Legal Question in Insurance Law in California

Re: Failure to disperse funds.

The "law" your lawyer is referring to is probably the policy provision requiring reimbursement to the insurer of amounts paid for med pay benefits. This is possibly the reason for any withholding, but I am sure you can get a detailed explanation from your lawyer. Look at your policy and see what it provides, as the fact it provides for reimbursement does not automatically mean the insurer is legally entitled to it. There are other rules involved such as the "make whole" rule, but much depends on the exact working in the contract.