Farmers Insurance Exchange v. Smith

The central question in this case is whether an insurer can, in effect, press-gang a policyholder’s personal injury attorney into service as a collection agent when the policyholder receives medical payments from the insurer and then later recovers from a third party tortfeasor. As one might guess from the verb “press-gang,” the answer is no. The theory put forward by the insurer here amounts to a genteel form of involuntary service as a money collector. A few basics need to be kept in mind: An insurer does not detrimentally rely on anything when it makes first party medical payments to one of its policyholders as a result of an auto accident. It is just doing what it contracted to do. Nor is a policyholder’s attorney unjustly enriched when he or she remits money to the client that the client is entitled to under the attorney-client agreement. The contractual relationship created by an insurance policy is between the insurer and the insured, not the insured’s attorney. The simple fact that an insurance policy obligates the policyholder to reimburse the insurer for first party medical payments later recovered from a third party does not create an independent obligation on…