that she is a "co-insured" or a "dependent beneficiary" of the insurance contract. The evidence establishes that Michael, as a member of the State Bar, was eligible to subscribe to the State Bar Group Plan provided by Blue Shield and administered by Lloyd. He enrolled and became a Subscribing Member. As a Subscribing Member, he was eligible for dependent benefits and enrolled Denise as a Dependent Subscriber.

Denise, however, was not a contracting party. ⁵ Someone who is not a party...