Kelly A. Knight is an attorney and mediator based in Los Angeles, CAlifornia. He handles matters throughout California.

Court of Appeal holds that injured plaintiffs have no duty to treat under insurance and, if they treat outside of insurance, the full amount charged may be sought as damages

The Court of Appeal just filled in one of the remaining holes left after the seminal case of Howell v. Hamilton Meats & Provisions, Inc., 52 Cal.4th 541 (2011): a plaintiff can introduce the actual and full amount of charges for medical treatment not paid by insurance as evidence of reasonable and customary value of economic damages where the plaintiff actually does have insurance but elects to treat out of plan. The case is Pebley v. Santa Clara Organics, LLC, 2018 WL 2112307 (Cal. Ct. App. 2nd Dist. no. B277893 (May 8, 2018)) (slip opinion linked here).

In Howell, the California Supreme Court held that (1) a plaintiff with health insurance can't recover more than the amounts actually paid by the medical insurer for past medical services provided and (2) the full bill and reasonable and customary non-insurance (cash-pay) charge is inadmissible to prove the value of past medical services already paid for by insurance. This left a lot of major questions unanswered in the personal-injury tort world.

The appellate courts have since addressed some of these questions. For example, is the full amount of past charges (despite being paid at a lower insurance rate) admissible to prove the reasonable and customary value of future medical services that the plaintiff will require after trial? The Court of Appeal gave us the answer in Corenbaum v. Lampkin, 215 Cal. App. 4th 1308, as modified (May 13, 2013): "[T]he full amount billed for past medical services is not relevant to a determination of the reasonable value of future medical services." 215 Cal. App. 4th at 1331.

What about when a plaintiff is uninsured? Is an uninsured patient limited to introducing the value of the medical services that would be paid by insurance? In 2015, we got that answer: when a plaintiff is uninsured, the measure of economic damages is the reasonable value of the medical services, and, critically, the plaintiff may introduce the full amount billed as evidence of the reasonable value. Bermudez v. Ciolek, 237 Cal. App. 4th 1311, 1330-31 (2015). (In such cases, the bill or amount alone is not sufficient by itself but must be accompanied with other competent testimony regarding the reasonable value of services. Id. at 1337-40.)

But what about when a plaintiff has health insurance but treats with providers outside of the plan (for example, on a lien basis) and incurs charges higher than what would have been paid by insurance? This question has gone unanswered since Howell, and plaintiffs attorneys have been referring their insured injured clients to lien-based medical providers in order to secure treatment outside of negotiated insurance rates, yielding many advantages: typically faster and better service (e.g., not having to deal with insurance referrals, HMO bureaucracy, multiple steps, delays, etc.), the ability to go to highly skilled doctors of choice, and, importantly, an argument that the much-higher charges are an item of economic damages. Is admitting the full charges proper, or is a plaintiff limited to insurance rates (e.g., under a theory of duty to mitigate damages, under Howell, etc.)?

We now have the answer in yesterday's Pebley v. Santa Clara Organics, LLC, 2018 WL 2112307 (Cal. Ct. App. 2nd Dist. no. B277893 (May 8, 2018)) (slip opinion linked here): "such a plaintiff shall be considered uninsured, as opposed to insured, for the purpose of determining economic damages" (slip op. at 2) and thus may introduce and seek the actual, full billed amounts.

The plaintiff in Pebley was injured in a motor vehicle accident caused by the defendant's employee. He treated outside his Kaiser insurance plan despite having health insurance. (This was major surgery, a 3-level cervical fusion surgery. Slip op. at 4.) The jury awarded $3,644,000 in damages, including $269,000 for past medical expenses and $375,000 for future medical expenses. (Slip op. at 2.)

The question on appeal was whether the trial court properly allowed the plaintiff to introduce evidence of his medical bills. At trial, the plaintiff's experts confirmed that those bills represented the reasonable and customary costs for medical services in the Southern California community, and the plaintiff testified that he is liable for those costs regardless of what happens in the litigation. The defense was then allowed to present expert testimony that the reasonable and customary value of the services is substantially less. Slip op at 2-3.

The Court of Appeal held that the trial court did not commit error, and the evidence of the full value of the bills was admissible.  (The appellate court also held that the jury improperly awarded certain amounts for some of the services that were paid by insurance and reduced the total award by that small amount--a reduction of $1,063--and then otherwise affirmed the judgment.)

This is a huge holding in the personal-injury and tort world. Introducing the full value of medical services in today's environment of very expensive medical charges can yield much larger damages numbers. A plaintiff who treats under an insurance plan, however, is limited to the actual amount paid by the insurer. But now, there is appellate law that an insured plaintiff can treat with an out-of-plan provider on a cash or lien basis and be able to introduce the full charges as evidence of the reasonable value of services. (Lien-based treatment is where an injured victim receives cash-pay medical services without paying up front in exchange for the medical provider delaying collection and giving the medical provider a lien on the recovery in the personal-injury case).

Here's how it went down. At trial, the defense conceded that the plaintiff was allowed to treat outside his insurance plan but argued that the the cost of in-plan services was relevant to the reasonable value of the services. Slip op. at 5. The trial court granted the plaintiff's motions in limine excluding (1) evidence that the plaintiff was insured through Kaiser, (2) any defense argument related to the plaintiff's decision not to seek treatment through Kaiser, (3) the amounts an insurance company might pay or a medical provider might accept for medical services under an insurance plan, and (4) the fact that the plaintiff received most of his treatment on a lien basis. Id. 

The defense was allowed to present expert testimony that the surgery center and various facilities would have accepted a far lower amount as payment (without regard for insurance), although after a hearing under Evidence Code section 402 the defense expert was not allowed to do this for the value of the specific treating physicians' services (as opposed to the facilities). Id. at 5-7. And applying Bermudez, the trial court refused to exclude evidence of past bills that were unpaid (e.g., the full lien amounts), thereby extending the holding of Bermudez to a case where the plaintiff had insurance but the services were not provided under the insurance plan. Id. at 7. Thus, with the rules set by the trial court, the trial proceeded and the jury returned the verdict above, and the defendant appealed.

On appeal, the Pebley court first noted that it was deviating from the decision in Ochoa v. Dorado, 228 Cal. App. 4th 120 (2014), which held that even where there is no prenegotiated discounted insurance rate, “the full amount billed, but unpaid, for past medical services is not relevant to the reasonable value of the services provided.” See Ochoa, 228 Cal. App. 4th at 135. Noting that the Court of Appeal in Bermudez rejected this reasoning in cases where the plaintiff is uninsured (see slip op. at 10-12), the Pebley court summarized the state of the law as follows:

In sum, when a plaintiff is not insured, medical bills are relevant and admissible to prove both the amount incurred and the reasonable value of medical services provided. (Bermudezsupra, 237 Cal.App.4th at p. 1335, 1337; Katiuzhinsky, supra, 152 Cal.App.4th at pp. 1295-1296 [bills for charges incurred by the plaintiff were admissible “as they reflected on the nature and extent of plaintiffs’ injuries and were therefore relevant to [the jury’s] assessment of an overall general damage award”].) But the uninsured plaintiff also must present additional evidence, generally in the form of expert opinion testimony, to establish that the amount billed is a reasonable value for the service rendered. (Bermudez, at pp. 1336, 1338.) Thus, if the plaintiff has an expert who can competently testify that the amount incurred and billed is the reasonable value of the service rendered, he or she should be permitted to introduce that testimony. The defendant may then test the expert’s opinion through cross-examination and present his or her own expert opinion testimony that the reasonable value of the service is lower. A jury could, based on this “wide-ranging inquiry,” best decide the reasonable value of the medical treatment, which is likely to be the cap on the uninsured plaintiff’s medical damages.

Slip op. at 12.

The critical question then is, under these rules, is an insured plaintiff who elects not to use available insurance treated as "uninsured"? Or given the duty to mitigate damages, should a plaintiff be limited to recovery under insurance rates because, as the defense argued, the plaintiff should have used available insurance? 

First, the Court of Appeal held that there is no duty for an insured plaintiff to treat through insurance as part of the general duty to mitigate damages:

A tortfeasor cannot force a plaintiff to use his or her insurance to obtain medical treatment for injuries caused by the tortfeasor. That choice belongs to the plaintiff. If the plaintiff elects to be treated through an insurance carrier, the plaintiff’s recovery typically will be limited to the amounts paid by the carrier for the services provided. (Howell, at p. 566.) But where, as here, the plaintiff chooses to be treated outside the available insurance plan, the plaintiff is in the same position as an uninsured plaintiff and should be classified as such under the law.

Slip op. at 14. A very important holding indeed. Gone is the ability to argue as a matter of law that a plaintiff has a duty to treat through insurance.

The Court of Appeal also discussed reasons why a plaintiff may reasonably seek to treat out of plan and therefore should not be penalized for doing so:

There are many reasons why an injured plaintiff may elect to treat outside his or her insurance plan. As Pebley points out, plaintiffs generally make their health insurance choices before they are injured. These choices may be based on the plaintiffs’ willingness to bear the risk posed by a health maintenance organization (HMO) rationing system because the plaintiff is healthy and requires little care. This decision may appear much different after a serious accident, when the plaintiff suddenly needs complex, extensive care that an HMO is not structured to provide. (See, e.g., Pegram v. Herdrich (2000) 530 U.S. 211, 220-221 [147 L.Ed.2d 164] [“inducement to ration care goes to the very point of any HMO scheme”].) The plaintiff also may wish to choose a physician or surgeon who specializes in treating the specific type of injury involved, but who does not accept the plaintiff’s insurance or any other type of insurance. In addition, health care providers that bill through insurance, rather than on a lien basis, may be less willing to participate in the litigation process.

It is undisputed Pebley required complex surgery to fuse three of his cervical vertebrae. Complications from this type of surgery include paralysis or death. And even absent complications, a poor outcome would leave Pebley with continued pain in his neck and weakness and numbness in his arms and hands. Pebley had the right to seek the best care available and the incentive to do so.

Slip op. at 14-15.

The Court of Appeal then held that where an insured plaintiff treats outside of insurance, the plaintiff is treated as uninsured:

The better view is that he is to be considered uninsured (or non-insured) for purposes of proving the amount of his damages for past and future medical expenses. (See Bermudez, supra, 237 Cal.App.4th at pp. 1336-1337.) It would be inequitable to classify Pebley as insured when Pebley, and not an insurance carrier, is responsible for the bills. Indeed, precluding Pebley from recovering the reasonable value of the services for which he is liable would result in both undercompensation for Pebley and a windfall for defendants. (Katiuzhinsky, supra, 152 Cal.App.4th at p. 1296.)

Slip op. at 15.

The Court of Appeal also held that the trial court did not abuse its discretion in excluding evidence of the plaintiff's insured status:

Finally, we conclude the trial court did not abuse its discretion by excluding evidence of Pebley’s insured status under Evidence Code section 352. Pebley had the right to treat outside his plan. Evidence of his insurance would have confused the issues or misled and prejudiced the jury.


The Court of Appeal then held that, although it would be insufficient to establish the reasonable value of services through the billed charges alone (amounting to $269,498.65 in this case), the plaintiff satisfied his burden with the expert opinions of the two surgeons who performed the fusion surgery and who testified to the reasonableness of both those charges and of future anticipated charges. Id. at 16-20. This allowed a "wide-ranging inquiry into the reasonable value of medical services provided" as contemplated by BermudezId. at 20. 

The only reduction was for the jury's award of the full amounts billed by two facilities that were paid by insurance. The plaintiff conceded to a reduction of those amounts, and the Court of Appeal reduced the judgment by $1,063, affirming the rest. See id. at 21.

Unanimous opinion by Justice Perren, joined by Justices Gilbert and Tangeman.


Epic Systems: U.S. Supreme Court holds that employers may prohibit employees from bringing any form of class or collective action and may limit employees to one-on-one private arbitration of disputes

Court of Appeal holds that a party cannot be forced to stay in arbitration if it cannot pay for it unless the proponent of arbitration agrees to pay all the arbitration fees