## Facts

- A Kaiser member, Paulito Frez, was injured in a motorcycle accident, and Kaiser paid $23,070.26 for his accident-related medical care.
- Frez’s plan contract required reimbursement to Kaiser from any recovery obtained from the third-party tortfeasor.
- At Kaiser’s request, Frez signed a written reimbursement/authorization agreement directing his attorney to reimburse Kaiser directly from any settlement or judgment proceeds.
- Frez retained attorney Heroico M. Aguiluz to prosecute a personal injury action.
- Kaiser communicated Frez’s reimbursement obligation, and Aguiluz responded in writing in a manner showing actual notice of Kaiser’s claim before the case resolved.
- Frez’s personal injury case settled for $85,000, and Aguiluz disbursed the proceeds without paying Kaiser and without protecting Kaiser’s claimed interest.
- Kaiser sued Frez and Aguiluz for breach of contract and equitable relief (including a constructive trust) to recover the medical-expense amount; after settling with Frez, Kaiser proceeded only against Aguiluz and obtained judgment for $23,070.26.

## Issues

1. Whether a health plan’s reimbursement provision and the member’s written authorization create an enforceable lien-like interest in settlement proceeds.
2. Whether an attorney with actual notice of that interest is liable to the health plan after disbursing settlement proceeds to the client without satisfying or protecting the claim.
3. How to apply competing appellate authority on attorney liability to third parties whose claims to settlement proceeds are ignored.

## Decision

- The court affirmed the judgment for Kaiser against Aguiluz for $23,070.26.
- Kaiser’s contract-based reimbursement right, coupled with Frez’s written direction to his attorney to pay Kaiser from recovery proceeds, created an enforceable interest in the settlement fund.
- Because Aguiluz had actual notice of Kaiser’s claimed interest and nevertheless disbursed the proceeds to the client without protecting Kaiser, Aguiluz was liable to Kaiser for the amount of Kaiser’s claim.
- The court followed authority recognizing attorney liability when settlement funds are distributed in knowing disregard of a third party’s equitable lien or comparable interest, and it limited contrary implications from other cases.

## Legal Principles

- A reimbursement clause tied to recovery from a third-party tortfeasor, together with a member’s written authorization directing counsel to pay the health plan from that recovery, can create an equitable lien or lien-like interest in identifiable settlement proceeds.
- An attorney who has actual notice that settlement proceeds are subject to a third party’s equitable lien or comparable interest may be personally liable if the attorney disburses the funds to the client in knowing disregard of that interest.
- Constructive trust and related equitable remedies may support recovery where identifiable settlement proceeds are diverted away from a party with an equitable claim to those proceeds.

## Conclusion

The court held that a health plan could recover from a claimant’s attorney who, despite actual notice of the plan’s contractual reimbursement interest in settlement proceeds and the client’s written payment authorization, disbursed the settlement to the client without satisfying or protecting the plan’s claim.


Kaiser Foundation Health Plan, Inc. v. Aguiluz, 47 Cal. App. 4th 302 (Cal. Ct. App. 1996)