Volunteers of America v. Gardenswartz

242 P.3d 1080, 2010 Colo. LEXIS 861, 2010 WL 4595812

• Court: Supreme Court of Colorado
• Decided: November 15, 2010
• Docket: 09SC20
• Status: Published

Opinions

Chief Justice MULLARKEY

delivered the Opinion of the Court.

On certiorari review, we consider 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. We hold that under the collateral source rule, as codified by the contract clause of section 13-21-111.6, C.R.S. (2010), the plaintiff may recover in full. We therefore affirm the court of appeals. Tucker v. Volunteers of America Colo. Branch, 211 P.3d 708, 713 (Colo.App.2008).

I. Facts and Proceedings Below

The plaintiff, Richard B. Tucker,¹ was injured when he fell at an event sponsored by Volunteers of America Colorado Branch and Volunteers of America Foundation-Colorado (collectively "VOA"). He was billed $74,242 for medical services as a result of his injuries.²

Prior to the accident, Tucker purchased a health insurance policy from Aetna, for which he regularly paid premiums. Aetna was able to satisfy Tucker's medical debts with a payment of $43,236, which reflected $31,006 in medical discounts that the company had negotiated with his healthcare providers. Act-na thereby indemnified Tucker for the medical expenses that he incurred as a result of the tort committed against him. Tucker's policy included a subrogation clause entitling Aetna "to repayment of the full cost of all benefits provided by HMO on behalf of the Member that are associated with the injuries ... for which another party is ... responsible."

Tucker brought a tort claim against VOA for his injury. The jury awarded Tucker $81,385 in economic losses and $60,000 in non-economic losses for a total of $141,385. Because Tucker was found to be 49% at fault, his total jury award would have been $72,106. However, the trial court determined that under section 18-21-111.6, the jury verdict should be reduced to reflect the healthcare discounts secured by Aetna. It applied a formula³ to the economic losses component of the award and subtracted 80.8% of the healthcare write offs, a total of $84,985, from the total jury award of $141,885, leaving $106,450 in damages. Because Tucker was 49% at fault, the trial court further reduced Tucker's damages award to $54,290.

The court of appeals reversed, holding that the healthcare discounts fell under the contract exception of section 13-21-111.6 and therefore did not provide a proper basis for reducing the award. Tucker v. Volunteers of America Colo. Branch, 211 P.3d 708, 713 (Colo.App.2008).⁴

II. Collateral Source Rule

An understanding of the common law collateral source rule is essential in interpreting section 18-21-111.6, which codifies the collateral source rule.

Under the common law collateral source rule, making the injured plaintiff whole is solely the tortfeasor's responsibility. Any third-party benefits or gifts obtained by the injured plaintiff accrue solely to the plaintiff's benefit and are not deducted from the amount of the tortfeasor's liability. These third-party sources are "collateral" and are irrelevant in fixing the amount of the tortfeasor's liability.

The rule therefore allows double recovery by a successful plaintiff, "[CJompen-sation or indemnity received by an injured party from a collateral source, wholly independent of the wrongdoer and to which [the wrongdoer] has not contributed, will not diminish the damages otherwise recoverable from the wrongdoer." Colo. Permanente Med. Grp., P.C. v. Evans, 926 P.2d 1218, 1230 (Colo.1996) (quoting Kistler v. Halsey, 173 Colo. 540, 545, 481 P.2d 722, 724 (1971)); see also Crossgrove v. Wal-Mart Stores, — P.3d —, —-— (Colo.App.2010) (selected for publication) (discussing common law origins of collateral source rule).

The rule's purpose is to prevent a tortfeasor from benefitting, in the form of reduced liability, from compensation in the form of money or services that the victim may receive from a third-party source. See Quinones v. Pa. Gen. Ins. Co., 804 F.2d 1167, 1171 (10th Cir.1986) ("The rule evolved around the commonsense notion that a tort-feasor ought not be excused because the victim was compensated by another source, often by insurance."). Accordingly, the rule is somewhat punitive in nature. It prohibits the wrong-doer from enjoying the benefits procured by the injured plaintiff. If either party is to receive a windfall, the rule awards it to the injured plaintiff who was wise enough or fortunate enough to secure compensation from an independent source, and not to the tortfeasor, who has done nothing to provide the compensation and seeks only to take advantage of third-party benefits obtained by the plaintiff. See Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070, 1074 (Colo.1992) ("To the extent that either party received a windfall, it was considered more just that the benefit be realized by the plaintiff in the form of double recovery rather than by the tortfeasor in the form of reduced liability.").

Double recovery is permitted to an injured plaintiff because the plaintiff "should be made whole by the fortfeasor, not by a combination of compensation from the tort-feasor and collateral sources. The wrongdoer cannot reap the benefit of a contract for which the wrongdoer paid no compensation." Acuar v. Letourneau, 260 Va. 180, 531 S.E.2d 316, 323 (2000) (emphasis added) (holding that, under the collateral source rule, tortfea-sor may not reduce a plaintiff's award by the amounts written off by plaintiff's healthcare providers).

Under this rule, the benefits received by an injured plaintiff due to the plaintiff's third-party health insurance coverage are from a collateral source, and therefore are not to be considered in determining the amount of the plaintiff's recovery.

[It is the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor. If the plaintiff was himself responsible for the benefit, as by maintaining his own insurance ... the law allows him to keep it for himself. If the benefit was a gift to the plaintiff from a third party or established for him by law, he should not be deprived of the advantage that it confers.

Restatement (Second) of Torts, § 920A, emt.b (1979); see Van Waters, 840 P.2d at 1075 (citing same). The plaintiff's health insurance benefits certainly are not to be credited to the tortfeasor in reducing the plaintiff's award. See Dag E. Ytreberg, Collateral Source Rule: Injured Person's Hospitalization or Medical Insurance as Affecting Damages Recoverable, TI ALR. Fed. 415 (1977).

To ensure that a jury will not be misled by evidence regarding the benefits that a plaintiff received from sources collateral to the tortfeasor, such evidence is inadmissible at trial. Carr v. Boyd, 123 Colo. 350, 356-57, 229 P.2d 659, 662-63 (1951). It is also inadmissible in adjusting or reducing a plaintiff's damages award. See Crossgrove, — P.3d at —-—. Thus, the collateral source rule prohibits a jury or trial court from ever considering payments or compensation that an injured plaintiff receives from his or her third-party insurance.

III. Section 13-21-111.6

In 1986 the General Assembly modified the common law collateral source rule to a limited extent by enacting section 18-21-111.6 as part of a package of tort reforms. See ch. 107, see. 8, § 18-21-111.6, 1986 Colo. Sess. Laws 677, 679; see also, Van Waters, 840 P.2d at 1077.

Section 18-21-111.6 has two contrasting clauses. The first clause partially negates the collateral source rule. It directs a trial court, following a damages verdict, to adjust the plaintiff's award by deducting compensation or benefits that the plaintiff received from collateral sources (Le., sources other than the tortfeasor). The second clause, de-seribed as the "contract exception" or the "contract clause," retains the collateral source rule for certain benefits. See Colo. Permamente Med. Grp., 926 P.2d at 1230.

The statute provides as follows:

In any action by any person or his legal representative to recover damages for a tort resulting in death or injury to person or property, the court, after the finder of fact has returned its verdict stating the amount of damages to be awarded, shall reduce the amount of the verdict by the amount by which such person, his estate, or his personal representative has been or will be wholly or partially indemnified or compensated for his loss by any other person, corporation, insurance company, or fund in relation to the injury, damage, or death sustained; except that the verdict shall not be reduced by the amount by which [the injured plaintiff] has been or will be wholly or partially indemnified or compensated by a benefit paid as a result of a contract entered into and paid for by or on behalf of such person.

§ 18-21-111.6 (emphasis added).

Statutes in derogation of the common law must be strictly construed. See Van Waters, 840 P.2d at 1076 ("if the legislature wishes to abrogate rights that would otherwise be available under the common law, it must manifest its intent either expressly or by clear implication"). Section 18-21-111.6 did not sweep away the common law collateral source rule entirely. It only requires post-verdict offset of certain compensation received by the plaintiff. No offset is permitted if the benefits arise out of a contract entered into on the plaintiff's behalf. Specifically, under section 18-21-111.6, a tortfeasor is not entitled to offset proceeds resulting from a plaintiff's purchase of insurance. Id. at 1075. For purposes of this case, the common law collateral source rule remains in full force and effect.

We interpreted the effect of section 13-21-111.6 on the collateral source rule in Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070, 1074 (Colo.1992). In Van Waters, a tortfeasor injured a firefighter and, as a result of his injuries, the firefighter became occupationally disabled. Id. at 1072. The firefighter began receiving disability payments from his pension fund. Id. Relying on section 13-21-111.6, the tortfeasor sought to reduce the firefighter's damages award by the amount of his independently procured disability payments. Id.

We rejected the tortfeasor's attempt. First we determined that the language of section 18-21-111.6 was ambiguous and turned to other factors, including examining the legislative history, to determine the proper scope of the contract clause. Id. at 1077. We explained that although the history of the statutory provision indicated that the

general goal of section 18-21-111.6 was to limit double recoveries[, ilt also shows, however, an intent not to deny a plaintiff compensation to which he is entitled by virtue of a contract that either he, or someone on his behalf, entered into and paid for with the expectation of receiving the consequent benefits at some point in the future.

Id. at 1078. We concluded that the contract clause "clearly denies the setoff of benefits that result from private insurance contracts for which someone pays monetary premiums" and reasoned that in such cases, concerns about double recovery are mitigated by "the fact that the benefits were previously paid for by the person or by someone else on the person's behalf." Id. at 1078.

Even though the firefighter had not paid premiums towards his disability benefits, we ruled that the contract clause was broad enough to include contracts "for which a plaintiff gives some form of consideration." Id. at 1079. Because the firefighter had given consideration in the form of employment services, the disability payments were "entitled to the same protection against offset that would apply to benefits received as a result of an insurance contract for which that person had paid money." Id.

Therefore, we ruled that section 18-21-111.6 does not permit a tortfeasor to offset an injured plaintiff's benefits when they arise out of a contract entered into on the plaintiff's behalf. We expressly stated that the statute does not allow a tortfeasor to offset proceeds resulting from a plaintiff's purchase of insurance. Id. at 1078.

IV. The Contract Clause and Tucker's Insurance Policy

Because Tucker was indemnified for the entire amount of medical services billed against him as a result of the health insurance contract that he had purchased, his case falls squarely within the contract clause in section 18-21-111.6. Tucker therefore gets the benefit of the collateral source rule. The benefits from his Aetna policy, including the healthcare provider discounts, are from a collateral source, and the tortfeasor, VOA, may not use them to reduce its liability.

Tucker's - healthcare - providers - billed $74,242 for their services in treating his injuries. - Because Tucker had purchased a health insurance policy, his insurance company, Aetna, satisfied his medical debts with a payment of $48,236. - Moreover, Tucker's purchase of insurance meant that he could not be billed the difference between the amounts billed by his healthcare providers and his insurer's actual payments. See § 10-16-705(8), C.R.S. (2010) ("Every contract between a carrier and a participating provider shall set forth a hold harmless provision specifying that covered persons shall, in no cireumstances, be liable for money owed to participating providers by the plan and that in no event shall a participating provider collect or attempt to collect from a covered person any money owed to the provider by the carrier. Nothing in this section shall prohibit a participating provider from collecting coinsurance, deductibles, or copayments as specifically provided in the covered person's contract with the managed care plan.").

By agreeing to a provider contract with Aetna and accepting payment on Tucker's behalf, the healthcare providers gave up the right to seek compensation from Tucker for the amount billed. Tucker was thereby fully indemnified for the medical expenses that he incurred as a result of the tort committed against him.

The write offs required of Tucker's medical providers arose out of a contractual agreement between Tucker and a third party, le., the insurance company that negotiated the discounts. If Tucker had not been insured, the write offs would not have been applied to his medical bills and he would have been responsible for the billed amount. Thus, the write offs "are as much of a benefit for which [a plaintiff] paid consideration as are the actual cash payments by his health insurance carrier to the health care providers." Acuar, 531 S.E.2d at 322-23.

The collateral source rule prevents VOA from standing in Tucker's shoes and enjoying the same discounted medical rates as his insurance company receives. To hold otherwise "is to allow the tortfeasor to receive a windfall in the amount of the benefit conferred to the plaintiff from a source collateral to the tortfeasor." Pipkins v. TA Operating Corp., 466 F.Supp.2d 1255 (D.N.M.2006). The General Assembly wrote the contract clause to preserve the common law collateral source rule and prevent a windfall to a tort-feasor when a plaintiff received benefits arising out of the plaintiff's contract. By retaining the collateral source rule through the contract clause, the General Assembly avoided this unjust result.

We reject VOA's arguments to the contrary. VOA contends that the contract clause of section 18-21-111.6 includes only the amount that Aetna actually paid to Tucker's healthcare providers. VOA argues that it is entitled to benefit from the $31,006 in savings from Tucker's insurance and offset these savings to its benefit.

First, VOA contends that the medical discounts negotiated between insurers and healthcare providers are not contracts that are "entered into and paid for by or on behalf of" covered plaintiffs, and therefore do not come within the ambit of the contract clause. Instead, asserts VOA, insurers and healthcare providers enter into discounted pricing agreements only for their mutual benefit. Because Tucker was not an intended beneficiary of this agreement between Aetna and Tucker's healthcare providers, VOA argues that the first clause of section 18-21-111.6 applies and he may not benefit from the collateral source rule.

We reject this contention. The salient contract is the contract between Tucker and his insurance company, which gave rise to the discounted medical care pricing that VOA seeks to use in limiting its tort liability. Tucker's healthcare providers' write offs or discounts are a direct result of an insurance contract that Tucker entered into and paid for on his behalf.

Moreover, write offs or pricing contracts inure to the benefit of the insurance company, the healthcare provider, and the covered plaintiff. The health insurance company's primary purpose is to attract and retain customers. The insurance company seeks and obtains write offs or pricing contracts from healthcare providers in order to attract consumers based on a lower price for premiums. In addition to increasing the insurance company's customer base, such write offs or pricing contracts inure to the benefit of insured persons like Tucker by reducing the rate of health insurance premiums.

The healthcare providers benefit as well, in part by expanding their patient base. There are many reasons why insurance companies and healthcare providers enter into contracts that discount the full amount charged by the providers. For example, the insurance company's ability to pay a large volume of claims promptly may be attractive to providers seeking to minimize the cost of collections and bad claims. The provider may also be interested in having access to a larger pool of patients who have health insurance coverage. See Crossgrove, 2010 WL 2521744, at "B; see also Stanley v. Walker, 906 N.E.2d 852, 863-64 (Ind.2009) (Dickson, J., dissenting) (discussing reasons for discounted healthcare fee arrangements between healthcare providers and insurers). By paying health insurance premiums, insured plaintiffs like Tucker gain access to a pool of providers who will not erect barriers to his receipt of medical care based on his ability to pay.

Because the interests of the insurance company, the insured, and the healthcare provider are intertwined, it is an inaccurate oversimplification to assert that Tucker's insurer and healthcare providers entered into the write off contracts only to serve their own ends and not on Tucker's behalf, The contract between Tucker's insurance company and providers operates, at least in part, to his benefit,. More importantly, the discounted medical rates paid by his insurance company are a direct result of his health insurance contract, and therefore VOA may not claim these discounts to reduce its lability for the medical care that he received.

Second, VOA asserts that the healthcare provider discounts do not fall within the contract clause because they do not constitute a "benefit paid." VOA contends that the pricing differential between the amounts billed and the amounts paid is illusory because the charges are never actually paid by anyone. VOA also argues that because Tucker was prohibited from being legally liable for the difference between the amounts billed by his providers and the amount paid by his insurance company, he was not directly benefited by his insurance company's pricing contract.

However, by discharging Tucker's obligations to his medical providers, the insurer's remittances do constitute a "benefit" that was "paid." If Tucker had not had insurance coverage, he would have been liable for the entire amount billed or he may not have been treated at all. See Trevino v. HHL Financial Services, Inc., 945 P.2d 1345, 1350 (Colo.1997) ("When a hospital treats a patient's injuries, it has an enforceable claim for full payment for its services, regardless of the patient's financial status.").

Because he 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. See Acuar, 581 S.E.2d at 322-23; see also Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 129 P.3d 487, 495 (Ariz.Ct.App.2006) (holding that under the collateral source rule, the plaintiff is "entitled to claim and recover the full amount of her reasonable medical expenses for which she was charged, without any reduction for the amounts apparently written off by her healthcare providers pursuant to the contractually agreed-upon rates with her medical insurance carriers"). Because this is a benefit paid for by Tucker through the payment of his health insurance premiums, co-payments, and deductibles, it should not be deducted from his award. See Van Waters, 840 P.2d at 1078 n. 5 (examining the legislative history of section 18-21-111.6 and quoting Senator Meiklejohn's comment that "things that [a plaintiff] is paying for one way or the other ... ought [not] be deducted from a judgment").⁵

We recognize that there may be a disparity between the cost of medical services that are billed to a consumer and the amounts that are actually paid by insurance companies. It can be tempting to treat the discounted amounts as being a truer reflection of a plaintiff's damages. However, the write offs reflect the negotiating power of Tucker's insurer and its successful leverage in requiring providers to accept discounted reimbursement:

Although "discounting" of medical bills is a common practice in modern healthcare, it is a consequence of the power wielded by those entities, such as insurance companies, employers and governmental bodies, who pay the bills. While large "consumers" of healthcare such as insurance companies can negotiate favorable rates, those who are uninsured are often charged the full, undiscounted price. In other words, simply because medical bills are often discounted does not mean that the plaintiff is not obligated to pay the billed amount. Defendants may, if they choose, dispute the amount billed as unreasonable, but it does not become so merely because plaintiff's insurance company was able to negotiate a lesser charge.

Arthur v. Catour, 345 Ill.App.3d 804, 281 Ill.Dec. 243, 803 N.E.2d 647, 649 (2004) (under the collateral source rule, the "plaintiff's damages are not limited to the amount paid by her insurer, but may extend to the entire amount billed, provided those charges are reasonable expenses of necessary medical care").

Furthermore, the trial setting is the proper forum for the parties to present evidence regarding the proper value of an injured plaintiff's damages. As noted above, the trial transcript is not before us but VOA conceded at oral argument that it chose not to contest the valuation of Tucker's medical benefits because the trial court had ruled in limine that it would apply an offset under section 13-21-111.6. The jury determined Tucker's damages award accordingly. It is unwarranted speculation to substitute Aetna's discounted healthcare provider rates for the jury's determination regarding the reasonable value of the medical services rendered to Tucker.

We also reject VOA's contention that, contrary to the collateral source rule and the contract clause, a plaintiff's investment in his own insurance should operate to the benefit of the plaintiff's tortfeasor. Crediting VOA with the healthcare discounts paid for by Tucker's independently purchased health insurance would in effect penalize Tucker for his foresight in purchasing health insurance. Indeed, limiting Tucker to recovery only of his healthcare provider's discounted rates would under-compensate Tucker because he would receive no reimbursement for the premiums, co-payments, and deductibles that he has paid in obtaining and maintaining his health insurance. This does not comport with the legislature's enactment of the contract clause or the interpretation of section 13-21-111.6 in Van Waters.

Although the General Assembly was concerned about reducing tort awards and eliminating double recovery in some senses, the legislature would have eliminated the collateral source rule entirely if this had been its only concern. The General Assembly did not go that far. Instead, it chose to allow a plaintiff to obtain the benefit of his contract, even if the award resulted in a double recovery. This is consistent with the common law position that it is more repugnant to shift the benefits of the plaintiff's insurance contract to the tortfeasor in the form of reduced liability when the tortfeasor paid nothing toward the health insurance benefits.

Moreover, the General Assembly was also concerned about fairness in damages awards. See Van Waters, 840 P.2d at 1078 n. 5 (examining the legislative history of section 18-21-111.6 and quoting Senator Meiklejohn's comment that "(there's something unfair about me getting killed and my wife suing somebody and collecting, my insurance pays off and that goes as a credit against the judgment"). - Crediting the financial windfall arising from Aetna's discounted rates to the injured plaintiff is consistent with the principles of the collateral source rule. See Acuar, 531 S.E.2d at 322 (The focus "is not whether an injured party has 'incurred' certain medical expenses. Rather, it is whether a tort victim has received benefits from a collateral source that cannot be used to reduce the amount of damages owed by a tortfeasor."). This point is made by the court in Hardi v. Mezszanotte:

[A] private insurance carrier paid [plaintiffs] medical expenses. That source is wholly independent of [the tortfeasors]. Because any write-offs conferred would have been a byproduct of the insurance contract secured by [plaintiff], even those amounts should be counted as damages. Therefore, because any write-offs enjoyed by [plaintiff] were negotiated by her private insurance company, a source independent of [the tortfeasors], they should be included in her damages. Under the collateral source rule, she is entitled to all benefits resulting from her contract.

818 A.2d 974, 985 (D.0.2003) (internal citations omitted).

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. See also Van Waters, 840 P.2d at 1078 (the legislative history "shows [] an intent not to deny a plaintiff compensation to which he is entitled by virtue of a contract that either he, or someone on his behalf, entered into and paid for with the expectation of receiving the consequent benefits at some point in the future").

Our holding is consistent with the statutory contract clause and the rationale of the collateral source rule, which reject the notion that a tortfeasor may draw on sources wholly collateral to itself to reduce the compensation owed to the injured plaintiff. This result is also consistent with the principle that statutes in derogation of the common law are to be construed narrowly.

Here, the write offs that Tucker's healthcare providers applied to his medical bills were a direct result of the benefits negotiated by his health insurance company, which is a source independent of the tortfeasor. See Hardi, 818 A.2d at 985. Therefore, VOA may not receive any consideration or benefit from the write off or discount provisions of Tucker's health care contract.

V. Conclusion

For the above reasons, we affirm the court of appeals' decision. We remand this case to the court of appeals so that it may be returned to the trial court for further proceedings consistent with this opinion.

Justice RICE dissents, and Justice COATS and Justice EID join in the dissent.

1 . Respondents Wayne Gardenswartz and Zachary C. Tucker are Richard B. Tucker's personal representatives.

2 . A transcript of the trial proceedings is not part of the record before us. According to Tucker, the parties stipulated to the admission of the healthcare providers' medical bills at trial and Tucker presented expert testimony that the services rendered were medically necessary, and that the amounts billed represented the reasonable value of the services provided. At oral argument, VOA conceded that because the trial court had ruled in limine that it would apply section 13-21-111.6 post-verdict, it did not submit evidence at trial regarding the value of the medical services.

3 . First it reduced Tucker's $81,385 economic damages award by his total amount of miscellaneous expenses of $15,626, leaving $65,759, which represented 80.8% of the total amount of the medical expenses submitted by plaintiff. The court then applied the 80.8% reduction to the $43,236 paid to his healthcare providers, leaving $34,935. It subtracted $34,935 from the total jury award of $141,385.

4 . We granted certiorari review on the following issue: Whether the statutory Collateral-Source Rule, § 13-21-111.6, C.R.S., requires or prohibits an award to a tort plaintiff for the amount of medical expenses for which the plaintiff has no liability because the expenses exceed the prices that are established under a private contract between a health-care insurer and health-care provider.

5 . We are not aware of any discussion of healthcare provider write offs or discounts in the legislative history, and VOA has identified no relevant history. Write offs and discounts may not have been common in 1986. At oral argument, VOA suggested that the General Assembly had not foreseen the advent of managed care health plans and their practice of requiring provider discounts.