Weston Reid, LLC v. American Ins. Group, Inc.

• Decision Date: 04 June 2009
• Docket Number: No. E044892.,E044892.
• Citation: 174 Cal.App.4th 940,94 Cal. Rptr. 3d 748
• Court: California Court of Appeals Court of Appeals
• Parties: WESTON REID, LLC, Plaintiff and Appellant, v. AMERICAN INSURANCE GROUP, INC., Defendant and Respondent.

174 Cal.App.4th 940

94 Cal. Rptr. 3d 748

WESTON REID, LLC, Plaintiff and Appellant, v. AMERICAN INSURANCE GROUP, INC., Defendant and Respondent.

No. E044892.

Court of Appeals of California, Fourth District, Division Two.

June 4, 2009.

[174 Cal.App.4th 943]

Law Offices of Dilip Vithlani and Dilip M. Vithlani for Plaintiff and Appellant.

Crandall, Wade & Lowe, James L. Crandall, Edwin B. Brown and Richard W. Miller for Defendant and Respondent.

OPINION

MILLER, J.—

Plaintiff and appellant Weston Reid, LLC, appeals after the trial court sustained a demurrer without leave to amend and dismissed its complaint against defendant and respondent American Insurance Group, Inc. (AIG). AIG's insured, Karen Sheets (Sheets), was injured in an automobile accident and medical care was provided by Mercy General Hospital (Mercy). Mercy had claims under the Hospital Lien Act (HLA) (Civ. Code, §§ 3045.1-3045.6) for a lien on any recovery Sheets might obtain from the tortfeasor. Mercy assigned its HLA claims to plaintiff. Plaintiff filed this action against Sheets's insurer, AIG, for alleged negligence, breach of fiduciary duty, and unfair business practices. We affirm the judgment.

FACTUAL AND PROCEDURAL HISTORY

Because the matter arises upon demurrer, we take the essential facts from the operative pleading, the first amended complaint.¹ We accept as true all properly pleaded allegations of material fact, but not deductions, contentions, or conclusions of law or fact. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 [119 Cal.Rptr.2d 709, 45 P.3d 1171].)

The automobile accident occurred on February 12, 2005. Sheets was injured in a collision with William West. As a result of the accident, Sheets suffered severe injuries and was treated at Mercy. The cost of Sheets's treatment exceeded $400,000. Mercy assigned its HLA rights to plaintiff.

Plaintiff's complaint alleged that Sheets sought payment or reimbursement for her medical treatment from AIG, her insurer. On April 13, 2005, plaintiff mailed a "Notice of Statutory Lien" to AIG. Plaintiff alleged that, "in the past, [plaintiff has] sent lien notices to AIG at the same address as it forwarded the Sheets lien and that AIG has in the past acknowledged receipt of such liens and has in fact honored such liens."

Plaintiff alleged that the "custom and practice in the personal injury context" is that, once a notice of lien is filed, the insurance company notifies the lien holder of any resolution, settlement or disbursement of funds. Because of this customary practice, after mailing its notice of lien, plaintiff "then awaited resolution of the matter between Sheets and West from AIG as the insurer for Sheets."

Plaintiff inquired of AIG in May or June 2006 about the status of its lien. Then, plaintiff learned for the first time that AIG had paid out $50,000 to Sheets under the uninsured motorist coverage in Sheets's automobile insurance policy. AIG made the payment a year earlier, in May 2005, without notifying plaintiff of the payment. Plaintiff averred that AIG had a statutory obligation to notify plaintiff of the payment in the Sheets matter. It further averred that AIG purposefully withheld the information about the resolution from plaintiff. Because of plaintiff's reliance on the industry custom, it could not reasonably have discovered the resolution until June 2006.

After plaintiff learned of the resolution, it demanded payment of its HLA claim. AIG repeatedly asked for more time to consult with its legal counsel, and thus further delayed any payment to plaintiff. AIG's assurances that it was consulting legal counsel on the claim delayed plaintiff's action from June to November 2006.

As to the cause of action for negligence, plaintiff alleged that AIG owed it a duty of care to inform plaintiff that AIG had paid out $50,000 to Sheets for medical care provided by Mercy. Plaintiff had the statutory lien and had given AIG notice of the lien. Thus, plaintiff alleged that AIG had a duty under the statute to disburse a maximum of 50 percent of the funds to plaintiff, the lien holder. AIG breached the duty by failing to notify plaintiff of the payment, and failing to disburse to plaintiff the statutory amount of its lien. AIG refused to honor the lien and refused to disburse any funds to plaintiff.

As to breach of fiduciary duty, plaintiff alleged that, "by virtue of receipt of the notice of statutory lien, [AIG] became a fiduciary of the plaintiff and held the funds under its insurance policy for medical care . . . in trust for disbursement to plaintiff." Plaintiff justifiably relied on the statutory notice provisions, but AIG failed in its obligation to inform plaintiff of the resolution of Sheets's claim. By failing to give notice to plaintiff, and by failing to disburse moneys to plaintiff, AIG breached its fiduciary duties to plaintiff. Plaintiff was therefore damaged in the amount of $25,000, or one-half of the resolution amount. Plaintiff alleged that AIG acted "with reckless disregard for the rights of the plaintiff," and that AIG's refusal to give notice and refusal to pay were intentional, malicious, oppressive and in bad faith, giving rise to exemplary damages.

As to unfair business practices, plaintiff alleged that AIG owed plaintiff a duty under the HLA to disburse funds to plaintiff, in an amount not to exceed 50 percent of the funds paid to Sheets. By breaching the statutory lien, AIG was alleged to have engaged in unfair business practices under Business and Professions Code section 17200 et seq. AIG failed to notify plaintiff of the settlement or compromise, AIG continued to refuse to pay plaintiff despite repeated demands, and AIG's conduct was unfair because it repeatedly asked for more time to consult with counsel, thereby delaying any recovery by plaintiff.

Plaintiff filed its complaint on February 23, 2007. AIG demurred to the original complaint and plaintiff filed the first amended complaint on June 4, 2007.

AIG again demurred, arguing among other things that plaintiff's claim was not a valid lien under the HLA, inasmuch as the HLA provided a lien for recovery of medical care costs from the tortfeasor, and not from the accident victim's own first party insurance.

The trial court sustained the demurrer without leave to amend. The court dismissed plaintiff's complaint, and plaintiff appeals from that judgment.

DISCUSSION

A. Standard of Review

We review an order sustaining a demurrer without leave to amend under well-established rules: "`We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].)

In addition, the issues presented here turn largely on the proper construction of the HLA. We review questions of statutory construction independently. (Barner v. Leeds (2000) 24 Cal.4th 676, 683 [102 Cal.Rptr.2d 97, 13 P.3d 704].)

B. The Trial Court Properly Sustained the Demurrer

Plaintiff attempted to allege causes of action for negligence, breach of fiduciary duty (bad faith), and unfair business practices. All three causes of action were based on the same conduct and the same facts, and all three were based upon the notion that AIG had not made a statutorily required payment under the HLA.

AIG's position was that the HLA was wholly inapplicable in this context, that is, AIG was the first party insurer of the patient, for whom the medical costs were incurred, and not the insurer of West as the third party tortfeasor who caused the injuries. Plaintiff argues that the patient's uninsured motorist coverage here functions as if AIG were the third party tortfeasor's insurer. This presents an issue of first impression concerning the proper interpretation of the HLA.

(1) When interpreting statutes we employ well-settled principles of construction. The fundamental task of the court is to ascertain and give effect to the intent of the Legislature. (Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763, 775 [72 Cal.Rptr.2d 624, 952 P.2d 641].) "In determining such intent, a court must look first to the words of the statute themselves, giving to the language its usual, ordinary import and according significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose. . . . The words of the statute must be construed in context, keeping in mind the statutory purpose . . . . Both the legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the legislative intent. [Citations.]" (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387 [241 Cal.Rptr. 67, 743 P.2d 1323].)

Civil Code section 3045.1 provides in relevant part that a hospital "which furnishes emergency and ongoing medical or other services to any person injured by reason of an accident or negligent or other wrongful act . . . shall, if the person has a claim against another for damages on account of his or her injuries, have a lien upon the damages recovered, or to be recovered, by the person, . . . to the extent of the amount of the reasonable and necessary charges of the hospital . . ....