On November 17, 2016, the U.S. Fifth Circuit Court of Appeals restricted application of the collateral-source rule in the context of maritime tort actions by Longshore and Harbor Workers’ Compensation Act (“LHWCA”) workers against third-party tortfeasors by refusing to allow plaintiffs to recover the unpaid, written-off portion of their medical expenses when the paid portion of the medical expenses was through the non-tortfeasor employer under the LHWCA.

In the underlying action, plaintiff, Robert dePerrodil, sought to recover for his injuries sustained as a passenger aboard Bozovic Marine, Inc.’s crewboat while working for Petroleum Engineers, Inc. (“PEI”). PEI carried workers’ compensation insurance pursuant to the LHWCA. PEI’s insurer paid $57,385.50 for plaintiff’s medical expenses. As part of plaintiff’s award against Bozovic, the lower court held that the collateral-source rule barred any discount of the medical expenses PEI and the insurer were billed, but not required to pay. Accordingly, the lower court awarded plaintiff the full amount of the medical expenses billed for his treatment, $186,080.30, even though only approximately one-third of those expenses were paid. Bozovic appealed the lower court’s decision and maintained that the court erred in applying the collateral-source rule and awarding plaintiff medical expenses as billed, rather than paid.

The collateral-source rule bars a tortfeasor from reducing his liability by the amount the plaintiff recovers from independent sources. The rule asks whether the tortfeasor contributed to, or was otherwise responsible for, a particular income source. If not, the income is considered independent of or collateral to the tortfeasor, and the tortfeasor may not reduce its damages by that amount. The rule allows plaintiffs to recover expenses they did not personally have to pay, and without the rule, a third-party income source would create a windfall for the tortfeasor. Application of the rule is complicated, however, when a tortfeasor contributes to a portion of the collateral source. For example, when an employer-tortfeasor pays part of an employee’s health insurance premium, courts ask whether the collateral source is a bargained-for fringe benefit which is considered collateral to an employer’s liability. On the other hand, when an employer obtains pre-accident liability insurance to protect itself from post-accident expenses, the collateral-source rule does not apply. Thus, whether the collateral-source rule applies depends on whether the payment stems from a fringe benefit or a prophylactic protection against liability.

The Fifth Circuit reasoned that PEI was neither negligent, nor responsible for, plaintiff’s injuries. Instead, Bozovic is the third-party tortfeasor. Accordingly, whether PEI contributed to the collateral source is immaterial since it was not a tortfeasor, and the proper analysis of the rule asks whether the payment source was independent of the liable party. PEI’s LHWCA insurer paid plaintiff’s medical expenses. Bozovic played no part in securing that insurance coverage. Thus, the collateral-source rule applies, and Bozovic is liable for plaintiff’s medical expenses; however, the question becomes whether the collateral-source rule allows plaintiffs to recover the amount billed, or only the amount paid.

The Fifth Circuit looked to its prior decision involving maritime cure where prohibited awarding plaintiff seamen the amount charged for medical expenses, rather than the amount paid. Although the Fifth Circuit’s s prior decision was not directly applicable since it did not involve a maritime tort or LWHCA insurance, the Court found it persuasive because maritime cure and LHWCA insurance create similar obligations for employers. In sum, both cure and LHWCA benefits are owed regardless of fault, and when a third-party tortfeasor is responsible for the employee’s injury, cure and LHWCA insurance function in the same way by requiring the employer’s (or insurer’s) payment of medical expenses though it is not at fault. Accordingly, the Court held that LHWCA medical-expense payments are collateral to a third-party tortfeasor only to the extent paid; stated otherwise, under those circumstances, plaintiff may not recover for expenses billed, but not paid. The Fifth Circuit reversed the lower court’s decision awarding the full amount billed, and instead determined the proper measure of those damages is the far lesser amount of $57,385.50 paid by PEI’s LHWCA insurer to cover plaintiff’s medical expenses.

This decision is significant for maritime operators because it limits LWHCA employees/maritime tort plaintiffs’ recovery of damages to only the paid amount of medical expenses, which in practice can be significantly less than the amount of medical expenses billed.

The case is Deperrodil v. Bozovic Marine, Inc., No. 16-30009 (5th Cir. Nov. 17, 2016). A link to a copy of the decision can be found by clicking here.

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