Kelly on Malpractice

Suppose that you have the following facts in your malpractice case:

1. While an employee, your client purchases a disability policy through his employer. He paid about $3 per month out if his check for this coverage.

2. The Policy provides short term benefits (24 months) in the event a worker becomes disabled, i.e., unable to earn more than 80% of an indexed pre-disability income. The policy provides long term benefits in the event a worker becomes disabled, i.e., unable to earn more than 60% of an indexed pre-disability income.

3. Your client makes a claim for short and long term disability payments through the policy. He received $330 per week for six months during the short term disability period. He receives $2,061 per month from 06/30/06 to age 65 during the long term disability period.

4. The Policy has an explicit subrogation provision. The Policy provides that the carrier is subrogated, “Against a third party whose act or omission caused the Disability for which we are paying you benefits for lost income.” The Policy reduces benefits payable by “Social Security benefits, the amount of any lump sum judgments or settlements you receive representing or compensating for your loss of income.”

5. The Claims Specialist for the carrier notifies your client in writing before trial of its intent to enforce its subrogation rights.

6. Your client receives $1,400 per month in Social Security benefits.

7. Your client faces sobering financial facts. In the event of a settlement or judgment, he owes the carrier $8,250 ($330 x 25 weeks STD) plus $49,464 ($2,061 x 24 months LTD), for a total of $57,714. In addition, he may lose his future LTD completely in the event of a settlement or judgment, regardless of the amount, per the offset provision of his Policy.

What do you do?

Collateral source payments are usually admissible in a medical malpractice action. The General Assembly abrogated the collateral source rule in medical malpractice cases only to a certain extent:

In a malpractice action in which liability is admitted or established, the damages awarded may include (in addition to other elements of damages authorized by law) actual economic losses suffered by the claimant by reason of the personal injury including, but not limited to cost of reasonable and necessary medical care, rehabilitation services, and custodial care, loss of services and loss of earned income, but only to the extent that such costs are not paid or payable and such losses are not replaced, or indemnified in whole or in part, by insurance provided by an employer either governmental or private, by social security benefits, service benefit programs, unemployment benefits, or any other source except the assets of the claimants or of the members of the claimant’s immediate family and insurance purchased in whole or in part, privately and individually. TENN.CODE ANN. § 29-26-119.

Culled to its essence, the statute provides Defendants a credit for services “paid or payable…by any other source.” The statute seeks to prohibit injured parties from making a double recovery by reducing a plaintiff’s recovery by the amount of benefits paid by employer-provided insurance. Nance v. Westside Hosp., 750 S.W.2d 740, 742 (Tenn.1988).

Insurance payments are inadmissible when there is a right of subrogation. Excluded from the statute’s abrogation of the collateral source rule are payments made where the insurer has subrogation rights. Id. at 743. Where the patient must repay the insurer out of any damages recovered, the insured gets no double recovery. Hughlett v. Shelby County Health Care Corp., 940 S.W.2d 571, 574 (Tenn.Ct.App.1996). The patient’s losses have not been “replaced or indemnified” (1) where a right of subrogation exists or (2) where the patient has a legal obligation to repay the collateral source payer, Richardson v. Miller, 44 S.W.3d 1, (Tenn.Ct.App.2000). Therefore, the patient may prove her losses when the insurer asserts a right of subrogation, and the physician gets no credit for the collateral source payments. Id. at 32.

The Policy is clear. The carrier has a right of subrogation. The carrier has asserted its right of subrogation. There is no prospect of a double recovery. Your client must pay any proceeds from a recovery to the carrier. The repayment is co-extensive with the disability payments already made. Moreover, the proceeds from any recovery will be offset against future disability payments. Under the plain language of the statute, these losses are not “replaced or indemnified.” The Supreme Court does not allow a defendant credit in medical malpractice cases for insurance payments when there is a right of subrogation. Therefore, the Court should exclude any evidence of past and future disability payments to your client.

In ADHS v. Ahlborn, 2006 WL 1131936 (U.S.), the plaintiff sued in Arkansas state court for the injuries she sustained in a car accident. She claimed damages not only for past and future medical costs, but also for permanent physical injury, past and future pain, suffering, and mental anguish, and lost earning capacity. Arkansas’s DHS (“ADHS”) intervened in her lawsuit to assert a lien on the proceeds of any recovery. ADHS received money from the federal government to pay for indigent care. Ahlborn settled her case for $550,000. The parties did not allocate the settlement between categories of damages. ADHS asserted a lien against her settlement proceeds in the amount of $215,645.30–the total payments made by ADHS for her health care. Ahlborn contended that ADHS’s lien violated the federal Medicaid laws because satisfaction of the lien would require depletion of compensation for injuries other than medical expenses. The U.S. Supreme Court held that ADHS was entitled only to that portion of the judgment that represented payments for medical care. This seems to be a “made whole” doctrine for Medicaid. Structuring your settlement in this way Ahlborn did without allocation for categories may beat a subrogation lien involving Medicaid.

Collateral source payments are usually admissible in a medical malpractice action. The General Assembly abrogated the collateral source rule in medical malpractice cases only to a certain extent:

In a malpractice action in which liability is admitted or established, the damages awarded may include (in addition to other elements of damages authorized by law) actual economic losses suffered by the claimant by reason of the personal injury including, but not limited to cost of reasonable and necessary medical care, rehabilitation services, and custodial care, loss of services and loss of earned income, but only to the extent that such costs are not paid or payable and such losses are not replaced, or indemnified in whole or in part, by insurance provided by an employer either governmental or private, by social security benefits, service benefit programs, unemployment benefits, or any other source except the assets of the claimants or of the members of the claimant’s immediate family and insurance purchased in whole or in part, privately and individually. TENN.CODE ANN. § 29-26-119.

Culled to its essence, the statute provides Defendants a credit for services “paid or payable…by any other source.” The statute seeks to prohibit injured parties from making a double recovery by reducing a plaintiff’s recovery by the amount of benefits paid by employer-provided insurance. Nance v. Westside Hosp., 750 S.W.2d 740, 742 (Tenn.1988).

Insurance payments are inadmissible when there is a right of subrogation. Excluded from the statute’s abrogation of the collateral source rule are payments made where the insurer has subrogation rights. Id. at 743. Where the patient must repay the insurer out of any damages recovered, the insured gets no double recovery. Hughlett v. Shelby County Health Care Corp., 940 S.W.2d 571, 574 (Tenn.Ct.App.1996). The patient’s losses have not been “replaced or indemnified” (1) where a right of subrogation exists or (2) where the patient has a legal obligation to repay the collateral source payer, Richardson v. Miller, 44 S.W.3d 1, (Tenn.Ct.App.2000). Therefore, the patient may prove her losses when the insurer asserts a right of subrogation, and the physician gets no credit for the collateral source payments. Id. at 32.

The plaintiff’s disability payments are inadmissible when there is a right of subrogation. When the policy is clear that the insurer has a right of subrogation, there is no prospect of a double recovery. The plaintiff must pay any proceeds from a recovery to the disability carrier. The repayment is co-extensive with the disability payments already made. Moreover, the proceeds from any recovery will be offset against future disability payments. Under the plain language of the statute, these losses are not “replaced or indemnified.” The Supreme Court does not allow a defendant credit in medical malpractice cases for insurance payments when there is a right of subrogation. Therefore, a Court should exclude any evidence of past and future disability payments to the plaintiff when there is a right of subrogation.