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Weston Reid, LLC v. American Insurance Group

June 4, 2009


APPEAL from the Superior Court of San Bernardino County. Kurt J. Lewin, Judge. (Retired judge of the L.A. Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed. (Super.Ct.No. SCV147392).

The opinion of the court was delivered by: 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, §§ 3045.1-3054.6) 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.


Because the matter arises upon demurrer, we take the essential facts from the operative pleading, the first amended complaint.*fn1 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.)

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 lienholder. 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 ...

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