         
TRIAL BRIEF II RE COLLATERAL SOURCE RULE1
1. INTRODUCTION
“California has adopted the collateral source rule. (Hrnjak v. Graymar, Inc. (1971) 4 Cal.3d 725, 729 [94 Cal. Rptr. 623, 484 P.2d 599] (Hrnjak); Helfend v. Southern Cal. Rapid Transit Dist., supra, 2 Cal.3d 1, 6, 84 Cal.Rptr. 184; but see Civ. Code, § 3333.1, partially abrogating the rule in actions against a health care provider based on professional negligence.) As we have explained: The collateral source rule expresses a policy judgment in favor of encouraging citizens to purchase and maintain insurance for personal injuries and for other eventualities.... If we were to permit a tortfeasor to mitigate damages with payments from plaintiff’s insurance, plaintiff would be in a position inferior to that of having bought no insurance, because his payment of premiums would have earned no benefit. Defendant should not be able to avoid payment of full compensation for the injury inflicted merely because the victim has had the foresight to provide himself with insurance.” Further, in Lund, the California Supreme Court elaborated on the related rule prohibiting the introduction of collateral source evidence: California’s Legislature has recognized the collateral source rule by carving very limited exceptions to that rule which exceptions are meaningful only if the rule itself exists. For example, Government Code section 985 contains a detailed procedure applicable when a public entity provides collateral services to an injured plaintiff. That section is applicable only where the public entity is a defendant. It allows the court, post-verdict, to consider giving the public entity credit for the collateral source payments, after taking evidence concerning the nature of the benefits and plaintiff’s reimbursement obligations. (Section 985, subd. (f).) The section makes clear that “[a]ny collateral source payment paid or owed to or on behalf of a plaintiff shall be inadmissible in any action for personal injuries or wrongful death where a public entity is a defendant.” The public entity can seek recovery of collateral benefits following a verdict which includes “damages for which payment from a collateral source listed below has already been paid or is obligated to be paid for services or benefits that were provided prior to the commencement of trial. . . .” Id.“And like the federal courts, California has adopted the closely related principle that, as a general rule, jurors should not be told that the plaintiff can recover compensation from a collateral source. We so held in Hrnjak, supra, 4 Cal.3d 725. There, the trial court allowed the defendant in a personal injury action to introduce evidence that the plaintiff had received insurance benefits, asserting the evidence was relevant to the plaintiff’s motives in seeking medical help and his credibility as a witness. (Id. at p. 728.) We held the trial court abused its discretion under Evidence Code section 352 in admitting this evidence of collateral source benefits. We explained: The potentially prejudicial impact of evidence that a personal injury plaintiff received collateral insurance payments varies little from case to case. Even with cautionary instructions, there is substantial danger that the jurors will take the evidence into account in assessing the damages to be awarded to an injured plaintiff. Thus, introduction of the evidence on a limited admissibility theory creates the danger of circumventing the salutary policies underlying the collateral source rule. Admission despite such ominous potential should be permitted only upon a persuasive showing that the evidence sought to be introduced is of substantial probative value.” (Hrnjak, supra, 4 Cal.3d at pp. 732-733, fn. omitted.) Id. at 10. Likewise, the Legislature also created a statutory exception to the rule for medical malpractice defendants when it enacted it as an aspect of MICRA (Civ. Code §3333.1, et. seq.). As with the public entity exception, the Legislature crafted a compromise procedure for the evidentiary handling of the exception, and accompanied the change with fundamental changes in the structure of attorney’s fees and general damages in medical malpractice cases. Specifically, the MICRA statutes provide the plaintiff an opportunity to introduce a host of relevant and admissible evidence as to the reasonable value of the medical services provided, including not simply the billed charges, but also evidence of the premiums paid to secure health insurance benefits and other evidence of the reasonable value of those services. The fact that the Legislature carefully crafted these two narrow exceptions to the collateral source rule is legislative recognition that absent such exceptions the rule has full vitality in California. (Shoemaker v. Myers (1990) 52 Cal.3d 1, 22 [“We do not presume that the Legislature performs idle acts, nor do we construe statutory provisions so as to render them superfluous”].) According to the California Practice Guide, Personal Injury: Thus, it is beyond question that the collateral source rule has full vitality in this state except in those very limited, legislatively created cases. Nevertheless, in the context of resolving issues concerning liens, such as the Hospital Lien Act (hereinafter “HLA”), some California appellate courts have seriously eroded of the collateral source rule without directly acknowledging as much.“[3:52] No offset for expenses paid by ‘collateral sources’–the ‘collateral source rule’: Under the ‘collateral source rule,’ medical benefits (and any other injury compensation) received by plaintiff from sources wholly independent of defendant (e.g., under plaintiff’s health, disability or accident insurance, or social security or disability benefits) are not deducted from the damages otherwise recoverable. Defendant is not entitled to an ‘offset’ for plaintiff’s ‘collateral source’ compensation (e.g., medical bills paid by others) and cannot introduce the fact of such payments into evidence on the question of mitigation of damages. [Lund v. San Joaquin Valley R.R. (2003) 31 C4th 1, 8010, 1 CR3d 412, 416-148; Helfend v. Southern Calif. Rapid Transit Dist. (1970) 2 C3d 19, 25-26, 84 CR 184, 187-188] 3. THE COLLATERAL SOURCE RULE HAS BEEN ERODED BY CASES DISCUSSING LIEN RIGHTS While it appears uniform that under the collateral source rule a tortfeasor is not entitled to introduce evidence that the injured plaintiff has insurance for purposes of proving that the plaintiff has not been injured to the extent an insurer has already paid for those injuries, some appellate courts have either directly or indirectly ruled that the tortfeasor is able to introduce evidence of the amount the plaintiff’s insurer has actually paid in order to cap the amount of the plaintiff’s recovery. These courts have reasoned that if the insurer has a separate agreement with the health care provider to provide medical care at a rate below what is normally charged, then that reduced rate becomes the plaintiff’s true damages for purposes of fixing his or her recovery. The first reported case to take this path was Hanif v. Housing Authority (1988) 200 Cal.App.3d 635. There, in the context of an action where the injured plaintiff’s medical care was paid for by Medi-Cal, the Court initially explained: However, without any further reference to the collateral source doctrine, the Court proceeded to reason:“Preliminarily, we note there is no question here that Medi-Cal’s payment for all injury-related medical care and services does not preclude plaintiff’s recovery from defendant, as special damages, of the amount paid. This follows from the collateral source rule.” Id. at 640. Hanif has always been limited to cases involving “Medi-Cal.” The reason for this is simple; in a Medi-Cal case, the plaintiff has not invested money in health insurance and thus the rationale for the collateral source rule that “plaintiff would be in a position inferior to that of having bought no insurance” does not exist in a Medi-Cal case.“The question here involves the application of that measure, i.e., whether the “reasonable value” measure of recovery means that an injured plaintiff may recover from the tortfeasor more than the actual amount he paid or for which he incurred liability for past medical care and services. Fundamental principles underlying recovery of compensatory damages in tort actions compel the following answer: no.” Id. at 640. In Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, another appellate court extended the Hanif limitation beyond Medi-Cal to private insurance without distinguishing the collateral source rule. In Nishihama, the injured plaintiff sought recovery of medical expenses which had been paid for by her employer-obtained medical insurer (Blue Cross). That insurer in turn had negotiated for reduced rates (i.e. rates below what is ordinarily charged) at the facility where the plaintiff was treated. The jury awarded the plaintiff damages based on what the facility ordinarily charged. In the context of discussing whether the plaintiff could recover damages based on the Hospital’s ordinary rates, the Court first observed: The Court then detoured into a discussion whether the Hospital could assert an “HLA” lien based on its ordinary rates, even though it agreed to accept a reduced amount as payment in full. After concluding the Hospital (which was not then before the Court) could not assert a lien for more than the amount it contracted with the plaintiff’s insurer to accept as full payment, the Court opined:“A plaintiff in a personal injury action is entitled to recover from the defendant tortfeasor, the reasonable value of medical services rendered to the plaintiff, including the amount paid by a collateral source, such as an insurer. As medical expenses fall into the category of economic damages, they represent actual pecuniary loss caused by the defendant’s wrong.” Id. at 306. Regardless whether this Court agrees with Nishihama, it should not alter the fact that under the collateral source rule the tortfeasor should not be able to reduce the injured plaintiff’s recovery because his or her insurer was able to contract with the health care provider to treat the plaintiff below its normal rates.“We therefore conclude that the trial court erred in permitting the jury to award plaintiff $17,168 instead of $3,600 for CPMC’s services. We do not agree with the City, however, that this error requires remand, because the jury somehow received a false impression of the extent of plaintiff’s injuries by learning the usual rates charged to treat those injuries. There is no reason to assume that the usual rates provided a less accurate indicator of the extent of plaintiff’s injuries than did the specially negotiated rates obtained by Blue Cross. Indeed, the opposite is more likely to be true. We therefore will simply modify the judgment to reduce the amount awarded as costs for medical care.” Id. at 309. [Emphasis added] 4. CAPPING A PLAINTIFF’S RECOVERY FOR MEDICAL EXPENSES AT THE REDUCED RATES NEGOTIATED BY AN INSURER VIOLATES THE COLLATERAL SOURCE RULE Significantly, not one California court to address this issue in a reported decision, has even considered whether limiting the recovery of the injured plaintiff to the amount actually paid the health care provider runs afoul of the well-entrenched collateral source rule. However, that very issue has been addressed by a number of courts from other jurisdictions. Representative of the cases concluding that, under the collateral source rule, recovery is not capped at the reduced rate actually charged for the plaintiff’s care is Arthur v. Catour, 2005 Ill. Lexis 958. (See Arthur attached hereto as Exhibit “A.”) The Illinois Supreme Court in Arthur pointed out that reducing plaintiff’s recovery based on the fact that plaintiff had health insurance would be a “windfall” for the tortfeasor: The Arthur Court then proceeded to explain that the collateral source rule prevailed over defendant’s position that recovery should be limited to the reduced amount actually paid by the insurer for health care:“The collateral source rule protects collateral payments made to or benefits conferred on the plaintiff by denying the defendant any corresponding offset or credit. Such collateral benefits do not reduce the defendant’s tort liability, even though they reduce the plaintiff’s loss. The Arthur court concluded:“The rule is well established that damages recovered by the plaintiff from the defendant are not decreased by the amount the plaintiff received from insurance proceeds, where the defendant did not contribute to the payment of the insurance premiums. Peterson, 76 Ill. 2d at 362; see Biehler v. White Metal Rolling & Stamping Corp., 30 Ill.App.3d 435, 444, 333 N.E.2d 716 (1975). ‘The justification for this rule is that the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons.’ Wilson, 131 Ill. 2d at 320; see 11 Ill. Jur. Personal Injury & Torts § 5:63 (2002). Also: ‘Calling attention to the fact that a plaintiff had such insurance can be prejudicial error because the jury may conclude that plaintiff sustained no damages for which he was entitled to recover if his medical bills were paid by insurance.’ Biehler, 30 Ill.App.3d at 444; accord Boden, 196 Ill.App.3d at 76.” This analysis was recently mirrored by a California appellate court in Arambula v. Wells (1999) 72 Cal.App.4th 1006, 1014-1015, where the Court concluded that the collateral source doctrine precluded a defendant from seeking to reduce the plaintiff’s damages based on the fact that the plaintiff received gratuitous payments (including moneys to cover lost wages) by family or friends to assist tort victims through difficult times.Therefore, we answer the certified question as follows: Plaintiff may present to the jury the amount that her health-care providers initially billed for services rendered.” In reaching this conclusion the Arambula Court relied on the California Supreme Court’s decision in Helfend, supra, and cited with approval Montgomery Ward & Co., Inc. v. Anderson (1998) 334 Ark. 561, 976 S.W.2d 382, in which a hospital partially forgave a patient’s medical bills. The Montgomery court held the patient was nevertheless entitled to recover compensation for the full amount of the harm inflicted upon her, notwithstanding the discount, stating: “There is no evidence of record showing that [defendant] had anything to do with procuring the discount of [plaintiff’s] bill by [the hospital]. The rationale of the [collateral source] rule favors her, just as it would had she been compensated by insurance for which she had arranged.” (976 S.W.2d at p. 384.) Arambula and the referenced cases from other jurisdictions demonstrate the fact that there is no reasoned basis to distinguish between efforts to reduce an injured plaintiff’s recovery because (1) that plaintiff’s medical care was paid by insurance; (2) that plaintiff’s medical care was rendered gratuitously; and (3) the plaintiff’s medical care was rendered at a reduced rate. In each of these cases the collateral source rule precludes the tortfeasor from obtaining a benefit because the injured plaintiff was able to receive treatment for his or her injuries without personally paying the full value of those services. Whether or not the HLA allows a hospital to assert a lien for only the amount billed (and not for the reasonable value of the services rendered) should not bear on this analysis. Rather, the amount the plaintiff is entitled to recover should be evaluated based upon basic principles of tort law - including the collateral source rule. It should not be evaluated in hindsight based upon the lien amount a health care provider is able to assert against that judgment. Certainly, unlike Government Code section 985 or Civil Code section 3333.1, the HLA does not purport to carve an exception to the collateral source rule. Simply put, contractual write-offs or reductions under paid health insurance plans are not gratuities or gifts to plan members. Business & Professions Code section 657, subdivision (b) grants hospitals the right to enter into these discount/reduction/write-off arrangements, providing: “health care providers are hereby expressly authorized to grant discounts in health or medical care claims when payment is made promptly within time limits prescribed by the health care providers or institutions rendering the service or treatment.” However that section is quite explicit that “Any discounted fee granted pursuant to this section shall not be deemed to be the health care provider’s usual, customary, or reasonable fee for any other purposes.” (Bus. & Prof. C., §657, subd. (c)) [Emphasis added]. But that is precisely what will occur if the discounted fee is used to cap the plaintiff’s recovery. Calculating the damages recoverable from the tortfeasor by reference to the HLA is placing the cart before the horse. If, because of the collateral source rule, the plaintiff recovers more from the tortfeasor for medical care than the health care provider is able to assert as a lien, then the cure for any perceived unfairness should lie with the Legislature. If the tortfeasor’s liability for medical damages is determined by reference to contractual arrangements between their victim’s health insurer and the hospitals who provide services -- contracts to which neither the tortfeasor nor the victim are party -- tortfeasors will “recover a windfall from the thrift and foresight of persons who have actually or constructively secured insurance, pension or disability benefits to provide for themselves and their families” in contravention of the public policies encouraged by the Collateral Source Doctrine. (Helfend v. Southern Cal. Rapid Transit Dist., supra, 2 Cal.3d at 13-14, 84 Cal.Rptr. at 184.) Moreover, the impact of such a system will extend far beyond medical special damages awards. Tortfeasors will not only “garner the benefits of [their] victim’s providence” (Id.) with regard to medical specials, but more significantly, in misleading the jury as to the nature and extent of plaintiff’s injuries as gauged by medical special damages claims, tortfeasors and liability insurers will achieve an artificial reduction of a tort victim’s general damages -- a correlation recognized by the Nishihama Court’s closing words: “There is no reason to assume that the usual rates provided a less accurate indicator of the extent of plaintiff’s injuries than did the specially negotiated rates obtained by Blue Cross. Indeed, the opposite is more likely to be true.” (Nishihama, supra, 93 Cal.App.4th at 309.) 5. CONCLUSION The collateral source rule is unquestionably the law in California. Allowing a tortfeasor to mitigate damages with payments from plaintiff’s insurance would put plaintiff in a position inferior to that of having no insurance. 1The author owes great gratitude to the authors of the CAOC amicus curiae brief in Parnell v. Adventist Health System/West (2005) 133 Cal.4th 595, 26 Cal.Rptr. 569. |