The Collateral Source Rule After Martinez v. Milburn
| Publication year | 2013 |
| Pages | 30 |
The Collateral Source Rule After Martinez v. Milburn
By Hon. Kevin P. Moriarty and Katie Beye
The collateral source rule is a long-standing mandate that requires the tortfeasor to compensate an injured party for the harm they have caused. The Restatement of Torts states that "[p]ayments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable."[1] Further, a tortfeasor should be responsible for compensating the injured party for all harms, not just the "net loss" to the injured party.[2] The Kansas Supreme Court has ruled that "benefits received by the plaintiff from a source wholly independent of and collateral to the wrongdoer will not diminish the damages otherwise recoverable from the wrongdoer."[3] The rule is both a "substantive rule of damages and a procedural rule of evidence."[4] This prevents both the reduction of awards based on payments made by third parties and the introduction of evidence as to how much, if anything, a third party has paid to the benefit of the plaintiff.[5]
I. Establishment of the Collateral Source Rule
The collateral source rule has long been a part of the common law of the United States and the state of Kansas. Scholars trace the advent of this rule to the U.S. Supreme Court's ruling in The Propeller Monticello v. Mollison.[6] In that case, the Court allowed a boat owner to sue for damage done to his boat, even though the losses were covered by insurance.[7] The Court reasoned that the defendant's financial responsibility did not depend on the amount paid by insurance as it was a third-party business deal unrelated to the injury at hand.[8] Over time, the collateral source rule was adopted in some form by all fifty states except Alabama.[9]
In Kansas, the foundation for the rule can be seen in the 1906 decision of Lewark v. Parkinson.[10] The Kansas Supreme Court ruled that a tortfeasor is liable for all damages caused by negligent behavior, even if the care was provided by family members at no cost to the injured party.[11] The 1918 case of Berry v. Dewey is generally regarded as the first case in Kansas to specifically recognize the collateral source theory.[12] In that case, a mother received benefits after the death of her son. The Kansas Supreme Court ruled that those benefits could not be deducted from the damages awarded to her in a suit for the wrongful death of her son based on the principles of equity and fairness.[13]
The Kansas Supreme Court has traditionally been strict in applying the collateral source rule. In Martinez v. Milburn Enterprises, the dissent writes, "As the 100-year-old history of this court's treatment of [this rule] illustrates, we have traditionally viewed the introduction of collateral source evidence with disdain."[14] For example, in Rexroad v. Kansas Power and Light Co., the fact that the injured plaintiff had insurance was of "no concern" to the wrongdoer.[15] In 1988, the Court stated, in Harrier v. Gendel, that the introduction of collateral source benefits was "inherently prejudicial and requires reversal."[16] However, changing circumstances, largely in modern medical billing practices, is causing complications in the administration of this traditionally straightforward rule.
II. Erosion of the Collateral Source Rule
In recent years, several states have reviewed and modified the common law and statutory authority prohibiting the introduction of evidence of collateral source payments. The action has generally been in response to concerns about the rising costs of medical malpractice suits.[17] Variation in these efforts has created a "jurisdiction-specific legal patchwork" nationwide.[18] As of late 2008, 17 states retain the common-law collateral source rule.[19] The remainder of the states allow varying admission of collateral source evidence in all personal injury cases, while others allow it only in medical malpractice suits.[20] There are some jurisdictions that allow collateral source evidence to be presented at trial while others allow it only for post-verdict reductions in damages.[21] Some states will not allow the introduction of collateral source evidence if the insurer has a subrogation right to collect part of any damages awarded to the injured party.[22] The national increase in individuals who are covered by health insurance or Medicaid/ Medicare has contributed greatly to the complicated application of the rule, making inconsistency prevalent.[23]
In Kansas, there have been several attempts to legislatively modify the collateral source rule. The first attempt in 1976 applied only to medical malpractice cases where the collateral source benefit was insurance that neither the plaintiff nor his or her employer had secured.[24] That attempt was ruled unconstitutional in Wentling v. Medical Anesthesia Services on the grounds that it unconstitutionally discriminated against those not injured by a health care provider and those who received insurance gratuitously. [25] Two more statutes passed in 1985 and 1988 that attempted to limit the use of the collateral source rule were also subsequently struck down on equal protection grounds.[26] The most recent attempt to modify the collateral source rule was a bill that passed the Senate in 2006, but did not pass the House of Representatives.[27] The bill attempted to abrogate the rule in all personal injury cases and require the court to reduce the damages by the plaintiff's collateral source benefits.[28]
The failure of those legislative efforts to modify the collateral source rule does not mean that Kansas courts have not done what the legislature was unable to accomplish. Since 1996, judicial decisions regarding "write-offs," meaning the reduction in charges actually billed to the injured party due to a previous deal between some third party and private insurance or a government program like Medicaid or Medicare, have chipped away at the traditional notion of the collateral source rule.
A. Bates
The first case to review the collateral source rule as applied to write-offs was Bates v. Hogg.[29] Following an injury accident in which the defendant's truck struck the plaintiff's car from behind, the defendant filed a motion in limine to limit the introduction of evidence to the cost of treatment billed to Medicaid, excluding the hospital's write-off.[30] The trial court granted that motion.[31] On appeal, the Kansas Court of Appeals first stated that the purpose of damages is to return the injured party to the position he or she was in before the injury.[32] Under that reasoning, the court found that the collateral source rule did not apply, as the purpose of the rule was not served by allowing evidence of damages greater than that charged to Medicaid.[33] The court reasoned that the charge billed to Medicaid became the "customary charge," and by agreement, any costs in excess of that charge cannot be billed to the individual.[34] The court further justified the result, stating that "[i]t would be unconscionable to permit the taxpayers to bear the expense of providing free medical care to a person and then allow that person to recover damages for medical services from a tortfeasor and pocket the windfall."[35] Bates essentially limited the collateral source rule so that the injured party could only seek damages up to the amount paid by the collateral source, not those costs which were written off and "paid by no one."[36]
B. Rose I
The first case to reach the Kansas Supreme Court on the issue of the collateral source rule as applied to medical write-offs was Rose v. Via Christi Health Systems, known as Rose I. Plaintiff's executor sued the hospital where Rose was injured and asked for damages. The trial court denied defendant's pre-trial motion to limit the damages to those actually paid by Medicare, stating that the collateral source rule prevented the introduction of such evidence.[37]...
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