In December 2017 the Long Beach Memorial Medical Center treated Vernon Barnes for injuries he received in a car accident. Afterward Barnes submitted a personal injury claim to Allstate, which insured the driver Barnes claimed was at fault in the accident. The Medical Center informed Allstate by letter that Barnes had incurred $116,714.67 in expenses for his treatment at the Medical Center and that the Medical Center was asserting a lien for that amount under the Hospital Lien Act (HLA).

Under the Hospital Lien Act (HLA) (Civ. Code, §§ 3045.1-3045.6), “when a hospital provides care for a patient, the hospital has a statutory lien against any . . . settlement received by the patient from a third person responsible for his or her injuries, or the third person’s insurer, if the hospital has notified the third person or insurer of the lien.” (Mercy Hospital & Medical Center v. Farmers Ins. Group of Companies (1997) 15 Cal.4th 213, 215 (Mercy Hospital).) The HLA prohibits an insurer from paying a patient without paying the hospital the amount of its lien, or as much as can be satisfied from 50 percent of the patient’s recovery from the tortfeasor or insurer.

In February 2020 Barnes and Allstate settled his claim for $300,000. The settlement agreement provided Allstate would pay this amount by sending Barnes’s attorneys three checks: one made payable to Medicare for $24,230.93, one made payable to Barnes and his attorneys for $159,054.40, and one made payable to Barnes and the Medical Center for $116,714.67, the amount of the lien. The settlement agreement also provided Barnes and his attorneys would indemnify, defend, and hold harmless Allstate and its insured against claims by the Medical Center or anyone else with a statutory right of recovery against Allstate and its insured.

Later in February 2020 Allstate sent Barnes’s attorneys a check for $116,714.67 made payable to Barnes and the Medical Center. That check, however, was never deposited, and by March 2021 it had expired. At that time Allstate sent Barnes’s attorneys a second check for the same amount made payable to the same parties (the March 2021 check). To Allstate’s knowledge, that check was never cashed.

In May 2021 the Medical Center filed this action against Allstate, asserting a single cause of action for violating the HLA. The Medical Center alleged that Allstate, having received written notice of the Medical Center’s lien regarding Barnes’s medical treatment, violated the HLA by paying Barnes to settle his personal injury claim without paying the Medical Center the amount of its lien.

Allstate filed a motion for summary judgment which the the trial court granted, ruling Allstate’s two-payee check, which was never cashed, satisfied its obligation under the HLA. The Court of Appeal reached the opposite conclusion and reversed in the published case of Long Beach Memorial Medical Center v. Allstate Ins. Co. -B321876 (September 2023).

Allstate argues that giving Barnes’s attorneys a check for $116,714.67 made payable to Barnes and the Medical Center constituted a payment to the Medical Center for the amount of its lien. As in the trial court, Allstate declines to specify which check made payable to the Medical Center as co-payee—the February 2020 check or the March 2021 check—Allstate claims satisfied its payment obligation to the Medical Center.

Citing Crystaplex Plastics, Ltd. v. Redevelopment Agency (2000) 77 Cal.App.4th 990 (Crystaplex), Allstate argues the check(s) in question constituted payment to the Medical Center because a “check issued to multiple payees, delivered to one payee, is delivery of a check.”

However “Allstate may have constructively delivered the check(s) to the Medical Center does not mean Allstate made a ‘payment’ to the Medical Center.“

On the contrary, as a general rule – a check of itself is not payment until cashed . . . .(Hale v. Bohannon (1952) 38 Cal.2d 458, 467; accord, Cornwell v. Bank of America (1990) 224 Cal.App.3d 995, 1000; see Navrides v. Zurich Ins. Co. (1971) 5 Cal.3d 698, 706 [a “check is never a payment of the debt for which it is given until the check itself is paid or otherwise discharged’”]; Hale, at p. 467 [the “mere giving of a check does not constitute payment’”]; Mendiondo v. Greitman (1949) 93 Cal.App.2d 765, 767 [same]; Art Frost of Glendale v. Hooper (1955) 130 Cal.App.2d Supp. 903, 906 [“[u]ntil the check involved here was cashed, . . . the obligation of the drawer remained in existence”]; Bas s v. Olson (9th Cir. 1967) 378 F.2d 818, 820 [“under governing California law, mere possession of an uncashed check is not equivalent to payment,” and therefore, “prior to the actual presentation of the check at the bank,” the defendant, who physically possessed the check,”was never ‘paid’”].)

The Court of Appeal then concluded that there “is no evidence either check Allstate made out to the Medical Center as a co-payee was ever cashed. In fact, it appears undisputed that neither was.”

“And Allstate’s argument the Medical Center suffered no harm because it could ‘resolve’ its lien with Barnes seems disingenuous: The obvious point of including Barnes as co-payee was to empower him to negotiate keeping some portion of the amount of the Medical Center’s lien for himself.”