On June 25, 1990, plaintiff Milton Donald (“Donald”) severely injured his right arm when he attempted to remove his clothes from laundry equipment that he had neglected to switch off. This suit followed. Plaintiff sued the University of Evansville, Indiana (the “University”), which owned the equipment, and Daryl Buente (“Buente”), an employee of the University who had given Donald permission to use the equipment, alleging negligence (R. 1 at 2-4, Complaint Count One). The parties settled that claim and it is not at issue here. In addition, however, plaintiff sued the University’s insurer, Liberty Mutual Insurance Company (“Liberty Mutual”), alleging breach of contract on account of Liberty Mutual’s refusal to pay him $5,000 in benefits (id. at 4-5, *477 Complaint Cоunt Two), and alleging that Liberty Mutual breached a duty to deal with him in good faith (id. at 5-6, Complaint Count Three). Plaintiff, a citizen of Ohio, sought contract damages on Count Two and punitive damages on Count Three.
Due to the parties’ diverse citizenship, and because the amount in controversy at the time the suit was filed exceeded $50,000, the district court had jurisdiction over the dispute. 28 U.S.C. § 1332. The parties agree that Indiana law governs the action. Cf.
Erie Railroad Co. v. Tompkins,
Background
At the time of his accident Donald, a recent graduate of the University, worked as an instructor at a basketball camp conducted on the University premises but not sponsored by the University. After camp ended on June 25 plaintiff asked Buente if he could use the Athletic Department’s laundry equipment because he could not afford to use a laundromat. Buente gave Donald permission and showed him how to work both the clothes washer and the water extractor. After washing his clothes in the washer Donald transferred them to the extractor and turned it on. The extractor did not have a timer or automatic shut-off; it had to be turned off manually by moving a switch to off and depressing a brake pedal. Donald tried to remove his clothes from the extractor without first turning the machine off. His hand became entangled in the clothing, resulting in serious injury and high medical expenses.
The University was insured by Liberty Mutual 1 for, inter alia, “bodily injury and property damage liability” (App. 15) (“Coverage A”), including liability such as that alleged in Count One of Donald’s Complaint. It was also insured for “medical payments” to certain persons injured on its premises (App. 17) (“Coverage C”). Donald’s appeal concerns Liberty Mutual’s refusal to рay him $5,000 in medical payment benefits under Coverage C of the insurance contract between the University and Liberty Mutual. Coverage C provides, in full (App. 17-18, 31):
COVERAGE C. MEDICAL PAYMENTS
1. Insuring Agreement.
a. We will pay medical expenses as described below for “bodily injury” caused by an accident:
(1) On premises you own or rent;
(2) On ways next to premises you own or rent; or
(3) Because of your operations; provided that:
(1) The accident takes place in the “coverage territory” and during the policy period;
(2) The expenses are incurred and reported to us within one year of the date of the accident; and
(3) The injured person submits to examination, at our expense, by physicians of our choice as often as we reasonably require.
b. We will make these payments regardless of fault. These payments will not exceed the applicable limits of insurance. We will pay reasonable expenses for:
(1) First aid at the time of an accident;
(2) Necessary medical, surgical, x-ray and dental services, including prosthetic devices; and
(3) Necessary ambulance, hospital, professional nursing and funeral services.
2. Exclusions.
We will not pay expenses for “bodily injury”:
a. To any insured.
*478 b. To a person hired to do work for or on behalf of any insured or a tenant of any insured.
e.To a person injured on that part of premises you own or rent that the person normally occupies.
d. To a person, whether or not an employee of any insured, if benefits for the “bodily injury” are payable or must be proved under a workers compensation or disability benefits law or a similar law.
e. To a person injured while taking part in athletics.
f. Included within the “products-completed operations hazard.”
g. Excluded under Coverage A.
h. Due to war, whether or not declared, or any act or condition incident to war. War includes civil war, insurrection, rebellion or revolution.
The “applicable limit of insurance” for Coverage C was $5,000 (App. 13). Excluded from medical payment benefits under Coverage C were “any insured” persons (Coverage C(2)(a)). Section II of the contract defined “who is an insured” in relevant part as the executive officers, directors, stockholders and employees of the entity designated in the insurance contract as the “named insured” (App. 13, 18, 28), in this case the University through the Board of Higher Education and Ministry of the United Methodist Church. It follows from the terminology employed by this contract that persons entitled to medical payment benefits under Coverage C are not “insureds” under the contract, which led to some unfortunate cross-talk and confusion among the parties to this suit. This opinion will refer to persons eligible for medical payment benefits under Coverage C as “covered” individuals to distinguish them from “insureds” who are, by definition, not covered under Coverage C.
After the aсcident Donald’s attorney and representatives of Liberty Mutual corresponded by mail and over the telephone. It was clear that Donald was exploring the possibility that the University and Buente might be Hable in tort for his injuries; if they were, then Liberty Mutual would be required under Coverage A to pay the amount of that HabiHty. Liberty Mutual took the position that there was no negHgence on the part of the University or Buente, and that Donald’s claim to the contrary was very weak. Donald also inquired whether the University’s contract of insurance provided for any medical payment benefits. In this context Donald’s attorney referred to Donald as an “insured,” apparently meaning by this that Donald would be eKgible for any medical payment benefits included in the University’s pohcy. This precipitated confusion on the part of Liberty Mutual’s representatives, who were of the opinion that Donald probably was not an “insured” under the pohcy. They refused to release a copy of the pohcy to Donald’s attorney, however, who continued to refer to Donald as an “insured,” unaware that by the terms of the pohcy any “insured” was by definition not covered under Coverage C.
During these negotiations Liberty Mutual forwarded a “Release and Settlement оf Claim” form that recited (R. 49, Ex. H):
For the sole consideration of FIVE THOUSAND DOLLARS ... the undersigned hereby releases and forever discharges UNIVERSITY OF EVANSVILLE and ah other persons, firms and corporations from all claims and demands, rights and causes of action of any kind the undersigned now has or hereafter may have on account of ... an occurrence which happened on or about JUNE 25, 1990.... This release expresses a full and complete SETTLEMENT of a liability. •• •
Donald’s counsel refused this offer of settlement but did offer that Donald would execute a release of Liberty Mutual’s liability for medical payment benefits in exchange for the $5,000. Liberty Mutual refused.
In November 1991 Donald filed this suit against the University and Buente, alleging neghgence, and against Liberty Mutual, alleging breach of contract and bad faith dealings. After the University and Buente settled Donald’s neghgence claims, his suit against Liberty Mutual proceeded. Eventually Liberty Mutual moved for summary judgment on Count Three (bad faith dealings) of Donald’s Complaint (R. 37 at 11), and *479 Donald cross-moved for summary judgment on both counts of his Complaint (breach of contract and bad faith dealings) (R. 48).
With respect to the breach of contract claim, plaintiff argues, and defendant does not dispute, that plaintiff is eligible for medical payment benefits under Covеrage C: Donald suffered “bodily injury” within the defined meaning of the term while on premises owned by the University, the injury occurred within the “coverage territory” during the policy period, and Donald was not an “insured” within the meaning of the coverage exclusion, nor was he excluded from coverage for any of the other reasons enumerated in Coverage C. Defendant’s argument that Donald was not entitled to summary judgment on his claim to the $5,000 medical payment benefits rested primarily on the contention that Donald had not submitted- the necessary paperwork required by the reporting provision of Coverage C; defendant also argued that regardless of whether Donald met the requirements for coverage under Coverage C, he was not entitled to sue Liberty Mutual to enforce the provisions of its contract with the University.
The parties directed most of their energy toward Donald’s claim that Liberty Mutual had dealt with him in bad faith. In this regard Donald argued that it was bad faith for Liberty Mutual to offer him the $5,000 payment to which he was entitled under Coverage C in exchange for a release of all of his claims against the University and Buente. Liberty Mutual responded that at the time it made the settlement offer Donald’s eligibility for medical payment benefits was unclear, due in part to his attorney’s insistence that Donald was an “insured” under the policy, and that his negligence claims were so weak that it could not be bad faith to offer to settle the whole for $5,000.
The district court denied Donald’s motion for summary judgment and granted Liberty Mutual summary judgment on both counts, although Liberty Mutual had only argued for summary judgment on Count Three. Cf.
Lowenschuss v. Kane,
Analysis
Because the district court held that Donald could not sue Liberty Mutual either on a breach of contract theory in Count Two or for bad faith dealings in Count Three of his Complaint, the court granted the defendant summary judgment without reaching many of the issues raised by the parties. Before we address the merits of the parties’ claims to summary judgment on the two counts, then, we first address Donald’s right to sue Liberty Mutual.
A. Donald’s Right to Sue Liberty Mutual
We hold that Donald, a third party beneficiary of the mеdical payment provision of the University’s contract with Liberty Mutual, may sue to enforce that provision in Count Two of his Complaint, and that he may sue Liberty Mutual in Count Three for breaching a duty to deal with him in good faith.
1. Count Two
The district court granted Liberty Mutual summary judgment on Count Two (breach of contract) of Donald’s Complaint because it held that under Indiana law an injured person not party to the contract of insurance cannot sue the insurer directly to recover for his losses. Because this aspect of Indiana law only applies in a tort context, while Donald is suing Liberty Mutual in contract, the district court misapplied Indianа law to Donald’s suit.
*480
The court was correct that Indiana, unlike several states, is not a so-called “direct action” state. “Indiana has held that a tort action on a contract theory by an injured third party directly against the liability carrier is inappropriate.”
Cromer v. Sefton,
It does not follow from this, however, that Donald cannot sue Liberty Mutual to recover the $5,000 medical payment benefits which he claims under Coverage C. The concept of direct action against an insurer applies when an injured party seeks to sue the insurer directly to recover sums for which the insured would otherwise be liable in tort. See,
e.g., Verhein v. South Bend Lathe, Inc.,
*481
Donald’s right to sue Liberty Mutual rests, not оn whether Indiana has authorized direct actions against a tortfeasor’s insurer, but rather on whether he is a third party beneficiary of the contract providing for medical payment benefits. “A third party beneficiary contract requires first, that the intent to benefit the third party be clear, second, that the contract impose a duty on one of the contracting parties in favor of the third party, and third, that the performance of the terms necessarily render to the third party a direct benefit intended by the parties to the contract.”
Mogensen v. Martz,
Since ... recovery [by the injured party under the medical payment provision] is completely independent of liability on the part of the insured, insurance under [this provision] is closely akin to a personal accident policy. * * * Medical provisions ... are a form of ... group accident insurance provided at minimal cost with a named insured as the entity through whom the coverage is issued. * * * Such coverage ... creates a direct liability to the contemplated beneficiaries.
8A Appleman,
Insurance Law and Practice
§ 4902 (Revised Vol.1981) (discussing medical payment provisions in automobile insurance policies). See also
Hein v. American Family Mutual Insurance Co.,
We have no reason to believe that Indiana would not follow this line of authority. Indeed, at least one Indiana court has come close to this position. In
Snow v. Bayne
the court, applying Indiana law, allowed injured third parties to sue the insured’s insurer directly, as third party beneficiaries under a no-fault automobile insurance policy, to recover “personal protection insurance benefits.”
We hold, therefore, that Donald is not barred by Indiana’s position on direct actions from bringing suit, in Count Two of his Complaint, directly against Liberty Mutual to recover the medical payment benefits provided by Coverage C. We hold further that Donald is a third party beneficiary of the contract between the University and Liberty Mutual and that he is therefore entitled to sue Liberty Mutual on its contract with the University. See,
e.g., Mogensen,
2. Count Three
Because the district court held, erroneously as we have seen, that Donald could not maintain an action against Liberty Mutual on Count Two (breach of contract) of his
*482
Complaint, it proceeded to hold that Donald also could not maintain an action against Liberty Mutual on Count Three (bad faith dealings). It is true that in Indiana an injured third party cannot sue the tortfeasor’s insurer for handling his claim in bad faith.
Eichler v. Scott Pools, Inc.,
Having settled that Donald may sue Liberty Mutual on Counts Two and Three of his Complaint, we proceed to address the parties’ claims to summary judgment.
B. The Parties’ Cross-Motions for Summary Judgment
Liberty Mutual moved the district court for summary judgment on Count Three of Donald’s Complaint, which alleged that Liberty Mutual had acted in bad faith when it failed to pay Donald $5,000 in medical payment benefits to which hе was entitled. Donald cross-moved for summary judgment on Count Two (breach of contract) as well as on Count Three of his Complaint. We address the two counts in order.
1. Count Two
“In reviewing a denial of a motion for summary judgment, we apply the same standard that should have been applied by the district court.... We will reverse the decision to deny such a motion only if we find it plain that there is no genuine issue of material fact for trial. Our review of this question is plenary.”
Pennbarr Corp. v. Insurance Co. of North America,
The parties do not dispute that when he was injured on the University’s property, Donald became eligible under the terms of Coverage C for medical payment benefits: He suffered “bodily injury” (as defined by the contract of insurance) caused by an accident on premises owned by the University (Coverage C(l)(a)), and he did not fall within the enumerated exclusions (Coverage C(2)). Because he incurred emergency medical expenses as a result of this accident, Liberty Mutual was obligated to pay those expenses up to the applicable limit of insurance (Coverаge C(l)(b)), provided that certain conditions were met. The parties do not dispute that Donald’s accident took place in the “coverage territory” and during the policy period, and Liberty Mutual apparently never requested Donald to submit to a physical examination, so that two of the conditions were met (Coverage C(l)(a)). Liberty Mutual’s only argument against summary judgment on Count Two (aside from its argument, discussed above, that Donald cannot sue to enforce the medical payment provision) is that Donald’s expenses, incurred within one year of the date of the accident, were not “reported to us [Liberty]” within one year of the *483 date of the accident (Coverage C(l)). R. 70 at 3.
Liberty Mutual advanced this argument below but did not refer to it before this Court, thereby waiving it. Cf.
Maher v. International Brotherhood of Electrical Workers,
Donald is therefore entitled to summary judgment on Count Two of his Complaint.
2. Count Three
Donald requests this Court to remand Count Three of his Complaint for further proceedings. He does not argue that he himself is entitled to summary judgment on that Count. Appellant’s Opening Brief at 19, 22. We review the grant of summary judgment in favor of Liberty Mutual
de novo,
viewing the facts and the reasonable infer-enees therefrom in the light most favorable to Donald. Cf.
Harris,
“[T]o recover punitive damages [such as Donald seeks herein in Count Three of his Complaint] in a lawsuit founded upon a breach of contract, the plaintiff must plead and prove the existence of an independent tort of the kind for which Indiana law recognizes that punitive damages may be awarded- Our intent [is] to prohibit the recovery of punitive damages, which is a tort remedy, where no tort [has] been established.”
Erie Insurance Co. v. Hickman by Smith,
Indiana now recognizes “a cause of action for the tortious breach of an insurer’s duty to deal with its insured in good faith_”
Hickman,
We held above that Liberty Mutual breached its contract by refusing to pay medical payment benefits to Donald. This does not entail, however, that Liberty Mutual committed a tort in so doing. “That insurance companies may, in good faith, dispute claims, has long been the rule in Indiana. * * * [A]-jury’s determination that a claim was, in retrospect, incorrectly denied is not
*484
sufficient to establish a breach of the duty to exercise good faith....”
Hickman,
While the Indiana Supreme Court has not defined the precise pаrameters of the tort of bad faith dealing by an insurer, it has observed that:
The obligation of good faith and fair dealing with respect to the discharge of the insurer’s contractual obligation includes the obligation to refrain from (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim.
Hickman,
Donald is not yet out оf the woods. “[I]n most instances, tort damages for the breach of the duty to exercise good faith will likely be coterminous with those recoverable in a breach of contract action,”
Hickman,
Donald has raised a genuine issue of material fact as to whether Liberty Mutual’s offer to forward him $5,000 in exchange for a release of all liability constituted malice, fraud, gross negligence, or oppressiveness. Offering a payment to which the claimant is clearly entitled as the sole consideration for settling a disputed claim can constitute bad faith in Indiana.
Vernon Fire & Casualty Insurance Co. v. Sharp,
In support of its claim to summary judgment Liberty Mutual argues (1) that Donald was not, at the time it offered to settle, clearly entitled to the medical payment benefits, and (2) that his liability claim against the University was never “disputed” — Liberty Mutual’s position is that the University’s lack of liability was clear. These are reasonable inferences from the evidence, but they are not the only reasonablе inferences. On Liberty Mutual’s motion for summary judgment we must draw all reasonable inferences in Donald’s favor. Liberty Mutual has failed to demonstrate that it is entitled to judgment as a matter of law on the issue of its good faith during the settlement discussions.
*485 The grant of summary judgment in Liberty Mutual’s favor must be reversed.
Conclusion
For the foregoing reasons, the grant of summary judgment in favor of defendant Liberty Mutual on Counts Two and Three of Donald’s Complaint is reversed. The case is remanded for further proceedings on Count Three and with directions to enter summary judgment in Donald’s favor on Count Two.
Notes
. More accurately, the University was insured through a policy issued to the "Board of Higher Education and Ministry of the United Methodist Church.”
. Coverage A applies to "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury'” (App. 15), excluding damages for which the insured becomes liable “by reason of the assumption of liability in a contract or agreement" (id.). Coverage A, therefore, applies to liability incurred by the insured in tort. This would include both negligence and strict liability. Coverage C explicitly provides that medical payment benefits will be made "regardless of fault” (Coverage C(l)(b)). Taken by itself this could mean that payments will be made even when the insured is strictly liable, but that there must be some liability on the part of the insured before medical payment benefits will be made. Such a reading is precluded, however, by the language of Coverage A, which already applies to all tort liability. Coverage C's "regardless of fault” language must mean, therefore, that medical payment benefits will be paid regardless of the insured’s liability. This is consistent with general interpretations of medical payment provisions. See, e.g., 8A Apple-man, Insurance Law and Practice § 4902.05 (Revised Vol.1981) ("[Tjhis provision is not designed to protect the insured from his legal liability but to insure the payment of medical expenses.... [Ljegal liability is not in issue....").
. The policies that underlie many states' unwillingness to allow dirеct actions against the tort-feasor's insurer do not necessarily apply in contexts other than tort. Illinois courts have explained that state’s prohibition against direct actions by noting that the "rationale ... is that disclosure of liability coverage at a trial against an insured for injuries resulting from his negligence constitutes prejudicial error.... Thus, adherence to this policy is required when the issue of the insurer’s liability would be intermingled with that of the liability of the insured....”
Reagor v. Travelers Insurance Co.,
92 Ill.App.3d
*481
99,
. The accident occurred on June 25, 1990. In December 1990 Donald's attorney asked Liberty Mutual аbout possible medical payment benefits. Appendix 37, 38. Kathy Pruiett, a senior claims adjuster for Liberty Mutual, responded with a letter explaining that “University of Evansville does have premises medical payment coverage. However, this coverage is applied after any other coverage in effect has paid [sic]. Therefore, I would need copies of the explanation of benefit forms from the insurance carrier making payments.” Id. at 37. She refused to disclose copies of the policy to Donald's attorney. In March 1991 Donald’s attorney provided the requested explanation of benefits form, which indicated that over $5,000 in medical expenses had not been covered by Donald’s insurer. Id. at 39-41.