Aguiluz

Introduction

Is an attorney, with notice of a client’s contractual obligation to indemnify his health care provider from the proceeds of settlement or judgment, liable to the provider if he disburses such funds to the client? We accepted transfer of this case from the appellate department of the superior court to resolve an apparent conflict between two cases bearing on this issue, Miller v. Rau (1963) 216 Cal.App.2d 68 [ 30 Cal.Rptr. 612 ] and Brian v. Christensen (1973) 35 Cal.App.3d 377 [ 110 Cal.Rptr. 688 ]. We hold that, under the rule of Miller v. Rau , the attorney in this case is liable for settlement proceeds disbursed to his client in knowing disregard of the health care provider’s lien.

Background

The key facts are not disputed. Paulito Frez, a member of Kaiser Foundation Health Plan, Inc. (Kaiser), was injured in a motorcycle accident. Frez incurred $23,070.26 in medical expenses, which Kaiser paid. Frez hired appellant Heroico M. Aguiluz (counsel) to sue the other driver involved in the accident.

At Kaiser’s request, Frez acknowledged in writing that his contract with Kaiser required him to reimburse Kaiser for any amount it paid for treatment of injuries…