Collateral Source Rule Changes

Summary by Rebecca B. Aherne, Esq.

On November 23, 2009, the Fourth Appellate District filed its opinion in Howell v. Hamilton Meats & Provisions, Inc., holding that under the collateral source rule the plaintiff was entitled to recover the full amount of billed medical expenses without reduction for the amount not incurred because of the discount given to plaintiff’s insurer by treating hospitals.

Factual and Procedural Background

Plaintiff, Rebecca Howell, was injured when the automobile she was driving was struck by a truck driven by an employee of Hamilton Meats who negligently made an illegal U-turn across the lane in which Howell was traveling.  Howell was treated for her injuries at Scripps Hospital and CORE Medical Center.  She underwent two fusion spinal surgeries, and surgical procedures that took bone from her hip in an attempt to repair her neck.  The full amount of her medical bills was $130,978.63.

Howell had private health care insurance through PacifiCare which agreed to indemnify her for medical charges covered by her plan in exchange for her premium payments, subject to her responsibility for deductibles and co-payments.  Prior to receiving treatment, Howell agreed to be financially responsible for all charges for the medical services provided by Scripps and CORE.  PacifiCare had contracts with Scripps and CORE to satisfy bills incurred by plan members who obtained care from those providers.  Pursuant to those contracts, Scripps and CORE agreed to accept $59,691.73 as payment in full for the services rendered to Howell.

At trial, Hamilton Meats argued that Howell’s recovery for medical expenses should be limited to $59,691.73, the amount paid by PacifiCare.  Howell contended that under the collateral source rule she was entitled to the gross amount of the medical bills- $130,978.63.  The court allowed Howell to present evidence at trial of the full amount of the medical bills reserving for post-trial the question of whether the jury’s award for past medical expenses should be reduced.  The jury awarded Howell compensatory damages in the amount of $689,978.63, including damages for past medical expenses in the amount of $189,978.63.  Hamilton Meats brought a post-trial motion seeking an order reducing the verdict for past medical expenses to $59,691.73.  Howell argued that under the collateral source rule, she was entitled to recover the full amount of the reasonable value of the past medical expenses paid or incurred as a result of her injuries and not just what her private health care insurer paid to her medical providers.  The court granted Hamilton Meat’s motion stating that the reduction was consistent with the principle that a plaintiff is entitled to recover the amount that would make her whole, but not over-compensate her.  Howell appealed the order.

Judicial Holding and Analysis

The appellate court reversed the trial court’s order on the ground the reduction of the award for past medical expenses violated the collateral source rule, and held Howell was entitled to recover the full reasonable amount of past medical expenses as awarded by the jury.

The measure of damages is the amount which will compensate for all detriment proximately caused by the defendant.  Economic damages for past medical expenses are limited to a reasonable amount that was paid or incurred, whether by the plaintiff or a collateral source (such as plaintiff’s health care insurer) for reasonably required medical care and services that the plaintiff received and were attributed to the defendant’s tortious conduct.  Pursuant to the collateral source rule, if an injured party receives some compensation from a source wholly independent of the defendant, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the defendant.  The rule embodies the concept that a person who has invested premiums to assure her health care should receive the benefits of her thrift and the defendant should not garner the benefits of the plaintiff’s providence.  The benefit that is directed to the injured party should not be shifted so as to become a windfall for the defendant.  Juries should not be advised that the plaintiff can recover compensation from a collateral source.  Payments made to, or benefits conferred on, the injured party by a source other than the defendant are known as “collateral source benefits.”

Howell incurred a detriment in the form of personal financial liability when she executed agreements to be financially responsible for all charges for the medical services provided to her.  Her personal liability for the charges was a form of compensable pecuniary detriment or loss.  As a result of the negligent driving of Hamilton Meats’ employee, she entered into financial arrangements and became obligated to pay those charges incurred with her money, a collateral source such as her health care insurance, or a combination of the two.  The court concluded that the extinguishment of a portion of Howell’s debt to Scripps and CORE was a benefit to Howell because she was no longer personally liable for that portion of the debt she personally incurred in obtaining medical treatment.  This benefit to Howell was a collateral source benefit because it was conferred on her as a direct result of her own thrift and foresight in procuring private health care insurance through PacifiCare, a source wholly independent of the defendant.  Howell, as a person who has invested insurance premiums to assure her medical care, should receive the benefits of her thrift, and Hamilton Meats, as the party liable for Howell’s injuries, should not garner the benefits of Howell’s providence.  The law allows Howell to keep this collateral source benefit for herself because she was responsible for the benefit by maintaining her own insurance.

Comments and Implications

In its opinion, the court addressed, but did not follow, two cases cited by Hamilton Meats – Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 and Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298.  Hanif was a personal injury action brought on behalf of a minor struck by an automobile on the defendant public housing authority’s property.  The court concluded the plaintiff was entitled to recover up to, and no more than, the actual amount expended or incurred for past medical services so long as that amount is reasonable, and thus held his entitlement to damages for past medical services was limited to the actual amount paid by Medi-Cal, rather than the total amount billed.  The Howell court distinguished Hanif on the ground that the plaintiff in Hanif did not have private health care insurance and incurred no personal liability for the medical charges billed to Medi-Cal, and therefore suffered no compensable pecuniary detriment or loss beyond the amount that Medi-Cal actually paid.  In Nishihama, the plaintiff was injured when she tripped and fell on a crosswalk maintained by the city.  The jury awarded the plaintiff the sum of $17,168 for past medical expenses even though the hospital accepted from plaintiff’s health insurer the amount of $3,600 as payment in full.  The court of appeal held the trial court erred in permitting the jury to award the plaintiff an amount in excess of $3,600 for the services provided by the hospital.  The Howell court refused to rely on the decision in Nishihama, because it was based on an analysis of the hospital’s lien rights rather than on an analysis of the collateral source rule.

The court commented that changes to the collateral source rule should be made by the legislature rather than by piecemeal development in the judicial system.  This concern has been stated by other courts as well.  It is likely the Supreme Court will accept this case for review because of the diverse opinions of the appellate courts.

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