• On Yanez v. SOMA Environmental Engineering and the collateral source rule Tuesday, June 29, 2010

    (This was originally published in the Los Angeles Daily Journal on June 29, 2010. Reprinted and/or posted with the permission of Daily Journal Corp. (2010).)

    Protecting Investments in Medical Insurance

    By Scott H.Z. Sumner

    The decision of the 1st District Court of Appeal in Yanez v. SOMA Environmental Engineering Inc. 2010 DJDAR 9720 (June 24) once again protects and preserves the integrity of the collateral source rule, and in doing so, respects, honors and protects the financial investments of the citizens and residents of the state of California in health insurance and their contributions to Medicare. The decision is especially important in this day and age when all working people are contributing to Medicare, and as the cost of medical insurance continues to rise sharply.

    Scott Sumner

    Scott Sumner

    Liability insurers and large, self-insured corporations have long sought to take from their tort victims the benefits of their investment in life, health and disability insurance. What these liability insurers and large corporate defendants seek is to profit at the cost of medical providers, health plans, and all the people of California who are covered by private health insurance or Medicare. They are asking trial courts, appellate courts, and the Supreme Court to enable them to steal benefits intended for and negotiated on behalf of the members of a health plan, without having to pay the premiums the plan members invest, without having to bear the cost of running a health insurance enterprise, and without compensating the hospitals and doctors who have agreed to give discount rates to health plans in exchange for contracts with health plans to guarantee a flow of patients, prompt payment, avoidance of collection costs, etc.

    The opinion examines the “marketplace realities” and “the health care financing model that has evolved in this country:” “patients covered by private health insurance are charged reduced rates by the provider for their care as an insurance benefit negotiated between the insurer and the health care provider.” It has long been a policy of this state, as well as the overwhelming majority of the states in this nation, that “a benefit directed to the injured party should not be shifted so as to become a windfall for the tortfeasor.” Rest.2d Torts, Section 920A, com. b.

    Liability insurers and large corporate defendants attempt to ignore this policy, even though it is well-codified in the California Insurance, Health & Safety, and Business & Professions Codes. They want to deny the intent of the Legislature, of the people of California, and the workings of the free market in negotiating and securing the benefits of contractually negotiated rates in order to steal those benefits to line their own pockets.

    If liability insurers claim that this outcome will require an increase in insurance premiums for Californians, where were the supposed savings in premiums we should have seen since the Nishihama v. City and County of San Francisco, 2002 DJDAR 4927 decision? Liability insurer’s profits have soared year after year as have liability insurance premiums, and it is ridiculous to think that anything more than a token portion of these ill-gotten profits have ever benefited California’s premium payers or anyone other than the owners of these liability insurance behemoths.

    This court plainly set forth that the practice, which has developed in some of the trial courts of this state to hold post-verdict hearings, “lacks a sound foundation as a matter of law or policy.” The Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 decision, on which defendants seek to rely, involved federal Medicaid and state Medi-Cal laws. As the Yanez court explains, Medi-Cal is not a market-based system, such as private insurance or Medicare. Instead, Medi-Cal “balances the interests of providers with the availability of public funds.” Federal Medicaid law requires that a Medi-Cal beneficiary assign their right to past medical damages as to services provided through Medi-Cal to the state of California. California statute limits the state’s right of recovery on that assigned claim to the Medi-Cal rate of payment. As the California Supreme Court observed in v. Scripps Health, (2003) 30 Cal.4th 798, restricting tort damages to the amounts paid by Medi-Cal rewards tortfeasors with a windfall at the expense of the medical providers. The Olszewski court asked the Legislature to intervene to address that inequity. The Legislature twice sent a bill to the Governor to do so, and also to increase the funds that would flow into the Medi-Cal program, thereby benefiting all the citizens of California. But on each occasion, at the behest of the liability insurance lobby, Gov. Arnold Schwarzenegger vetoed the bills.

    Justice Kathleen M. Banke’s concurrence suggests that it is time we trust jurors to follow limiting instructions and let them hear the discounted amounts as well as the medical providers’ charges, to hear “all the relevant evidence.” To do so would of course require a sea change in the collateral source rule, and would take California out of the majority rule in the United States, where, as Justice Sandra L. Margulies’ opinion points out “the great majority of decisions from other jurisdictions have concluded that the collateral source rule” encompasses “amounts written off” from medical bills “pursuant to contractual rate reductions.”

    To permit juries to hear the negotiated rates would also require that the jury hear an explanation of the contractual arrangements between plaintiff and their health plan, including the years that have been worked and the premiums that have paid, and between the health plan and the medical providers, including an examination of all the considerations and benefits that go into those contracts. That would turn every run-of-the-mill rear-end auto collision case into a graduate-level medical financing and insurance exposition, and would easily more than double the time served by jurors and the use of court days and resources needed for tort cases.

    On the other hand, if it is time we trust jurors to follow limiting instructions and let them hear about plaintiff’s health insurance, life insurance, and disability insurance, then we should also let juries hear about defendant’s liability insurance, or tell them when a corporate defendant is self-insured, and what that means. While we’re at it, shouldn’t we also tell jurors – many of whom are going without pay to serve – that defense counsel have been paid by the hour for every minute of work done on the case; that the defense experts work for these same insurance carriers and corporations in lawsuit after lawsuit; and that the plaintiff’s attorney, who has paid out of their own pockets for the plaintiff’s experts, will not be paid unless and until the jury compensates plaintiff for all the harm the defendant’s carelessness inflicted on them.

    These considerations, and the public policy and civil justice implications that flow from them are part and parcel of the collateral source rule in California and this nation, and the balance of justice it helps strike in our civil justice system.

    Yanez, like Howell before it, is the right result, a just result, and the time-tested result that most broadly respects and serves the economic interests of all the citizens, employers and medical providers in this state.

    Scott H.Z. Sumner is a partner in the consumer law firm, Hinton, Alfert & Sumner in Walnut Creek and San Francisco.