On August 18, 2011, the California Supreme Court rendered its long-awaited decision in Howell v. Hamilton Meats & Provisions, Inc., holding it does not violate the collateral source rule to limit the recovery of economic damages in a personal injury action to the discounted amounts actually paid to medical care providers by the plaintiff’s insurance carrier.

Knowing that the calculation of non-economic “general” damages has traditionally been based in large part upon the amount of “medical specials” incurred, plaintiff had argued vigorously that amounts actually billed by medical care providers are relevant evidence and that the collateral source rule precludes the post-trial reduction of economic damages based upon discounts negotiated between the insurance company and the provider, contending that the “negotiated rate differential” is a benefit of plaintiff’s decision to purchase health insurance.

The Court disagreed, concluding that the collateral source rule “has no bearing on amounts that were included in a provider’s bill but for which the plaintiff never incurred liability because the provider, by prior agreement, accepted a lesser amount as full payment.”

The Court’s 6-1 decision has proven to be as controversial and confusing as it was lopsided. After holding that “evidence of the full billed amount is not itself relevant on the issue of past medical expenses,” the Court went on to state: “We express no opinion as to its relevance or admissibility on other issues, such as noneconomic damages or future medical expenses.”

So how does the Howell decision alter the landscape for future settlement negotiations?

In the short run, defendants will undoubtedly temper their settlement offers, believing that juries will be less likely to award substantial “general” damages absent evidence of substantial “special” damages.

In the long run, however, the Howell decision does not necessarily bode poorly for plaintiffs. Some in the legal community have argued that the logical nexus between “special” damages and “general” damages is illusory and that “general” damage awards must stand on their own. Adapting to Howell, counsel for plaintiffs are likely to find new and better ways to communicate the nature and extent of the pain and suffering experienced by their clients. “Day in the Life” videos and other techniques are likely to be used with greater frequency — and eventually greater impact — at mediation, arbitration and trial.

Although Howell has been criticized by the plaintiffs’ bar as having done fundamental and irreparable damage to the collateral source rule, the decision may someday be viewed more charitably — perhaps, ironically enough, as one which helped generate a new wave of even more creative and effective advocacy techniques on behalf of plaintiffs by their counsel.

As always, it would be my pleasure to assist you and your clients in the dispute resolution process. Please don’t hesitate to contact me if I can be of service.

Best regards . . .

Floyd J. Siegal
fjs@fjsmediation.com