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Insurance Law

Med Pay Is For Benefit Of Injured

 By Barry Zalma, Attorney and Consultant

Patricia Meleski appealed a trial court's non-final order dismissing on summary judgment her bad-faith claims against Partners Mutual Insurance Company. In Patricia Meleski v. Schbohm LLC and Partners Mutual Insurance Company, No. 2010AP2951 (Wis.App. 05/01/2012) the Wisconsin Court of Appeal was asked to determine whether a non-insured may assert bad-faith claims against an insurance company when the company's obligation to the non-insured is fixed, and the non-insured contends the company refuses in bad faith to discharge that obligation.


Meleski sued Schbohm, LLC, and Partners Mutual, Schbohm's insurance carrier. Meleski's complaint alleged that she was hurt when she fell on Schbohm's property. She claimed personal-injury and medical-expense damages. This appeal concerns only the medical-expense damages.

The Partners Mutual policy promised to "pay medical expenses ... for 'bodily injury' caused by an accident" either "[o]n premises" Schbohm owned or rented, or "[o]n ways next to premises" Schbohm owned or rented. Partners Mutual does not dispute the applicability of this insuring clause.

Partners Mutual also promised Schbohm that it would pay the medical expenses "regardless of fault." Meleski claims that Partners Mutual nevertheless stonewalled her, and refused, in the words of her complaint, to pay her "medical expense claim, without reasonable proof to establish" that it "was not responsible for payment." The circuit court dismissed her bad-faith claims because, as it opined in an oral decision, those claims, in its view, could only be asserted by someone in "privity of contract" with the insurance company.


Although insurance policies issued to an insured are contracts between the carrier and the insured, they also can create third-party-beneficiary duties running from the insurance company to a non-insured.

Where one person, for a consideration moving to him from another, promises to pay to a third person a sum of money, the law immediately operates upon the acts of the parties, establishing the essential of privity between the promisor and the third person requisite to binding contractual relations between them, resulting in the immediate establishment of a new relation of debtor and creditor, regardless of the relations of the third person to the immediate promisee in the transaction; that the liability is as binding between the promisor and the third person as it would be if the consideration for the promise moved from the latter to the former and such promisor made the promise directly to such third person, regardless of whether the latter has any knowledge of the transaction at the time of its occurrence; that the liability being once created by the acts of the immediate parties to the transaction and the operation of the law thereon, neither one nor both of such parties can thereafter change the situation as regards the third person without his consent.

The tort of insurance-company bad faith is based on a breach of a duty imposed as a consequence of the contractual relationship. Although generally limited to the breach of good faith and fair dealing the insurance company owes its insured, it is not so limited. The key is whether a person seeking to assert a bad-faith claim against an insurance company is in a contractual relationship with that insurance company. Since third-party beneficiaries of contracts are in such a relationship - that is, they are in the class that the insurance contracts were designed to benefit.

Meleski is such a claimant.

The right of a third party claimant to maintain an action for bad faith against the insurer has been recognized only where the claimant has a fixed claim, whether as a result of statutory entitlement, for example under the worker's compensation statutes, or as a result of an unsatisfied judgment against the insured.

Since the policy obligated Partners Mutual to pay medical expenses irrespective of anyone's fault, Meleski's medical-expenses claim became fixed or vested.  Partners Mutual, therefore, is obligated to treat Maleski in good faith. Failing to do so, as Meleski alleged, Partners Mutual is subject to her bad-faith action because she became, at the moment she fell, a fixed third-party beneficiary of the Partners Mutual insurance contract with Schbohm.

The Wisconsin Court of Appeal, as a result, allowed Meleski to enforce her third-party-beneficiary rights against Partners Mutual. Of course it will be up to a jury or judge sitting as a fact-finder to determine whether Partners Mutual acted in bad faith in rejecting Meleski's claims for medical damages, as she contends.


Med pay insurance is a no-fault coverage that provides medical payments to anyone on the premises of the insured regardless of responsibility for the injury. The med pay coverage is not for the benefit of the person insured but for the benefit of a visitor on the insured's premises.

There are, as the court noted, many reasons why an insurer would refuse to pay a med pay claim that is not bad faith such as fraud, excessive billing or medical charges not related to the injury. Meleski believes she is entitled to payment and Partners Mutual believes she is not. The judge or jury will determine who is right.

Since med pay coverages are usually small this may be a classic tempest in a tea pot that should have been resolved amicably and without the use of the courts. subscribers can access the Lexis enhanced version of the decisions with summary, headnotes, and Shepard's, Meleski v. Schbohm LLC, 2012 Wisc. App. LEXIS 343 (Wis. Ct. App. May 1, 2012).

Reprinted with Permission from Zalma on Insurance, (c) 2011, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," "Murder and Insurance Fraud Don't Mix" and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.

Zalma on Insurance is a LexisNexis Insurance Law Community Top Insurance Blogs for 2011 winner.

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