For over 40 years, the California Courts have grappled with the question
of how to calculate medical expense damages for a personal injury plaintiff
which has medical insurance, and whose insurance has paid for some or all of
the plaintiff's medical care. The Plaintiff Personal Injury Bar has long argued
that evidence of the discounted rates negotiated by a personal injury plaintiff's
medical insurer are not admissible under what is known as the Collateral Source
Rule, as embraced in Helfend v. Southern California Rapid Transit District (1970)
2 Cal.3d 1 ("Helfend"). The Personal Injury Defense Bar, on the other hand, has
argued that the actual charges paid to the medical care provider for a personal
injury plaintiff should be the only charges actually considered as economic
damages and to do otherwise would result in a windfall to the personal injury
This past month, in Howell v. Hamilton Meats & Provisions, Inc. (2011)
DJDAR 12,533 ("Howell"), a divided California Supreme Court ruled in favor of
the Personal Injury Defense Bar.
In order to best understand the issue before the California Supreme Court
in Howell, a brief review of the Collateral Source Rule and case law dealing with
plaintiff personal injury medical bills is in order. In 1970, the California Supreme
Court ruled in Helfend that, under the Collateral Source Rule, when calculating
medical expense damages there could be no deduction for benefits which a
personal injury plaintiff received from sources independent of the tortfeasor. An
issue that was raised thereafter, however, is what amount of medical bills should
be presented to the trier of fact, i.e., the gross amount charged by a hospital or
the lower, negotiated amount paid to either Medicare or a private insurer.
In Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 ("Hanif"), the
California Court of Appeal, Third District, ruled that, where the plaintiff was a
Medi-Cal recipient (which was not responsible for the medical care bills in the
first place), the amount actually paid by Medi-Cal, which was substantially lower
than the argued "reasonable value" of the treatment, was the proper measure of
damages. The Court of Appeal ruled that the Collateral Source Rule was not
implicated because the plaintiff in Hanif, a Medi-Cal recipient, was never
responsible for the charges in the first place.
In Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th
298 ("Nishihama"), the California Court of Appeal, First District, applied the
Hanif rationale to payments made by a private health insurer. In that case, the
jury awarded the plaintiff $17,168.00 for her medical expenses, an amount based
on the medical care provider's "normal rates". The record, however, showed the
plaintiff participated in a health plan administered by Blue Cross which had an
agreement with the medical care provider pursuant to which the medical care
provider had accepted only $3,600.00 in full payment for the services to the
plaintiff. Relying on Hanif's holding that only the amount actually paid or
incurred is recoverable as compensation for medical expenses, the Nishihama
Court ordered the judgment reduced to reflect only the amount the hospital had
actually received from Blue Cross.
Thereafter, in Parnell v. Adventist Health System/West (2005) 35 Cal.4th
595 ("Parnell"), California Supreme Court held that a hospital could not assert a
lien against a patient's tort recovery for the full amount of its bill when it agreed
to accept an insurer's lesser reimbursement as full payment. At the same time,
however, the California Supreme Court reserved judgment as to whether the
Hanif holding applied outside the Medi-Cal context and could serve to limit a
patient's tort recovery for medical expenses to the amount actually paid.
Thereafter, Hanif and Nishihama were further distinguished in Katiuzhinsky v.
Perry (2007) 152 Cal.App.4th, 1288 ("Katiuzhinsky"). In Katiuzhinsky, the
injured plaintiff's medical care providers had sold some of their bills at a
discount to a medical finance company, however, the plaintiffs remained liable
to the finance company for the original amount of the bills. The California Court
of Appeal, Third District, concluded in that case that the Trial Court, in limiting
the recovery to the discounted amounts, did not correctly apply the Hanif and
However, the question as to whether the actual amount accepted by the
medical care provider, in the context of a personal injury plaintiff who has
private medical insurance, had not directly been answered. With the Howell
decision, that question has now been resolved, albeit by a divided California
In Howell, a case involving a motorist who was seriously injured when
the vehicle she was driving was struck by a truck, the defendant conceded
liability and the necessity of medical treatment the plaintiff had received, and
only contested the amounts of plaintiff's economic and noneconomic damages.
The defendant in that case moved in limine at trial to exclude evidence of
medical bills that neither the plaintiff nor her health insurer, Pacific Care, had
paid. The plaintiff's surgeon and her husband each testified that the total
amount billed for the plaintiff's medical care, up to the time of trial, was
$189,978.63. The jury returned a verdict awarding exactly that amount as
damages for plaintiff's past medical expenses. The defendant then made a posttrial
motion to reduce past medical expenses pursuant to the Hanif case, seeking
a reduction of $130,286.90, which is the amount assertedly written off by the
plaintiff's medical care providers, pursuant to contracts with Pacific Care. The
Trial Court granted the defendant's motion, reducing the past medical damages
awarded by $130,286.90. On appeal, the Court of Appeal reversed the Trial
Court's order, holding that it violated the Collateral Source Rule. The defendant
then petitioned the California Supreme Court, which granted review. In a
lengthy decision by Justice Werdegar, for which Justice Klein filed a dissent, the
California Supreme Court ruled that awarding an amount as damages which the
plaintiff had no responsibility to pay, even though as a result of a negotiated rate
by the personal injury plaintiff's medical insurer, would result in an unfounded
windfall which is inconsistent with the Collateral Source Rule.
The Howell decision is certainly significant. While it may not make an
enormous difference in a particular case, it will have an across the board impact
on personal injury cases in general in California.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Calvin
C. Schneider, III is Of Counsel to The Morrison Law Group, a professional
corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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