In Howell v. Hamilton, the Fourth Appellate District of California recently helped to clear up a debate that has been raging regarding California’s collateral source rule, the reduction of past medical damages at trial to what was paid by a health insurance company, and the application of two cases that have come to stand for the entire proposition or debate – Hanif and Nishihama.

The case involved a typical scenario – personal injury action, the plaintiff or injury victim has private health insurance, the defense sought to have the damages reduced in a post verdict hearing, which the trial court allowed and did in fact reduce the past medicals to what had been paid by the injury victim’s health insurance.

On appeal the Court decided, specifically:

“. . .whether a plaintiff who has private health care insurance in a personal injury case may recover, under the collateral source rule, economic damages for the amount of past medical expenses that her health care providers have billed, but which neither the plaintiff nor her health care insurer is obligated to pay because the providers have agreed, under contracts into which they have entered with the insurer, to accept – as payment . . . [s]tated differently, is the difference [referred to as the negotiated rate differential] . . .between (1) the full amount of the medical providers’ bills, (2) the lesser amount paid by the private health care insurer in cash payments to the medical providers that the providers have agreed to accept as payment in full pursuant to their agreements with the insurer, a benefit within the meaning of the collateral source rule such that the plaintiff is entitled under that rule to recover the amount of the negotiated rate differential as part of her medical economic damages . . . ?” (emphasis added)

To make a long story short, the Court found that such benefits (the negotiated rate differential) was a collateral source benefit within the meaning of the collateral source rule and therefore reversed the trial court’s ruling.

To be exact, the Court held that trial court had erred by granting the defendants’ post-verdict reduction of the jury’s special verdict award because the in a personal injury case where the injury victim has private health insurance, the negotiated rate differential is a benefit within the meaning of the collateral source rule, and thus the injury victim may recover that amount as part of the recovery for past medical care due to her injuries.

The Court made clear what injury attorneys have known and argued for some time – reliance on Hanif by the defense is misplaced because for starters Hanif was a Medi-Cal case where there was no liability or potential for liability beyond what was paid by the Medi-Cal.  And, as important was the fact that the collateral source rule was not at issue or addressed by the Hanif court.

The Court also made clear that the Nishihama court should have analyzed the issue of whether the injury victim was entitle to recover damages for past medical under the collateral source rule and not under the hospital’s lien rights.  The two issues, as the appellate court made clear, were independent and unrelated.  But because the Nishihama court’s analysis was not based on the collateral source rule, the defendant’s reliance on it was misplaced.

Further, in regards to Nishihama the Court agreed with Justice Moore’s position in Olsen v. Reid that “without statutory authority or the Supreme Court’s blessing, the Hanif/Nishihama line of cases divorced the collateral source rule from the complicated area of medical insurance[,]” and “[a]bsent such approval, Hanif/Nishihama simply goes too far.”

The Court of Appeal’s reasoning in Howell is sound, well thought out, and sensible.  Until such time as the California Supreme Court decides to address this question and issue within the context of the collateral source rule Howell should be followed and applied broadly.