For nearly four decades, California has adhered to the so called "collateral
source rule" which provides that medical benefits (and any other injury
compensation) received by the plaintiff from sources unrelated to the defendant
are not to be deducted from otherwise recoverable damages. See, Lund v. San
Joaquin Valley Railroad (2Q03)31 Ca1.4th1, and Helfendv. Southern California
Rapid Transit District (1970)2 Ca1.3d1.
However, an issue which courts have had to grapple with in applying the
Collateral Source Rule is whether the plaintiff's medical bills - as initially
charged by the provider, or the discounted rate negotiated by an insurer or
governmental entity, should apply. In Hanif v. Housing Authority (1988)200
Cal.App.3d 635 ("Hanif") and Nishihama v. City and County of San Francisco
(2001)93 Cal.App.4th 298 ("Nishihama"), the Courts held that, when a plaintiff
has medical insurance or government paid for medical care, the damages are
limited to the amount actually paid or incurred. The Courts in those cases ruled
that "incurred" meant the lower rate negotiated by the insurer or governmental
The HanifjNishihama rule has been subject to attack by the plaintiffs' bar
in numerous cases.
In a decision published on November 23, 2009, the Court of Appeal, in
Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686
C'Howell") refused to apply at least a portion of the Nishihama ruling. In
Howell, a motorist was seriously injured when she was struck by a large truck.
At trial, the plaintiff submitted evidence of $189,978.63in past medical expenses
which were billed by medical care providers Scripps Memorial Hospital
Encinitas ("Scripps")and COREOrthopedic Medical Center ("CORE'i).
I Those cases still permit the jury to hear evidence of the "full" amount of the bills. See,
Nishihama and Greer v. Buzgheia (2006) 141 Cal.AppAth 1150.
In a post trial motion, the defendant moved under Hanif and Nishihama
to reduce the plaintiff's past medical expenses by $130,286.90because her private
health care provider, Pacificare, had negotiated reduced rates from Scripps and
COREso that the amount actually paid was $59,691.73. The Trial Court granted
the defendant's post trial Motion and reduced the award for past medical
expenses to $59,691.73- the amount which the medical care providers actually
On appeal, the Fourth District Court of Appeal ruled that the Trial Court's
post trial reduction was in error as it violated the Collateral Source Rule. The
Court of Appeal held that "the extinguishment of a portion of [plaintiff's] debt to
Scripps and CORE in the amount of the negotiated rate differential ($130,286.90)
was a benefit to [plaintiff] because she was no longer personally liable for that
portion of the debt she personally incurred in obtaining medical treatment for
her injuries". Howell, supra, 179 Cal.App. 4th at 695. In its reasoning, the Court
of Appeal first distinguished the Hanif decision on the basis that the plaintiff in
that case was a Medi-Cal beneficiary and a minor and the Collateral Source Rule
did not apply because the plaintiff never incurred any liability beyond his
judicially deemed liability for the medical services he received in the amount that
Medi-Cal actually paid to the medical service providers and because, as a minor,
the plaintiff lacked the capacity to enter into a financial responsibility agreement
with those providers.
The Court of Appeal went on to acknowledge that the Nishihama case
dealt with private insurance but ruled that Nishihama was improvidently
decided because the plaintiff in that case was an adult and had signed a financial
responsibility agreement with the medical care providers. The Court of Appeal
further stated that any further "abrogation" of the Collateral Source Rule should
occur based on legislative action, and not in the Courts citing a concurring
opinion in the recent decision in Olsen v. Reid (2008)164 Cal.App.4th 200 (a case
where the Collateral Source Rule was questioned but not dealt with
The Howell decision is certainly a bell weather case for personal injury
litigation. It is expected that the negotiated "differential" between what is billed
and what an insurer will pay will increase as time goes on and this decision will
certainly impact the exposure of defendanttortfeasors. A fair disposition may be
to permit the defense to introduce evidence of what was actually paid by the
insurer and use the lower rates negotiated by the insurer to explain the
reasonableness of the charges.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Brett C.
Drouet is a partner of The Morrison Law Group, a professional corporation.
Their biographies can be viewed at www.morrisonlawgroup.com.
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