W.Va. SC clarification of collateral source rule boon for plaintiffs, bust for business

CHARLESTON -- West Virginia has long recognized the “collateral source rule,” which precludes the admission of evidence at trial that an external source paid some or all of the damages that a Plaintiff seeks to recover.

Before trial, parties argue whether the Plaintiff may submit to the jury:

1. The higher amount that was actually billed by a medical provider as damages;

2. The lower amount actually paid after any discount or write-off by the hospital or medical provider, which is frequently argued by the Defendant;

3. The amount actually paid by a health plan.

Only one party can receive the benefit of the write-off. In West Virginia, it is the Plaintiff.

For instance, assume that the injured Plaintiff required medical treatment totaling $100,000.00 in bills. The Plaintiff has medical insurance and the hospital agrees to accept $40,000.00 in satisfaction of the entire bill. May the Plaintiff present to a jury damages in the amount of the original bill, in this case $100,000.00, or must they present the discounted amount, $40,000.00?

What if the premium for Plaintiff’s medical insurance is paid by her employer? What if the medical bills are paid for by public programs funded by taxpayers such as Medicaid or Medicare? Under these scenarios, Plaintiff would never actually incur any of those expenses. May they still present the full amount billed by the hospital? Defendants often argue that allowing a jury to award damages based on numbers that do not accurately reflect the Plaintiff’s actual losses creates a wind-fall in favor of the Plaintiff.

Further, write-offs are common industry practice and represent an inflated number that neither the Plaintiff nor the health plan actually pays.  Many argue that the collateral source rule defies the basic principle that a Plaintiff should be awarded damages sufficient to be “made-whole” and compensate the actual losses.

The West Virginia Supreme Court recently reaffirmed and clarified the application of the collateral source rule when it held that the rule protected the amounts discounted from the plaintiff’s medical bill or written off by the medical provider.

In Kenney v. Liston, No. 13-0427 (W. Va. June 4, 2014) (majority opinion delivered by Justice Ketchum), John N. Kenney appealed a verdict from the Circuit Court of Monongalia County where the jury awarded compensatory and punitive damages in a car wreck caused by a drunk driver. Defendant’s appeal challenged the collateral source rule.

On April 6, 2010, Samuel C. Liston was a passenger in a vehicle sitting at a stoplight. The Defendant, without braking, slammed his car into the rear end of the vehicle in which Mr. Liston was riding. Prior to the collision, the Defendant had consumed multiple alcoholic beverages.

Mr. Liston suffered serious injuries to his spine as a result of the collision, incurring medical bills in excess of $70,000.  Prior to trial, by an agreement between the Plaintiff’s medical providers and health insurance carrier, the medical bills were discounted, reduced, or adjusted downward.  The Defendant filed a motion to preclude Mr. Liston from introducing evidence of the written-off amounts at trial because the full bills were neither paid nor actually incurred by Mr. Liston or his health insurance carrier. The circuit court denied the Defendant’s motion because the write-offs were a collateral source. The jury awarded Plaintiff $325,272.92 in compensatory damages, which included $74,061.00 for Plaintiff’s past medical expenses, and $300,000.00 in punitive damages.

The Defendant appealed and argued that the trial court erred in applying the collateral source rule to exclude the medical expenses that were discounted or written off.  The Plaintiff argued that the collateral source rule protected the entire amount initially billed.

The West Virginia Supreme Court held that the collateral source rule protected the amounts discounted from the Plaintiff’s medical bill or written off by the medical provider. The Court further noted that the “amount of the medical expense that was discounted or written off can be considered both a benefit of the Plaintiff’s bargain with his health insurance carrier, and a gratuitous benefit arising from the Plaintiff’s bargain with the medical provider.”

The result of this ruling impacts businesses involved in litigation where the Plaintiff was allegedly injured during the course of the employer’s business, for example, a motor vehicle accident.  The Court further clarified that this rule applies equally to payments by insurance policies maintained by a third-party, employment benefits, services or benefits rendered gratuitously, and social legislation benefits. Thus, the Defendant is not entitled to the benefit of any write-offs and discounted payments.

French is a partner at Huddleston Bolen in the firm's Charleston office.