Recoverable Damages (An Update)

We continue to track developments related to what damages are recoverable by an injured plaintiff when that party is covered by insurance. More specifically, we have been interested in the apparent conflict between the "Collateral Source Rule" [as articulated in Helfend v. Southern California Rapid Transit Dist. (1970) 2 Cal.3d 1, 84 Cal.Rptr. 173, 465 P.2d 61 and, later, in Lund v. San Joaquin Valley Railroad (2003) 31 Cal.4th 1, 9, 1 Cal.Rptr.3d 412, 71 P.3d 770 (Lund)] and the “Hanif” line of cases that reduced a plaintiff's recovery where the plaintiff's medical bills were "reduced" by insurance payments. [See e.g. Hanif v. Housing Authority (1988) 200 Cal.App.3d 635, 246 Cal.Rptr. 192 (“Hanif”), and Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, 112 Cal.Rptr.2d 861 (“Nishihama”).

Possible resolution of that conflict is currently pending before the California Supreme Court in the matter of Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686, 101 Cal.Rptr.3d 805. If you have followed other posts on this blog, you will know that the Howell court relied on the "Collateral Source Rule" to trump Hanif, and reversed a trial court ruling that reduced the plaintiff’s recovery based on Hanif and reinstated the jury’s verdict to include the full amount of the medical charges that were originally billed. As noted in previous posts, the Howell case is not presently "citable", based on the fact that the Supreme Court has accepted it for review.

[The status on Howell is that various amicus curia (“friends of the court”) have filed briefs outlining their opposition to the Appellate Court’s conclusions, and Ms. Howell’s lawyers have until September 15, 2010 to file their response to these amicus curia briefs. Thus, without oral argument even yet scheduled, it is unlikely that we will have a decision before sometime in 2011.]

However, while we all wait for the decision in Howell, there are now TWO new cases, from separate appellate districts, that appear to endorse the Fourth District’s approach. These cases are from the 1st District (Alameda County) [Yanez v. Soma Environmental Engineering, Inc. (2010) 185 Cal.App.4th 1313, 111 Cal.Rptr.3d 257, decided June 24, 2010 ("Yanez")], and King v. Willmett (Cal. App. 3 Dist.-August 9, 2010) ___ Cal.Rptr.3d ___, 2010 WL 3096258. These two cases step into that void to shed some new light on the issue.

In Yanez, Plaintiff Ana Yanez sued defendants SOMA Environmental Engineering, Inc., Mansour Sepehr, and Brian Tims (collectively SOMA) for injuries she suffered in an automobile accident. A jury found that SOMA's negligence caused Yanez’s injuries, and returned a special verdict awarding her $150,000 in damages, including $44,519.01 in damages for past medical expenses. After judgment was entered, SOMA moved, pursuant to the Hanif line of cases, to reduce the award for medical expenses to $18,368.24, which was the amount actually accepted by Yanez’s medical providers as payment in full under their contracts with Aetna and Healthnet, her private health insurers. The trial court granted the motion and entered an amended judgment reducing Yanez’s damage award. Ms. Yanez appealed.

The First District reversed and remanded the case back to the trial court to enter a new judgment restoring the original amount of damages awarded by the jury. In a fairly long, reasoned opinion, the Court in Yanez concluded that:

In our view, the trial court erred in reducing Yanez’s damages to the amounts actually paid by her insurers. Although the court reasonably relied on case law extending Hanif to the private insurance context, we find Hanif used overly broad language and the extension of its holding to private insurance by Nishihama and other cases is inconsistent with the collateral source rule. Consistent with the view taken by the appellate courts in a great majority of the jurisdictions that have considered the issue, we conclude the amounts written off by Yanez’s health care providers constitute collateral benefits of her insurance. [Yanez v. Soma Environmental Engineering, Inc. (2010) --- Cal.Rptr.3d ----, WL 2527483]

Thus, the First District appellate court invoked the Collateral Source Rule, which says damages shouldn't be reduced simply because the victim receives benefits from other sources, such as insurance companies. Per Justice Sandra Marguiles, "[t]he rule ... reflects a policy preference favoring the tort victim over the wrongdoer since not applying the rule allows the wrongdoer to profit from the victim's investment in purchasing insurance or from the generosity of those who come to the victim's aid."

This reasoning was adopted by the Third Appellate District in “King.” There, the plaintiff sustained a neck injury in an accident in August 2004. Mr. King (who is, ironically, a defense attorney working for Farmers as "house counsel") later underwent cervical discectomy surgery and introduced expert opinion testimony that the 2004 accident aggravated plaintiff's preexisting asymptomatic condition of degenerative cervical disk disease. He then introduced medical specials related to totaling $169,499.94. It was also undisputed that plaintiff's medical providers accepted $76,286.32 as full payment for their services.
The jury found defendant negligent, that her negligence was a substantial factor in causing harm to plaintiff and that plaintiff sustained damages in the amount of $169,499.94 for past medical expenses. The trial court then granted defendant's post-trial motion for reduction of medical billings and reduced the amount of past medical expense damages to $76,286.32, thereby reducing the plaintiff’s judgment by nearly $100,000 ($93,213.62).

The 3rd District reversed, in relevant part. It found that the Trial Court erred in reducing the jury's award of damages for past medical expenses since the California Supreme Court has declared that the public policy interests favor the Collateral Source Rule. It further found that “the collateral source rule precludes the reduction of the amount of medical expenses plaintiff incurred ($169,499.94) for the rendered services to the cash amount ($76,286.32) accepted by plaintiff's medical providers.”

The Court in King specifically endorsed the Collateral Source Rule stating:

The collateral source rule was adopted based on recognition 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 his victim's providence .” (Helfend, supra, 2 Cal.3d at pp. 9-10, fn. omitted.) Our Supreme Court has adopted the collateral source rule (Lund, supra, 31 Cal.4th at pp. 9-10; Hrnjak, supra, 4 Cal.3d at pp. 729-730; Helfend, supra, at p. 6), expressing the public policy judgment that a tortfeasor should not be allowed to mitigate damages based on the fortuitous circumstance that the plaintiff is covered by insurance. (Helfend, supra, at p. 10.) The Supreme Court has concluded the public policy interests in favor of the rule justify its continuation despite the possibility that it results in some cases in overcompensation of the plaintiff. (Id. at pp. 10-14.) The Supreme Court has expressly recognized that even in circumstances where subrogation or reimbursement is inapplicable, the collateral source rule performs a needed and appropriate function. ( Id. at pp. 11-13.) The collateral source rule reflects a policy choice in the calculation of tort damages that permits a victim to retain a benefit, rather than to confer a benefit on the tortfeasor. (Helfend, supra, at p. 10; Smock, supra, 138 Cal.App.4th at p. 888.) [King, supra. (Emphasis added)]

As we have noted in previous posts, the 4th District came to a similar conclusion in Howell. At the time of that decision, Justice Gilbert Nares wrote "Howell, as a person who has invested insurance premiums to assure her medical care, should receive the benefits of her thrift," and that "...the party liable for Howell's injuries, should not garner the benefits of Howell's providence."

Defense lawyers have argued that basing damages on the full cost of medical services -- rather than just for the amount actually accepted by doctors -- would give plaintiffs an undue windfall. However, this appears to be the trade-off the Appellate Courts are willing to accept since, as Justice Margulies in Yanez, noted, however, the Collateral Source Rule applies "even when it unquestionably does confer a windfall benefit on the tort plaintiff."

In the end, for the time being, Howell cannot be cited (per California Rules of Court, Rules 8.1105 and 8.1110, 8.1115). Yet, these new cases of Yanez and King, will likely be used during Howell's pendency by the plaintiffs' bar, to achieve the same result as the 4th District opinion in Howell.