TORT REPORT: State Supreme Court allows plaintiffs to continue to recover phantom damages

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By Patricia Stone

The Wisconsin Supreme Court ruled in Orlowski v. State Farm Auto. Ins. Co. (2012 WI 21) that, like other personal injury cases, in those cases involving uninsured motorist coverage, the plaintiff is entitled to the full amount of past medical expenses, even those amounts that were written off by the medical providers as a result of a contractual agreement between the medical provider and health insurer.

This ruling continues a long line of Wisconsin cases that distinguish the state from the majority of its counterparts.

The collateral source rule is implicated in such situations, and can be stated, generally, as follows: If an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages that the plaintiff would otherwise collect from the tortfeasor. Because a collateral payment cannot be used to reduce recoverable damages, evidence of such payment is generally inadmissible for that purpose.

A recent California Supreme Court ruling addressed the rule and found that allowing plaintiffs to recover all medical costs billed, including a vast majority that are not paid, results in a windfall to plaintiffs. In Howell v. Hamilton Meats & Provisions Inc., the California Supreme Court addressed whether, when a tortiously injured person receives medical care and the medical provider accepts as full payment an amount less than what is billed, should a finder of fact be made aware of the billed amount or just the payment amount?

According to the court in Howell, because the lesser amount was accepted as payment-in-full and the injured plaintiff did not suffer any economic loss for the billed amount, the only evidence presentable to a jury is the amount that the medical provider accepted as payment in full. Howell v. Hamilton Meats & Provisions Inc., 52 Cal.4th 541, 257 P.3d 81 (2011).

The court goes on to distinguish an acceptance of a lesser amount being that of a gift to the patient, or the result of a contractual relationship between a medical provider and an insurance company, for instance. In the case of a contractual relationship, it is understood that such a contractual arrangement is for the benefit of both parties (i.e. the medical care provider and the insurer). Medical care providers agree to a lesser amount for services with insurers because payment is assured – unlike when individuals are obligated to pay for a medical service. This acceptance of a lower amount is not done so as a gift to the patient, nor the insurer, rather it is done so purely for commercial reasons.

The court therefore reasoned that a plaintiff should be entitled to all those expenses that were actually incurred. Because the billed amount was never incurred by the plaintiff, he or she should not be entitled to be placed in a better financial position than before the tort was committed.

In stark contrast, the Wisconsin Supreme Court has consistently ruled, including the most recent ruling on Orlovski, that the collateral source rule allows for a plaintiff to prove the full amount of medical charges, despite the fact that the plaintiff’s insurer actually paid a lesser amount. The defendant, conversely, cannot use the lesser amount to prove that it is the “reasonable” value of the services.

As noted above, Wisconsin is in the minority in this regard. The vast majority of states allow for the introduction of evidence regarding the amount of medical care paid for, rather than billed, while also mandating a reduction of the verdict in that amount.

To date, only a handful of states mirror Wisconsin’s rule and disallow the introduction of evidence regarding the amount of payment for medical services. New legislation has been sweeping through state legislatures – including those in Oklahoma and Texas – that explicitly preclude the introduction of evidence of medical amounts billed, where a lesser amount was accepted as full-payment.

It is yet to be determined whether Wisconsin, with its current legislative initiative of tort reform, will follow suit.

Patricia Stone is an associate at McCoy Law Group SC, Waukesha.  The firm has a civil litigation practice that includes insurance defense, construction disputes and commercial/business litigation.