On November 23, 2009, the Fourth Appellate District Court of the California Court of Appeal upheld the collateral source rule. In Howell v. Hamilton Meats & Provisions, Inc., Case No. D053620, 2009 Cal. App. Lexis 1874 (Howell) the appellate court determined that plaintiff was entitled to recover the actual amount charged by her medical providers even though those medical providers took far less from her insurer in full satisfaction of their bills. By making this ruling, this San Diego appellate court diverged from its brethren in the Third Appellate District (Sacramento) in Hanif v. Housing Authority of Yolo County (1988) 200 Cal App. 3d 635, 246 Cal Rptr. 192 (Hanif) ( Hanif) and the First Appellate District (San Francisco) in Nishihama v. City and County of San Francisco (2001), 93 Cal App. 4th 298, 112 Cal Rptr. 2d 861. (“Nishihama”)(Nishihama)
These latter courts held that a plaintiff was entitled to a judgment in the amount of what was actually paid to and accepted by the medical providers, (rather than what was billed) in full satisfaction of the debt.
But what is the “collateral source” rule? In Helfend v Southern California Rapid Transit District (1970) 2 Cal 3d 1, 6,( Helfend) the California Supreme Court explained:
“[I]f an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.” (Id. at *20-21)).
The rationale behind this rule is that “. . . a person who has invested years of insurance premiums to assure his medical care should receive the benefits of his thrift” and “the tortfeasor should not garner the benefits of his victim’s providence. (Helfend, supra, 2 Cal 3d at pp. 9-10)””
(Id. at *21).
In the present case, Rebecca Howell sustained personal injuries caused by the negligent driving of an employee of defendant Hamilton Meats & Provisions, Inc. Luckily, she had personal health insurance. She incurred medical expenses of $189,978.63 which by means of contractual arrangements between Scripps Memorial Encinitas (“Scripps”) and CORE Orthopedic Medical Center (“CORE”) and her insurer, PacifiCare, this amount was adjusted downward to $59,691.73 which Scripps and CORE accepted as payment in full satisfaction of this debt.
At trial, the jury (who cannot be told that plaintiff has medical insurance) awarded plaintiff the full sum of $189,978.63. The defendants citing Hanif, supra, and Nishihama, supra, urged that this award should be reduced to what was actually paid - $59,691.73.
The appellate court rejected Hanif, supra, and Nishihama, supra, as not being applicable, and instead applied the collateral source rule:
“As a result of the admitted negligent driving of Hamilton’s employee, [Howell] entered into the financial responsibility agreements with Scripps and CORE and became contractually obligated to pay those incurred charged by means of her own cash payments, a collateral source such as her health care insurance, or a combination of the two.”
. . .
“We conclude that the extinguishment of a portion of Howell’s debt to Scripps and CORE in the amount of the negotiated rate differential ($130,286.90) 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 for her injuries.”
“We also conclude that this benefit to Howell was a collateral source benefit within the meaning of the collateral source rule because it was conferred upon her as a direct result of her own thrift and foresight in procuring private health insurance through PacifiCare. . . .Under California’s collateral source rule. . . Howell, as a person who has invested insurance premiums to assure her medical care, should receive the benefits of her thrift; Hamilton, 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. . . .” (Id. at *24-*26)).
Seemingly, this appellate court felt constrained to adhere to the rulings of the California Supreme Court which established the collateral source rule, rather than follow two other appellate court decisions. It noted that if this rule is to change, the legislature should make that change, not the appellate court:
“We conclude that any further abrogation of the collateral source rule. . . is best left to legislative enactment rather than piecemeal common law development. . . . “(Id. at *36).
No doubt this case will be appealed to the California Supreme Court as it conflicts with the decision of the First and Third Appellate Courts. But, in the meantime, it presents an interesting quandary as to what exactly is the proper measure of damages in instances where insurance is involved: is it the amount billed? Or the amount actually paid?
Needless to say, it will make for an interesting mediation!
. . . Just something to think about.