Appellant insured sought review of the judgment of the Superior Court of San Diego County (California), which sustained respondent indemnity insurer’s demurrer to his cause of action without leave to amend on the ground that appellant was neither a party to nor a third-party beneficiary of the indemnity contract between respondent and appellant’s primary insurer, which contract was supposed to pay for insured’s catastrophic losses.

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Overview

Appellant insured’s employer contracted for health insurance, but the insurer had to contract with respondent indemnity insurer to obtain catastrophic coverage for the employees. After appellant suffered a heart attack, the insurer only paid a portion of his medical expenses, and respondent refused to pay the remainder. Appellant sued respondent for actual and exemplary damages, alleging breach of contract and emotional distress. The trial court sustained respondent’s demurrer without leave to amend on the ground that appellant was neither a party to, nor a third-party beneficiary of, the indemnity contract. The court reversed the trial court. The court held that appellant could sue to enforce the contract as a third-party beneficiary, because the intent of the insurer, not that of respondent, controlled, and such intent was to cover employees like appellant for catastrophic loss. The court also held that appellant could sue for emotional distress and bad faith as damages incidental to the contract action because he was a third party beneficiary to the contract, and because he had a sufficient relationship to the contract to entitle him to sue on such grounds.

Outcome

The court reversed the trial court’s demurrer and dismissal. The court held that appellant insured was a third-party beneficiary to the contract between respondent indemnity insurer and appellant’s insurer, and could therefore enforce the contract. The court also held that under California law appellant could sue under tort causes of bad faith and intentional and negligent infliction of emotional distress.