On March 16, 2011, a Los Angeles County jury awarded Thomas Nickerson – a 59-year-old paraplegic and former Marine - $19,035,000 after a trial in which Mr. Nickerson alleged his insurer, Stonebridge Life Insurance, paid for only 19 of his 109-day inpatient hospitalization at the Veteran’s Administration Hospital in Long Beach, California. The total inpatient billed charges were $38,150. This jury awarded $35,000 for pain and suffering and $19 million in punitive damages.

As alleged, in 2008 Nickerson fell from a wheel chair ramp and sustained multiple, compound leg fractures as he attempted to get into his disability-equipped van. Nickerson was admitted to the VA Hospital in Long Beach where his doctors determined he needed to stay for 109 days to recover from his leg surgeries. Under this Stonebridge accident-indemnity policy, Nickerson alleged he was entitled to receive $350 for each day he was hospitalized to pay for medical bills and his rent and utility bills. The total for 109 days would have been $38,150. Nickerson alleged he was instead paid only $350 a day for 19 days for a total of $6,650.

As alleged, Stonebridge Life Insurance Company explained at trial that it had acted in good faith pursuant to the terms of the policy and properly determined that only 19 of the 109 days in the hospital were “medically necessary” under Mr. Nickerson’s policy.

Broad health insurance and accident-indemnity insurance issues are raised by this case, including:

  1. The ability of the insurer to enforce the medical necessity provision to deny coverage for inpatient hospitalization;
  2. The potential differences between “medical necessity” determinations by treating physicians, and by the insurer’s “medical necessity review” physicians.

The frequency with which these broad issues arise is variable. Here, Mr. Nickerson’s accident-indemnity policy with Stonebridge apparently did not contain a mandatory arbitration provision. Most HMO and health insurance policies, however, have mandatory arbitration provisions that require binding non-judicial arbitration outside of court.

Here, the local media reports that the trial attorney for Stonebridge Life Insurance Company has announced Stonebridge will appeal the verdict. Certainly, the $19 million punitive damage award appears susceptible to reduction by the trial court in post-trial motions or on appeal, because it exceeds a “single digit multiplier” ratio between compensatory and punitive damages. This is the U.S. Supreme Court's primary “guidepost” to determine if a large punitive damage award violates the due process clause of the Constitution.1 If this guidepost is applied here to the $35,000 compensatory damage award ($35,000 x 9), this could limit the punitive damage award to no more than $315,000.

As demonstrated by this verdict, a jury can apply a very broad interpretation to the definition of “medical necessity,” whether the context is “accident-indemnity” policies or “health insurance” policies. This underscores the prudence of health care professionals and their patients’ insurers working together with respect to medical necessity determinations under health care policies and accident-indemnity policies.