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How to Combat Insurance Company Denial of Medical Specials

How to Combat Insurance Company Denial of Medical Specials

Posted By The Dunnion Law Firm || 16-Sep-2009

Problem: Insurance companies, defense attorneys, and many courts, contend that a plaintiff is entitled to receive only the amount actually paid by the health insurance company as plaintiff’s medical special damages.

Question #1: What is a Plaintiff entitled to receive as special damages when a form of medical insurance has paid their medical bills?

Question #2: What arguments can be made to insurance adjusters, defense attorneys, mediators, arbitrators, and judges who take this position? What authority can be cited in support of these arguments?


Insurance companies and defense attorneys have always sought ways to reduce the amounts payable to claimants bringing claims based upon negligence. If the amount a Plaintiff can collect, as “special damages,” is limited, the insurance company reduces the dollars paid out on claims. In recent years, it has become fashionable to reduce the amount of a Plaintiff’s medical special damages based upon “adjustments” made by medical providers when they receive payment from a health insurance.

This practice has become so routine that many insurance companies refuse to make any offer of settlement on a third party liability claim without receiving the “Hanif specials” showing the amounts actually paid to the providers by a health insurance. Defense attorneys routinely seek to introduce into evidence the amount of contractual write offs along with requests to the Court to limit the amount of medical specials the plaintiff can present to the jury.

It has become common for trial judges to accept as California law that plaintiffs are entitled to only receive medical special damages equal to the “Hanif specials.” A number of Court of Appeal cases have followed this line of reasoning and have upheld reductions of plaintiff’s medical special damages. See Hanif v. Housing Authority (1988) 200 Cal.App.3d 635; Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298; Greer v. Buzgheia (2006) 141 Cal.App.4th 1150; Katiuzhinsky v. Perry (2007) 152 Cal.App.4th 1288; Olsen v. Reid (2008) 164 Cal.App.4th 200.

The leading case cited by those that argue the medical special damages should be reduced is Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 (Hereafter, “Hanif”). In Hanif, plaintiff Sajjad Hanif, a minor, was injured in a motor vehicle accident on September 3, 1979. Plaintiff was a pedestrian when a vehicle on the property of defendant Housing Authority of Yolo County struck him. After trial, judgment was entered against defendant and in favor of plaintiff. Plaintiff’s medical bills had been paid by Medi-Cal, California’s implementation of the federal Medicaid plan. The defendant objected to the introduction of plaintiff’s bills to the extent they exceeded the amounts paid by Medi-Cal. The trial court overruled the objection and defendant appealed. The Court of Appeal modified the amount of medical specials awarded to plaintiff and affirmed the modified award. The Court of Appeal ruled that the collateral source rule did not apply as the bills had been paid by Medi-Cal and so plaintiff was only entitled to receive the amounts paid by Medi-Cal as special damages – the contracted write offs were not special damages incurred by plaintiff. The Court of Appeal distinguished payments by Medi-Cal from payments made by a collateral source as Medi-cal is not coverage paid for by the recipient, but rather, is a social benefit.

In 2001, the First District Court of Appeal ruled in Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, that the same argument applied to contracted write offs by a medical provider upon payment by a private health insurance company - the court ruled that the contracted write offs were not special damages incurred by plaintiff. In Nishihama, the Court of Appeal relied upon a Federal case that interpreted lien rights based upon the Hospital Lien Act (HLA). The Court of Appeal did not ever reference the collateral source rule and the ruling in Nishihama conflicts with Helfend v. Southern California Rapid Transit District (1970) 2 Cal.3d 1, the leading California Supreme Court Case on the Collateral Source Rule.

Since 2001, defendants have more vigorously argued that any write offs by any provider based upon any contractual agreement should be excluded from Plaintiff’s special damages. Many courts have bought this argument and ruled accordingly.

Collateral Source Rule

In Peri v. Los Angeles Junction Ry.Co. (1943) 22 Cal.2d 111, 131, the court ruled:

While it is true that the [plaintiff] received $2 per day compensation while he was unable to work, that sum may not be deducted from his loss of earnings, because it was received from an insurance company under a policy owned and held by him. Damages recoverable from a wrong are not diminished by the fact that the party injured has been wholly or partly indemnified for his loss by insurance effected by him, and to the procurement of which the wrongdoer did not contribute …

The California Supreme Court continues to uphold the collateral source rule. (De Cruz v. Reid (1968) 69 Cal.2d 217; City of Salinas v. Souza (1967) 66 Cal.2d 217; Helfend v. Southern California Rapid Transit District (1970) 2 Cal.3d 1)

The Helfend court clearly explained the public policy behind the collateral source rule. “The collateral source rule expresses a policy judgment in favor of encouraging citizens to purchase and maintain insurance for personal injuries and for other eventualities.” Helfend v. Southern California Rapid Transit District (1970) 2 Cal.3d 1.

Double Recovery

Defendants sometimes argue that plaintiffs are not entitled to a “double recovery” and these contractual write offs represent an unfair double recovery, a windfall, if plaintiffs are allowed to receive the write offs as special damages.

The truth of the matter is, whenever there are multiple insurance companies with an obligation to pay for medical expenses, there is going to be a windfall. The only question is, who gets the windfall. Defendants argue it cannot be the plaintiff. When the courts follow this reasoning, the defendants, or their liability insurance carrier, gains the windfall, when they do not have to pay for damages they actually caused. This result is absurd. The wrongdoer is allowed to pay less because the innocent victim had the foresight to protect him or herself.

The collateral source rule says when a person has the foresight to pay money out of their pocket to protect themselves; they should be the party to benefit from the existence of that coverage. It does not really represent a double benefit when that party has paid the premiums for that collateral source over the years – they are merely receiving the benefit they have paid for.

This is distinguished when the second source is from the defendant’s insurance coverage, such as medical payments coverage on the defendant’s automobile policy. If the defendant’s medical payments coverage pays a medical bill and then plaintiff obtains a judgment against the defendant, the judgment would be reduced by those amounts already paid by defendant’s coverage.

In Helfend v. Southern California Rapid Transit District (1970) 2 Cal.3d 1, the court ruled:

The collateral source rule as applied here embodies the venerable concept that a person who has invested years of insurance premiums to assure his medical care should received the benefits of his thrift. The tortfeaser should not garner the benefits of his victim’s providence.

What is a plaintiff entitled to receive as special damages when a form of medical insurance has paid their medical bills?

It is generally accepted law that a plaintiff is entitled to receive all reasonable and necessary medical expenses incurred as a result of a defendant’s negligence.

In Helfend, The California Supreme Court ruled that an injured party’s compensation from a source wholly independent of the defendant should not be deducted from damages otherwise collectible from the defendant. The court also ruled that all evidence of such collateral sources is inadmissible.

Unless the Supreme Court rules otherwise, or the legislature enacts statutes that depart from the collateral source rule, this is and will remain California law.

In Hanif, the Court of Appeal ruled payments made by Medi-Cal are not a collateral source because the payments were not a result of the plaintiff’s industry and thus the public policy justification of the collateral source rule does not apply. This ruling is consistent with the collateral source rule.

Defendants argue this scheme of reduction should apply to all health insurance write offs, which is a violation of the collateral source rule. In Olsen v. Reid, (2008) 164 Cal.App.4th 200, Acting PJ Moore writes:

I write separately to sound the bell of alarm: By virtue of the Hanif/ Nishihama procedure (citations omitted) permitting the posttrial reduction of medical expenses, the collateral source rule has been buried without the dignity of any services or parting words. . . . . I decline to apply the postverdict hearing schemes set for

th in Hanif/ Nishihama to private insurance situations, absent either statutory authority or endorsement from the Supreme Court.

Therefore, the “Hanif reductions” sought by defendants and insurance companies should only be applied when the reductions are not a result of coverage paid for by the plaintiff. When the insurance coverage is paid for by the plaintiff it is a collateral source and California law requires that any evidence of the collateral source be excluded from the jury.

What arguments can be made to insurance adjusters, defense attorneys, mediators, arbitrators, and judges to make this contention? What authority can be cited in support of these arguments?

Plaintiff lawyers throughout the state are trying numerous tactics to combat this illegal reduction of medical specials by insurance carriers. Once the case gets into litigation, when plaintiffs cite the collateral source rule and establish that the health insurance is not Medi-cal, the courts are beginning to recognize the Hanif/ Nishihama reductions are not appropriate.

Attorneys are citing Helfend and Hanif with good success. Some courts that have once followed Nishihama without question have begun to recognize the allowance of all incurred medical specials is required by the collateral source rule. This includes Los Angeles County Superior Court, San Mateo County Superior Court, San Bernardino County Superior Court, San Diego County Superior Court, and Marin County Superior Court.

Attorneys have also started objecting to the collection of documents and information based upon the collateral source rules. Currently, two motions for protective orders are pending in Santa Clara County Superior Court waiting for rulings to prevent defendants from obtaining health insurance information by subpoena.

Before cases are in litigation, the issue is more problematic. Some insurance carriers are refusing to make any offer of settlement without the receipt of collateral source information. Once they receive the collateral source information they are taking reductions that violate the collateral source rule when they complete their evaluation.

When carriers take this approach, the appropriate language should be cited in writing, along with the appropriate language regarding the carrier’s duty to protect its insured for all legal liability. If the carrier refuses to negotiate in good faith, suit may need to be filed to enforce the rights of plaintiffs to receive a full recovery for their damages.

Categories: Legal Analysis