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The Collateral Source Rule in California Personal Injury Cases

by | Jan 21, 2010 | Uncategorized | 0 comments

Provided by: [nap_names id=”FIRM-NAME-3″], Oakland Personal Injury Attorney

People injured due to someone else’s negligence may end up with a reduced award for medical expenses based on what his or her insurance company actually paid for medical care

Consider this scenario: Imagine that you were involved in a major car accident caused by a drunk driver. In this accident, you suffered severe injuries requiring major medical care. You brought a lawsuit against the drunk driver and the jury quickly found him or her fully at fault for the accident. The total bill for your medical treatment was $100,000, and your insurer paid $60,000 as payment-in-full based on a contract it has with the hospital. Can the jury hear evidence of the total cost of your medical care? Is the jury permitted to hear evidence of your insurance company’s payment? Further, how much are you entitled to recover? The answers to these questions likely depend upon the status of what is known as the collateral source rule.

What Is the Collateral Source Rule?

The collateral source rule is an evidentiary rule; it bars defendants in a personal injury case from introducing evidence of money the plaintiff received from collateral sources. Used in this sense, collateral sources are any people or companies not directly involved in the litigation that may have provided benefits or compensation to the plaintiff for damages he or she suffered in the accident. As the California Supreme Court stated in Helfend v. Southern California Rapid Transit District, “if an injured party receives some compensation for his injuries from a source wholly independent of the [at-fault party], such payment should not be deducted from the damages which the plaintiff would otherwise collect from the [at-fault party].” 2 Cal.3d 1, 6 (1970). Common collateral sources are private health insurers, workers’ compensation programs, Medicare and Medicaid.

Under the traditional application of the collateral source rule, the jury would not hear evidence of insurance payments, and any insurance payment would not be deducted from the total expenses. Using the above example, the plaintiff could recover $100,000, despite the $60,000 insurance payment. In Helfend, the California Supreme Court discussed the rationale behind the collateral source rule as being that a 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.” 2 Cal.3d at 10. However, there has been a series of decisions by California Courts of Appeal (from both the First and Third Districts), application of which may change this answer.

Erosion of the Collateral Source Rule in California

In Hanif v. Housing Authority of Yolo County, 200 Cal.App.3d 635 (1988), the court held that the plaintiff was only entitled to recover the amount of money actually paid by Medi-Cal (California’s Medicaid plan) on the plaintiff’s behalf. As such, it reduced the trial court’s award, which exceeded the actual amount paid.

In Nishihama v. City and County of San Francisco, 93 Cal.App.4th 298 (2001), the court again held that the plaintiff was only entitled to recover the amount that her health plan actually paid for her medical care, and not the actual cost of the care, which was higher. Thus, the Court of Appeal reduced the award of expenses for medical care.

Both Hanif and Nishihama stand for the proposition that the entire amount of medical expenses billed by a provider may not be collectible by the injured plaintiff. A later case, Greer v. Buzgheia, 141 Cal.App.4th 1150 (2006), clarified these decisions and held that evidence of the entire amount of the plaintiff’s billed medical expenses is admissible as evidence, even though it was more than the actual amount paid by the insurer for the medical care.

Under Hanif, Nishihama, and Greer, a defendant may bring a post-verdict motion to reduce the verdict based on the actual amount paid by an insurer for medical care. Using the example in the opening paragraph, under these cases, the defendant would be allowed to move to reduce an award of $100,000 to the plaintiff by $40,000 since the insurer only paid $60,000, and the court has the authority to make that reduction.

Recent Reaffirmation of the Collateral Source Rule in Olsen

As noted by Justice Moore in the recent concurring opinion in Olsen v. Reid, 164 Cal.App.4th 200 (2008), there is no California Supreme Court authority for a post-verdict reduction of an award of medical expenses actually billed based on insurance payments. The Olsen court found that the trial court erred in reducing the number of medical expenses the jury awarded the plaintiff because it was not clear what was actually paid or if anything was ” written off.”

In his concurring opinion, Justice Moore warned that by ” permitting the posttrial reduction of medical expenses, the collateral source rule has been buried without the dignity of any services or parting words.” 164 Cal.App.4th at 204. Justice Moore refused to ” jump on the bandwagon” and follow the post-verdict reduction practice, which he believed abolishes the policies behind the collateral source rule. As he noted, under this practice, “[t]he plaintiff who has insurance receives less than her uninsured counterpart, while the defendant benefits from the plaintiff’s prudence.” Id. at 213.

What does this all mean for an injured person in California? If the jury is allowed to hear evidence of the full cost of medical expenses then it follows that the damage award for pain and suffering will be higher and the injured party can get more money. However, if the courts opt not to heed Justice Moore’s warning and instead follow the Hanif/Nishihama post-verdict reduction, the injured person may end up with a reduced award for medical expenses based on what his or her insurance company actually paid for medical care.