Offset Case Analysis

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Despite the holding, plaintiffs’ attorneys should continue to oppose offsets where the subrogated insurer defaults, and preserve the issue for potential review in the Wisconsin Supreme Court.

The holding in Lambert v. Wrensch, 135 Wis. 2d 105, 399 N.W.2d 369 (1987), has always been contrary to public policy, and recent cases from the Supreme Court undermine it.

When a subrogated insurer defaults, some party is bound to receive a windfall, either the injured party, or the tortfeasor; the only question is who. The rule from Lambert is in direct conflict with the general principle that, in such a case, the injured party should be the one to receive the windfall.

Admittedly, in Koffman v. Leichtfuss, 2001 WI 111, 246 Wis.2d 31, 630 N.W.2d 201, 211-212, the court limited but reaffirmed the continued viability of Lambert. At no point, however, did the court attempt to explain how Koffman can be reconciled with the collateral source rule — “grounded in the long-standing policy decision that should a windfall arise as a consequence of an outside payment, the party to profit from that collateral source is ‘the person who has been injured, not the one whose wrongful acts caused the injury.’” Id., 630 N.W.2d at 209

The Supreme Court most recently addressed the collateral source rule in Leitinger v. DBart, Inc., 2007 WI 84, — N.W.2d —, 2007 WL 1892569 (July 3, 2007).

In Leitinger, the defendant sought to introduce evidence of the amount the subrogated insurer actually paid for the plaintiff’s medical bills, as evidence of the actual reasonable value of those services. The defendant argued that the amounts originally billed represent nothing more than an “offer” and dismissed the amounts as “fantasy billing.”

However, the Supreme Court held that the defendant could not introduce those amounts, even if the result is double recovery for the plaintiff: “Although an injured person may experience double recovery when the collateral source rule is applied, one recovery from the collateral source and a second recovery from the tortfeasor, the purpose of the collateral source rule is not to provide the injured person with a windfall, but rather to prevent the tortfeasor from escaping liability because a collateral source has compensated the injured person. The injured person, not the tortfeasor, benefits from the collateral source.” Leitinger, at par 34.

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In the case at bar, it is likely that the plaintiff’s actual medical bills exceeded the roughly $42,000 that his insurer paid to settle them (suppose they were actually $55,000). The plaintiff still gets some double recovery — the $13,000 difference that represents what the defendant in Leitinger dubbed “fantasy billing” — inflated bills that the health care provider does not even expect to be paid. However, the plaintiff does not get double recovery on the $42,000 that the medical services were actually worth.

It makes no sense for courts to jealously safeguard against double recovery by a plaintiff, when a subrogated insurer defaults, while freely permitting double recovery for amounts that health care providers bill, but don’t expect to be paid.

In this case, Otto attempted to distinguish Lambert. The stronger argument is that Lambert should be overruled altogether.

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David Ziemer can be reached by email.