Coverage Issues Stemming from Med Pay Claims Under Commercial Premises Liability Policies

Even in the absence of a demand for med pay benefits, plaintiffs' lawyers have taken the position that premises owners' insurers owe an affirmative duty to disclose the existence of med pay coverage to an injured party upon notice of a claim. And injured parties have filed bad faith lawsuits directly against premises owners' insurers when insurers have failed to provide med pay benefits. For example, in 2010, a plaintiff who allegedly was injured on the grounds of the Ojai Retreat, an inn located in Ojai, California, brought a bad faith action against the inn's insurer in Los Angeles Superior Court stemming from the insurer's alleged failure to respond to the plaintiff's med pay claim. See Iman v. Philadelphia Indemnity Insurance Company, 2010 WL 2717285 (Complaint filed in Los Angeles Superior Court on June 24, 2010). The case settled for an undisclosed amount.

This article sets out the typical med pay policy language, summarizes certain coverage issues that have arisen in recent years with respect to med pay claims, and discusses two cases addressing whether an insurer can be liable in bad faith to an injured person for failing to provide med pay benefits.

Policy Language

Below is typical med pay policy language in a premises liability policy:

1. Insuring Agreement
   
   a. We will pay medical expenses as described below for “bodily injury” caused by an accident:

(1) On premises you own or rent;
(2) On ways next to premises you own or rent; or
(3) Because of your operations
Provided that:
(1) The accident takes place in the “coverage territory” and during the policy period;
(2) The expenses are incurred and reported to us within one year of the date of the accident; and
(3) The insured person submits to the examination, at our expense, by physicians of our choice as often as we reasonably require.

b. We will make payments regardless of fault. These payments will not exceed the applicable limit of insurance. We will pay reasonable expenses for:

(1) First aid administered at the time of the accident;
(2) Necessary medical, surgical, x-ray and dental services, including prosthetic devices; and
(3) Necessary ambulance, hospital, professional nursing and funeral services.

2. Exclusions

We will not pay expenses for “bodily injury”:

a. To any insured.
b. To a person hired to do work for or on behalf of any insured or a tenant of any insured.
c. To a person injured on that part of premises you own or rent that the person normally occupies.
d. To a person, whether or not an employee of any insured, if benefits for the “bodily injury” are payable or must be provided under a workers' compensation or disability benefit law or similar law.
e. To a person injured while taking part in athletics.
f. Included within the “products/completed operations hazard.”
g. Excluded under Coverage A.
h. Due to war, whether or not declared, or any act or condition incident to war. War includes civil war, insurrection, rebellion or revolution.

See, e.g., Watts v. Scottsdale Ins. Co., 43 So.3d 266, 270 (La. Ct. App. 2010); Cain v. Griffin, 849 N.E.2d 507, 514-15 (Ind. 2006).

Coverage Issues

Coverage issues that have arisen with respect to med pay claims include whether:(i) the injured party can bring a direct action against the premises owner's insurer; (ii) the claim is covered or excluded under the policy language; and (iii) the injured party can seek recovery of medical bills under the med pay coverage of a premises owner's liability policy while also pursuing recovery of such expenses from other sources.

Standing of Injured Party to Bring Direct Action for Medical Payments

Can an injured party bring a direct action against an insurer for med pay benefits under a premises liability policy? This issue was litigated most recently in Connecticut in Alexander v. W.F. Shuck Petroleum Co., 2009 WL 2783587 (Conn. Super. Aug. 3, 2009), where a gas station customer slipped and fell on ice and snow that had accumulated near the gas pump. The customer brought an action against the gas station's liability insurer for payment of his medical expenses pursuant to the med pay coverage provision in the station's insurance policy. In response, the insurer argued that the gas station customer lacked standing to sue because he was not a party to the insurance contract at issue. Id. at *1.

At the time, there was no Connecticut appellate or court authority addressing the issue of whether an injured party could bring a direct action for medical payments as a third-party beneficiary. Although recognizing that there is “somewhat of a split of authority” on this issue, the Connecticut Superior Court held that the plaintiff could bring a direct action against the insurance company for medical payments, concluding that “the weight of authority suggests that medical payment provisions regarding injured parties are third party beneficiary contracts giving the insured party a right to a direct action against the insured.” Id. at *4, *6.

Courts that permit third-party claimants to bring direct actions for med pay coverage have done so for two reasons: (i) “insurer undertook, through its contract, to make payment directly to the [injured party]“; and (ii) “the payment of medical expenses is not premised on the insurer's indemnification nor on the negligence of the policyholder.” Id. at *5 (quoting Garcia v. Lovellette, 639 N.E.2d 935 (Ill. App. 1994)).

Courts that have declined to allow injured persons to sue a premises owner's insurer directly for med pay benefits have reasoned that med pay coverage should be viewed as “a salutary attempt to allow, but not require, [the insured] ' to pay relatively small, easily ascertainable medical reimbursements, without a formal determination of fault.” Id. at *6 (quoting Zegar v. Sears Roebuck & Co., 570 N.E.2d 1176 (Ill. App. 1991)).

Whether the Injury Falls Within The Insuring Agreement

Does the injury fall within the insuring agreement? The two issues most litigated addressing this question concern whether: (i) the injury occurred on or adjacent to the policyholder's premises; and (ii) the medical expenses were incurred and reported within one year of the accident date.

The issue of location of injury was recently litigated in Florida in Zurich American Insurance Company v. Ainsworth, 18 So.3d 9 (Fla. Dist. Ct. App. 2009). In Zurich, a motorist was involved in an automobile accident on a street that ran past a shopping center. The motorist brought an action against the liability insurer of a bank located in the shopping center and sought med pay benefits. The policy provided med pay coverage, regardless of fault, for bodily injury caused by accident “(1) [o]n premises you own or rent; (2) [o]n ways next to premises you own or rent; or (3) [b]ecause of your operations ' .” The main issue in the case was whether the accident on the street occurred “[o]n ways next to premises” owned or rented by the bank. Id. at 10-11.

The trial court in Zurich granted summary judgment in favor of the insurer. The Circuit Court reversed, holding that there was a genuine issue of material fact as to whether the landscaping or design of the bank caused the bank to be liable for the accident and whether the street location met the med pay policy coverage provision of “ways next to premises” owned or rented by the bank. The Florida District Court of Appeal disagreed. First, because med pay coverage applies without regard to fault, the appellate court held that the Circuit Court erred in finding that a genuine issue of fact existed as to whether the design and landscaping of the bank played a role in the accident. Second, the appellate court held that because the street on which the accident occurred was “not contiguous or touching” the premises of the bank, the motorist's claim did not fall within the “ways next to premises” policy provision. Id. at 12-13.

Courts in Ohio recently reached conflicting results in interpreting the one-year policy limitation period for bringing med pay claims. In Dempster v. Stein Mart, Inc., 2002 WL 1290856 (Ohio Ct. App. 2002), a customer fell and broke her hip while shopping at a store. The store and its insurance company were immediately notified of the customer's injuries. Shortly thereafter, the store's claim representative sent a letter to the customer informing her of the existence of med pay coverage that was available to her, regardless of fault, in an amount up to $5,000. Pursuant to the store's insurance policy, med pay coverage was limited to expenses incurred and reported to the store's insurer within one year of the date of the accident. However, the time limit contained in the policy was not conveyed to the customer. More than one year after the accident, the customer filed suit against the store alleging negligence. The customer later amended her complaint to assert a second cause of action seeking med pay benefits. Id. at *1.

The trial court in Dempster granted the store's motion for summary judgment to dismiss the customer's med pay claim because it was not brought within one year of the time of the accident. The Ohio Court of Appeals disagreed:

Stein Mart and its insurer had superior knowledge regarding the time requirement for asserting a Med Pay claim, but failed to inform appellant of such. Also, insofar as appellant was not privy to Stein Mart's insurance contract, she is not responsible for knowing the terms of Stein Mart's contract with its insurer. Accordingly, because appellant was not informed of any time limit for submitting her medical bills, and because she was not privy to the contract, we find that the one year time limit for submitting medical bills to Stein Mart's insurer, for purposes of collecting Med Pay, does not apply to appellant's claim.

Because the letter to the customer from the store's claim representative did not include any time limitation, the court held that the customer was only required to accept the store's “offer, i.e., by providing her medical bills, within a reasonable time.” Id. at *2.

In contrast to Dempster, the Ohio Court of Appeals enforced the one-year time limitation for submission of a med pay benefits claim in Qualchoice, Inc. v. Brotherhood Insurance Co, 2007 WL 152618 (Ohio. App. Ct. 2007). In Qualchoice, the subrogated carrier for an injured party filed a complaint against a church's commercial property policy for med pay benefits. The Court of Appeals affirmed the trial court's dismissal of the lawsuit because the plaintiff had failed to submit its claim or commence its action within one year from the date of injury as required under the terms of the policy. The Court of Appeals held that it did not matter that plaintiff was “unaware of the one year time limitation.” The Court of Appeals stated that Dempster was distinguishable because, in that case, the store owner's claims representative had advised the customer in writing of the existence of med pay coverage but failed to advise her of the one-year limitation period. In Qualchoice, “no such discussions were had.” Id. at **3-4.

Whether the Injury Is Subject to A Policy Exclusion

Is the injury subject to a policy exclusion? Of the exclusions for med pay coverage, the athletic participation exclusion is the one that has generated the most litigation. In Community Renewal Team, Inc. v. United States Liability Insurance, 17 A.3d 88 (Conn. App. Ct. 2011), an individual sustained injuries while participating in a challenge course designed to facilitate group and individual development. In this case, the individual ascended to an elevated platform and then fell while performing a free fall with a rope. The policy at issue excluded from med pay coverage bodily injury to any person “participating in any athletic activity ' whether on a formal or informal basis.” The Connecticut Appellate Court affirmed the trial court's ruling that, from any reasonable perspective, the individual was participating in an athletic activity. Id. at 92.

In Markel Insurance Company v. Muzyka, 293 S.W.3d 380 (Texas App. 2009), a child attended a birthday party at a gymnastic center. The child broke her arm while participating in a game called “the helicopter.” “The helicopter” is a game in which an employee of the gymnastic center swings a large rope in a circle along the ground as children standing in a circle attempt to jump over the rope. The child's mother filed a claim with the gymnastic center's insurer for med pay coverage. The insurer declined to pay, asserting that “the helicopter” was a “sporting or exercise activity” excluded from coverage under the policy. The Texas Court of Appeals disagreed, holding that “the helicopter” was not a sporting or exercise activity within the meaning of the exclusion from med pay coverage. Id. at 385-88.

Collateral Source Issues

Can the injured party simultaneously seek med pay benefits from the premises owner's insurer while at the same time seeking compensation for those same expenses from other sources? This issue also has been litigated.

In Salazar v. Nationwide Mutual Insurance Company, 1997 WL 410530, at **1-2 (9th Cir. 1997), the plaintiff obtained a judgment in an underlying tort action that also included compensation for her injuries and medical expenses. Under the circumstances, the Ninth Circuit ruled that the plaintiff could not also seek to recover compensation under the med pay provision of a property owner's general commercial liability policy.

However, the Circuit Court of Virginia arguably reached a different result in Atkins v. Metropolitan Junior Baseball League, Inc., 2003 WL 549975 (Va. Cir. Ct. 2003). In that case, the plaintiff attempted to sit in a metal chair on the premises of a bingo hall, and was injured when the chair collapsed. The bingo hall's insurance carrier paid plaintiff $2,878.93 under the med pay coverage of the bingo hall's commercial liability policy. The plaintiff then sought to recover those same medical bills in a personal injury action. The defendant moved in limine to preclude the plaintiff from presenting evidence to the jury related to her medical bills or introducing such bills into evidence. The Circuit Court of Virginia denied the defendant's in limine motion, holding that the defendant was not entitled to a credit under Virginia law. The Circuit Court recognized that its ruling was inconsistent with comment a to the Restatement (Second) of Torts ' 920A(1) (1979), which states:

If a tort defendant makes a payment toward his tort liability, it of course has the effect of reducing that liability. This is also true of payments made under an insurance policy that is maintained by the defendant, whether made under a liability provision or without regard to liability, as under a medical-payments clause.

Id. at **1-4.

Bad Faith

The issue of whether a third-party beneficiary of a policy providing med pay benefits can bring a bad faith action against a premises owner's insurer has not been extensively litigated. At least one court has stated that insured persons should be permitted to bring bad faith actions against premises owners' insurers. See Donald v. Liberty Mut. Ins. Co., 18 F.3d. 474, 483 (7th Cir. 1994) (disagreed with by Cain, 849 N.E.2d at 515). However, in two recent decisions, courts held that third-party beneficiaries of an insurance contract could not sue an insurer for bad faith.

In Cain v. Griffin, a customer slipped and fell in a restaurant's parking lot. The customer subsequently filed a lawsuit in which the restaurant owners' insurer was named as a defendant. The customer alleged that the insurer: (i) “had full knowledge of [the customer's] injuries”; (ii) “fail[ed] to pay [the customer] for medical expenses as provided for in the medical payments provision” of the restaurant's policy; and (iii) breached “its duty to deal with [the customer] in good faith.” The Indiana Supreme Court held that the customer had standing to sue the insurer directly to enforce the terms of the insurance policy as a third-party beneficiary. However, the court held that because an insurer does not owe a third-party beneficiary “a duty of good-faith dealing,” the customer could not proceed on a tort claim against the insurer for failure to deal in good faith. Cain, 849 N.E.2d at 509, 515.

In Anderson v. American International Specialty Lines Insurance Company, 38 P.3d 240 (Okl. Civ. App. 2001), an Oklahoma appellate court held that a third-party beneficiary to a policy providing med pay benefits does not have standing to sue a premises owner's insurer for bad faith. In that case, a child was injured on the premises of a fitness center when a piece of equipment fell on her head. The child's mother filed a claim against the fitness center's insurer for payment of her medical expenses under the policy's no fault med pay provision. After eight months passed without payment, the mother sued the insurer for bad faith. In the litigation, the insurer did not dispute the plaintiffs' entitlement to benefits for medical payments, and in fact, made payment. However, the insurer argued that the plaintiffs did not have standing to sue the insurer for bad faith. The Oklahoma appellate court agreed, holding that the mother was not entitled to pursue a claim of bad faith against the insurer in the absence of a contractual or statutory relationship with the insurer. Id. at 242.

Conclusion

Med pay coverage is an important part of any premises liability policy. Upon notice of an insurance claim, insurers should advise claimants of the existence of med pay coverage and the deadline for seeking coverage. While the majority rule appears to be that an injured party cannot bring a bad faith action against an insurer for failure to provide med pay benefits, the law in this area is not well developed and plaintiffs' lawyers have been pursuing such claims.

Medical payments (“med pay”) coverage is a part of many commercial premises liability policies. Typically, med pay covers reasonable medical expenses, regardless of fault, up to a specified limit (usually between $1,000 and $10,000) if someone is hurt on the policyholder's premises.

Med pay coverage is usually purchased for good will purposes. It is hoped that if an injured person's medical expenses are paid, it will deter the injured person from instituting a lawsuit. To illustrate: Suppose a customer slips and falls while shopping at a store and incurs medical expenses. Because med pay coverage is applicable regardless of fault, the store can arrange for its customer's medical expenses to be paid under the med pay provisions in the store's liability policy. This way, through its show of good will, the store can avoid an acrimonious exchange with the customer ' or a lawsuit ' concerning whether the slip and fall was the store's fault.

Med pay coverage has been described by some courts as “a form of minimal group accident insurance.” In many states, med pay provisions are considered third party beneficiary contracts giving the injured party a right to a direct action against the insured. Accordingly, if an insurer were to refuse to pay a med pay claim arising from an injury on the policyholder's premises, the injured party could sue the insurer directly.

Even in the absence of a demand for med pay benefits, plaintiffs' lawyers have taken the position that premises owners' insurers owe an affirmative duty to disclose the existence of med pay coverage to an injured party upon notice of a claim. And injured parties have filed bad faith lawsuits directly against premises owners' insurers when insurers have failed to provide med pay benefits. For example, in 2010, a plaintiff who allegedly was injured on the grounds of the Ojai Retreat, an inn located in Ojai, California, brought a bad faith action against the inn's insurer in Los Angeles Superior Court stemming from the insurer's alleged failure to respond to the plaintiff's med pay claim. See Iman v. Philadelphia Indemnity Insurance Company, 2010 WL 2717285 (Complaint filed in Los Angeles Superior Court on June 24, 2010). The case settled for an undisclosed amount.

This article sets out the typical med pay policy language, summarizes certain coverage issues that have arisen in recent years with respect to med pay claims, and discusses two cases addressing whether an insurer can be liable in bad faith to an injured person for failing to provide med pay benefits.

Policy Language

Below is typical med pay policy language in a premises liability policy:

1. Insuring Agreement
   
   a. We will pay medical expenses as described below for “bodily injury” caused by an accident:

(1) On premises you own or rent;
(2) On ways next to premises you own or rent; or
(3) Because of your operations
Provided that:
(1) The accident takes place in the “coverage territory” and during the policy period;
(2) The expenses are incurred and reported to us within one year of the date of the accident; and
(3) The insured person submits to the examination, at our expense, by physicians of our choice as often as we reasonably require.

b. We will make payments regardless of fault. These payments will not exceed the applicable limit of insurance. We will pay reasonable expenses for: