CA Supreme Court Limits Collateral Source Rule

Last August, the Supreme Court of California limited the ability of Californian's to recover economic damages in certain instances where their insurance company has negotiated down their medical expenses. Since the 19th century, California courts have allowed plaintiffs to recover the full value of their injuries even if part of their economic costs were offset by insurance or other such contributions. At the trial level, this principle is implemented by an evidentiary standard called the collateral source rule, that makes inadmissible any evidence about receipt of insurance and other compensation.

On August 18, 2011, the California Supreme Court dealt a serious blow to the collateral source rule in its ruling in Howell v. Hamilton Meats & Provisions, a ruling the effect of which will likely be measured in the billions of dollars. In 2005 Rebecca Howell was seriously injured in an automobile accident negligently caused by a driver for Hamilton Meats & Provisions, Inc. At trial, Hamilton admitted liability, but only contested the amount of Howell's damages. After two surgeries on her spine, Howell medical bill was close to $200,000. PacifiCare, Howell's health insurance provider, negotiated that amount down to $60,000. The trial court reduced the amount of Howell's economic damages to the lower amount. Howell appealed and, citing the collateral source rule, California's Fourth District Court of Appeal restored the original amount. In August, however, the California Supreme Court reversed the appellate court, holding that the full amount of the medical bill would never have been collectable from Howell and therefore it cannot be recovered by her as economic damages.

Consumer Attorneys of California President John Montevideo called the decision a victory for big businesses and insurance over consumers and ordinary people. For more than a hundred years, Rebecca Howell would have been able to recover the full cost of her medical expenses, if awarded by a jury, despite the fact that she was thoughtful enough to carry insurance against the risk. As a matter of policy, it's not clear that the ability of an insurance company to use its size and power to settle medical bills at a lower amount should reduce the damages awarded to a victim of negligence. It's also not clear that creating an incentive for them to do so benefits society at large because medical care providers are less likely to receive full payment. Instead, the Court's ruling favors negligent parties and insurance companies at the expense of the injured and their doctors. Most importantly, this ruling is not limited to victims of automobile accidents, but would likely affect the recovery of any consumer injured by a defective product.