Full Disclosure: Bordas & Bordas' partner Scott Blass helped prepare an amicus brief, on behalf of the West Virginia Association for Justice, for the prevailing party in this case.
The plaintiff was a passenger in a car sitting at a stop light. The defendant, who had been drinking heavily, slammed into the rear of the car. The force of the impact broke the plaintiff’s seat. As a result of the impact, the plaintiff suffered severe and permanent back injuries and incurred over $70,000 in medical bills.
The plaintiff’s health insurer had an agreement with participating health care providers whereby medical bills would be reduced to a specified amount and the remainder would be “written off.” The defendant filed a motion in limine to prevent the plaintiff from introducing any proof of, or recovering, any amounts that were written off. The trial court denied this motion, finding that the write offs were a collateral source. Thereafter, the jury awarded over $300,000 in compensatory damages, including $74,000 in medical bills.
After the jury returned its verdict, the parties proceeded to the punitive damages phase of the trial. The defendant testified that he had only $100,000 in liability insurance coverage. However, when questioned by the plaintiff, the defendant conceded that he was aware his insurer might be required to pay the entire verdict, even if it exceeded $100,000. The trial court instructed the jury that an additional insurance coverage “may or may not” be available to pay the verdict. The jury then awarded an additional $300,000 in punitive damages.
The Supreme Court addressed two issues: (1) whether health insurance “write offs” are a collateral source? and (2) whether, during the punitive phase, the trial court correctly permitted questioning regarding additional insurance coverage and correctly instructed the jury?
The first issue relates to what is known as the collateral source rule.
The Supreme Court recognized that the collateral source rule is “staple” of American tort law that actually predates the Civil War. Essentially, the rule provides that a tortfeasor receives no credit for payments made by a third party (e.g., through insurance, gifts, or employment or government benefits). As the Court put it: “Even though these collateral sources mitigate the injured party’s loss, they do not reduce the tortfeasor’s liability.”
The collateral source rule operates in two distinct ways, that is, as a rule of evidence and also as a rule of damages. As a rule of evidence, the collateral source rule “precludes the defendant in a personal injury or wrongful death case from introducing evidence that some of the plaintiff’s damages may have been paid by a collateral source.” This is so because the jury will likely be confused by proof of any collateral source payments, resulting in prejudice to the plaintiff. As a rule of damages, the defendant is precluded from “offsetting the judgment against any receipt of collateral sources by the plaintiff.” The rationale for this part of the rule is that, as a matter of policy, the tortfeasor should not benefit from independent arrangements made by the injured party.
With this background, the Supreme Court proceeded to the specific question raised herein--i.e., whether write offs of medical bills are treated as a collateral source.
Citing cases from over a dozen jurisdictions, the Supreme Court joined the clear majority by concluding that write offs are, indeed, a collateral source. The court reasoned that the plaintiff became liable for the bills at the time medical care was provided and, therefore, the plaintiff is entitled to recover their full value. Any reduction, discount, or write off that occurs after the fact is “a gratuitous benefit arising from the plaintiff’s bargain with the medical provider.” This principal was summarized in a new syllabus point:
“Where an injured person’s health care provider agrees to reduce, discount or write off a portion of the person’s medical bill, the collateral source rule permits the person to recover the entire reasonable value of the medical services necessarily required by the injury. The tortfeasor is not entitled to receive the benefits of the reduced, discounted or written off amount.”
The second issue relates to proof that the defendant may have had additional coverage over and above his policy limits.
Under Shamblin v. Nationwide Mut. Ins. Co., 183 W.Va. 585, 396 S.E.2d 766 (1990), an insurer may be held liable for the full amount of any judgment returned if it fails to fully protect the policyholder by settling within policy limits where there exists an opportunity to do so. In this case, the plaintiff made a policy limits demand, but the defendant’s insurer refused to settle for policy limits. Therefore, under Shamblin, the insurer had “prima facie failed to act in the [policyholder’s] best interest.”
The defendant complained that there had been no judicial determination of any Shamblin liability and, thus, any questioning of the defendant regarding additional coverage that might be available under Shamblin was premature and speculative. The defendant also complained that the trial court’s instructions to the jury regarding this issue amounted to an improper comment on the evidence.
The Supreme Court rejected both of these arguments. The defendant’s attorney opened the door to this issue by leaving the impression that only $100,000 in coverage was available. True, there had not been a Shamblin ruling, but even without a ruling Shamblin’s presumption was still in play--the insurer had prima facie failed to act appropriately. Thus, the trial court acted within its discretion when it permitted questioning regarding additional coverage. The trial court’s instruction was also found to be accurate, fair and free from error.
Justice Loughry dissented, finding that the majority’s rationale “defies both logic and common sense.” Write offs are not amounts that are actually incurred by the plaintiff but, rather, are amounts which the health care provider “never actually expects to be paid and never will be paid.” Indeed, Justice Loughry likened the whole medical billing process to “retailers who raise the price of their goods by 25% before having a 10% off sale.” Thus, he concluded, using the full amount of a medical bill as the value of the services provided “ignores the reality of modern medicine economics.”
This is a highly significant case. Clearly, health insurers have taken full advantage of their bargaining power and have negotiated substantially reduced rates with health care providers. Write offs are a regular, everyday reality in the world of health care. But the fact remains that an injured party would be liable for the full amount of the bill if it weren’t for the health insurer’s independent arrangements with the provider. Thus, the full amount of the bill is a fair, accurate and reasonable measure of the value of the services provided. Any write offs of the billed amount are made is for the benefit of the injured party, not the wrongdoer. Applying the collateral source rule to write offs guarantees that tort victims, like young Kyle here, will be fully compensated for their injuries.