Collateral source rule prohibits personal injury defendant from getting credit for medical providers’ discounts to health insurers

by Stephen on July 17, 2010

This is a big one on the plaintiffs’ personal injury side: Yanez v. SOMA Environmental Engineering, Inc.: Pretty much anyone who has a pulse knows that it costs a lot more for an uninsured person to obtain medical services than health care insurers reimburse doctors for those same services. The health care insurers get a huge “volume discount.” That discount can be seen on the Statements of Benefits that insured people receive from their health care providers: The original charges, the much lower payments by the insurer, and the write-off (usually) taken by the health care provider. For years, in personal injury cases, the defendant who caused injury has been claiming the benefit of those write-offs by arguing that the injured party’s actual medical expenses are only those amounts paid by the health care insurer and accepted by the medical care provider. Recently, however, in a couple of cases the plaintiffs’ lawyers have pursued the issue in the Court of Appeals, and prevailed.

Yanez succeeded in having the Court of Appeals rule that the amount originally billed by the health care providers was the amount of medical damage she was entitled to recover from the defendant who was responsible for her injury, and that the defendant should not receive the benefit of the discount received by Yanez’ health care insurer who paid the medical bills. This is an application of the “collateral source rule” which holds that, as part of a public policy to encourage people to acquire insurance, the fact that they have done so should not inure to the benefit of people who injure them.

If memory serves, there are now three cases in the California Courts of Appeals (and its six appellate districts) addressing the issue. The first, decided many years ago, went against the plaintiff, but within the last year or so two have favored the plaintiff, including the Yanez case. I imagine that this conflict among the districts will be taken up by the California Supreme Court soon. Whoever replaces retiring Chief Justice Ron George may have a very large influence on the outcome of the issue.

Uniformly, health care insurers have provisions built into their policies which require their insureds to reimburse them for damages the insureds receive in personal injury cases attributable to payments made by the insurers. Now, rather than simply forking over the entire portion of a personal injury award attributable to insured medical expenses (other than the attorney’s fee, which the insurers are required to credit), there will be something left for the injured party.

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