Collateral source rule in California: injured plaintiffs barred recovery of value of medical services in excess of bargained rate paid by insurance

Posted in: Collateral Source Rule, Medical Damages by Steven Vartabedian on

The California Supreme has filed its opinion after months of speculation in the legal community about the reach of the collateral source rule. In Howell v. Hamilton Meats (filed August 18, 2010), the court held an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more that the amounts paid by the plaintiff or his insured for the medical services. It concluded the negotiated rate differential (the difference between the medical provider’s customary charges and the charge it agrees to receive as payment-in-full from plaintiff’s insurance) is not a collateral benefit recoverable by plaintiff under the collateral source rule.

While, the 6-1 majority opinion written by Associate Justice Werdegar goes into 30-page detail to explain its ruling, the critical turning point is found in the following language: “[W]e do not alter the collateral source rule as articulated in Helfend [Helfend v. Southern California Rapid Transit (1970) 2 Cal.3d 1] and the Restatement. Rather we conclude that because the plaintiff does not incur liability in the amount of the negotiated rate differential, which also is not paid to or on behalf of the plaintiff to cover expenses of the plaintiff’s injuries, it simply does not come within the rule.” (Slip opinion at pp. 26-27.)

Presiding Justice Cantil-Sakauye voted with the six justice majority. Just one year ago, she authored the opinion of the Court of Appeal, Third Appellate District in King v. Willmett (one of three opinions granted review along with Howell) and wrote, “We see no basis in the record from which we could conclude plaintiff did not incur $169, 499.94 [of which $93, 213.62 was the negotiated rate differential not paid by medical insurance] in past medical expense.” (Slip opinion at p. 25.) In holding exactly the opposite as the holding in the state high court ruling in Howell, the King court found persuasive the Helfend view that “a person who has invested years of insurance premiums to assure his medical care should receive the benefits of his thrift. The tortfeasor should not garner the benefits of the victim’s providence.” (Id. at p.26)
I could go to great length pointing out the polar opposite views taken in these two opinions, but I won’t. I will briefly add that Howell places reliance on 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; King concluded that neither Hanif nor Nishihama applied to the issue of private insurance negotiated rate differential. (Hanif because it involved Medi-Cal payments, not one’s investment in private insurance; Nishihama because it covered a different subject, a hospital’s claim of lien.)

This is not meant to criticize the Chief Justice. Rather, this points out how hard it is to predicate how the state high court might rule on such a critical issue. I confess I predicted incorrectly on this issue. It is not that I side one way or the other. Howell certainly has a sound commonsense reasoning in disapproving a plaintiff recovering as an “expense” something neither the plaintiff nor his insurance company specifically paid for. But as the Supreme Court itself notes, the court’s view is the “minority view.” (Slip opinion at p. 28, fn. 10.) Three out of the four appellate district’s cases under review decided the other way. The court relies on Helfend in upholding the notion of collateral source but fails to discuss the specific concept in Helfend of plaintiff’s consideration paid for medical insurance which tends to support the notion that plaintiff is in fact paying for the discount he receives through insurance, making the discount itself something that should be recoverable.

I do think that this opinion illustrates a point I often raise when lecturing on the appellate process. The intermediate Courts of Appeal apply the law based on precedence at the time a case is decided. The Supreme Court has the liberty of shaping policy even in the way it reads its own previous decisions.

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