Tort Client Alert: Appellate Court Ruling Means An Increase In Damages Awarded To Plaintiffs

The Howell v. Hamilton Meats & Provisions, Inc. (Fourth District, Div. One, No. D053620), filed November 23, 2009, case challenges a critical precedent that has shaped damage awards in bodily injury cases for almost two decades. According to Howell, a Plaintiff may recover the full amount of medical expenses incurred by the individual or a collateral source, regardless of the amount of medical expenses actually paid.  This decision challenges the judicially created exception to the collateral source rule outlined in the Hanif/Nishihama line of cases, which limits a plaintiff’s recovery to medical expenses actually paid.  The issue will likely need to be resolved by the Supreme Court of California or State Legislature.  Nevertheless, at present, the practical result of the ruling will be greater potential recovery for plaintiffs.

Factual Background

Defendant’s employee negligently struck Plaintiff’s car while making an illegal maneuver, causing serious bodily injuries to her neck and back. Plaintiff had private health care insurance requiring premium payments. The insurer contracted with certain hospitals and health care providers such that the providers agreed to satisfy plan members’ medical bills with payments for much less than the billed amount.

When Plaintiff received treatment from the healthcare facilities, she executed financial responsibility agreements which stated she would be “obligated to pay the Facility’s usual and customary charges for such services.”

At trial, Plaintiff was awarded $189,978.63 for past medical expenses based on the amounts billed by the health care providers. Nevertheless, during a post-trial Hanif-Nishihama hearing, the trial court subsequently reduced the amount by $130,286.90 because her insurer only paid $59,691.73.

Legal Background

In Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 (Hanif), the Court of Appeal, Third Appellate District held that plaintiff was not entitled to recover the full amount of medical expenses billed to a Medi-Cal program. Rather, plaintiff is only entitled to recover the reasonable amount of medical expenses actually paid. The court stated:

“[W]hen the evidence shows a sum certain to have been paid or incurred for past medical care and services, whether by the plaintiff or by an independent source, that sum certain is the most plaintiff may recover for that care despite the fact that it may have been less than the prevailing market rate.”

The rule was subsequently adopted and extended by the Court of Appeal, First Appellate District in Nishihama v. City and County of San Francisco (2001) 93 Cal. App.4th 298 (Nishihama).  In Nishihama, the court specifically extended the Hanif rule to private insurance providers.

Rationale

Howell affirms two well-established legal principles. First, it states the rule that a plaintiff’s recovery for past medical expenses is limited to a reasonable amount. Second, it affirms the collateral source rule, a legal doctrine which allows an injured party to receive compensation for injuries where the plaintiff’s medical bills are paid by an independent source, such as an insurer. 

Relying primarily on the collateral source rule, the court provided that under the collateral source rule, the Plaintiff is entitled to the entire amount billed to her insurer by the health care providers ($189,978.63). 

In response to the Defendant’s argument that Hanif authorized the trial court to award only the amounts actually paid by the insurer, the court distinguished Hanif on the grounds that Hanif did not involve a private insurance provider. Noting that Hanif involved Medi-Cal, the court emphasized that the plaintiff in Hanif “incurred no personal liability for the medical charges billed . . . .”  In contrast, the Plaintiff in Howell incurred liability for “her medical providers’ usual and customary charges” when she executed the financial responsibility agreements prior to her treatment. Therefore, the court reasoned she was entitled to recover the full amount of billed medical expenses.

With regard to Nishihama, the court disagreed with its rationale, stating that the inquiry should have focused on the collateral source rule and the terms of any financial responsibility agreements entered by the plaintiff prior to treatment by medical providers. 

Finally, the court stated that a post-trial motion “to reduce a privately insured plaintiff’s recovery of economic damages for past medical expenses by the amount of the negotiated rate differential is not necessary or appropriate and is unauthorized.”

The Decision From the Defendant's Perspective

"A very bad result." Defense attorneys (and their clients) will be mobilized to seek review of the decision. It expressly disagrees with Nishihama, which held that plaintiff could not recover more than the amount actually paid for medical services, and it gives plaintiffs an undeserved windfall - the difference between the amount they were billed and the amount they actually paid. The court's decision is based on an oversimplification of the collateral source rule. It is well-settled in the common law that the collateral source rule allows the plaintiff to recover amounts paid by his insurer as a reward for purchasing insurance. In contrast, when the plaintiff is permitted to extract from the defendant not only what the insurer paid, but the amount of discount the insurer negotiated, the plaintiff receives a windfall because he is being rewarded for doing nothing. The Hanif/Nishihama line of cases represents an effort to preserve the incentive system underlying the collateral source rule.  Howell fails to account for that careful balancing of incentives.

The Decision From the Plaintiff's Perspective

"It's about time." Plaintiffs’ lawyers will like this decision and feel that it is a correct extension of the common law collateral source rule. However, even they are weary of blindly accepting billed amounts as "usual" charges for patients. For example, emergency room bills are typically written down by about 75% if insurance is in place as opposed to when the patient is uninsured. Does that make the unreduced bill reasonable? If the Howell decision is ultimately upheld, it is likely that a new breed of medical economic experts will be required to testify empirically about what are customary and reasonable charges, what are acceptable write-downs, and what amount of billed fees are actually realized. If a bill is not paid in full, classic evidence law states that the bill is a business record, but on the crucial question of "reasonableness," the bill is only hearsay and not undisputed proof that the charges are reasonable or customary.

Conclusion

The ruling in Howell could mean significantly higher costs for auto and homeowner’s insurance carriers, as well as small businesses. Experts believe that if upheld, Howell will result in larger jury verdicts and more settlements. There are currently three other cases on appeal that involve the same collateral source rule.  The issue may need to be settled by the state Supreme Court.  Haight Brown & Bonesteel will watch these developments closely and provide you with updates.

This document is intended to provide you with general information about torts. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact Bill Baumgaertner at 310-215-7100 or wbaumgaertner@hbblaw.com, J. Alan Warfield at 310-215-7100 or jwarfield@hbblaw.com or Michael Parme at 619-595-5583 or mparme@hbblaw.com or your regular Haight Brown & Bonesteel, LLP attorney.  This communication may be considered advertising in some jurisdictions.