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In a recent case, the California Supreme Court ruled that a woman who filed suit after being injured in a car accident may not seek more in economic damages for past medical expenses than the amount paid to providers by her health insurer. The court concluded that the collateral source rule, which precludes the deduction of third-party compensation from recoverable damages, does not allow plaintiffs to recover expenses they never incurred. (Howell v. Hamilton Meats & Provisions, Inc., 2011 WL 3611940 (Cal. Aug. 18, 2011).)

Lawyers in California criticized the ruling, saying that limiting economic damages to the negotiated rate penalizes plaintiffs with the foresight to carry insurance and would result in a windfall for tortfeasors (the party liable for the injury) and insurance companies.

In the case decided, the plaintiff Rebecca Howell’s medical treatment for injuries sustained in a car crash caused by a truck driver for Hamilton Meats & Provisions, Inc., totaled nearly $190,000. A jury awarded that amount, but the trial court reduced the sum after trial to about $59,000—the amount paid by her medical insurer to her medical care providers. An appeals court reversed, holding that the reduction violated the collateral source rule, which was created to deter wrongdoing by holding tortfeasors responsible for the full amount of damages. The California Supreme Court reversed.

The court’s ruling goes against the long-held notion that plaintiffs can recover the reasonable value of their damages. The California court admitted it held the minority view. Most other states to consider the issue have held that the entire billed amount should be recoverable.

Our Colorado Supreme Court considered the question, last November, as to whether a successful tort plaintiff may recover damages for the full amount of medical expenses incurred, or may recover only the discounted amount paid by the third-party insurance company. The court ruled in Tucker v. Volunteers of America Colo. Branch, 211 P.3d 708, 713 (Colo.App.2008) that the plaintiff may recover in full.

The court reasoned that because the plaintiff was insured, his medical providers wrote off part of the value of the medical services that they provided because they were contractually obligated to do so. Because this is a benefit paid for by Tucker, the plaintiff, through the payment of his health insurance premiums, co-payments, and deductibles, it should not be deducted from his award.

The court continued by observing that It is unjust to transfer the financial benefits of purchasing and maintaining health insurance to the tortfeasor, and the General Assembly’s contract exception avoids this result. Those in Colorado are fortunate that our state supreme court followed the majority rule.

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