The California Supreme Court soon will render its long-awaited decision in Howell v. Hamilton Meats & Provisions, Inc., No. S179115 (review granted March 10, 2010) and declare whether personal injury plaintiffs can recover the full amount of their medical bills versus the lesser amount actually paid by insurers. The Howell decision has garnered national attention as has the potential to dramatically affect personal injury litigants, the insurance industry, large corporations, and consumers.

Howell arose out an automobile collision between the driver of a Hamilton Meats & Provisions truck and motorist Rebecca Howell. A jury awarded Howell the full $130,000 face amount of her medical bills, but the trial court reduced the award to $60,000, the amount actually paid by Howell’s private health insurance. The Fourth District, Division 1 reversed, holding that pursuant to the collateral source rule, Howell was entitled to recover the full amount of her past medical expenses as billed. See Howell v. Hamilton Meats & Provisions, Inc., 179 Cal. App. 4th 686 (2009).

Prior to Howell, California courts traditionally limited personal injury recoveries to the amount actually paid for medical care – not the amount initially billed. For example, in Hanif v. Housing Authority, 200 Cal. App. 3d 635 (1988), the Third District limited recovery to the amount Medi-Cal paid for medical care, even though the reasonable value of the services plaintiff received turned out to be greater and had simply been written off by the hospital. And three years later, in Nishihama v. City and County of San Francisco, 93 Cal. App. 4th 298 (2001), the First District followed Hanif and limited plaintiff’s damages to the amount the insurer contracted to pay instead of damages based on the medical center’s customary rate.

In Howell, however, the court approved an award based on the full amount of the plaintiff’s medical bills rather than what insurance had paid, and thus created a conflict ripe for resolution by the California Supreme Court. Howell first distinguished Hanif on the basis that the plaintiff in Hanif was a minor who had not assumed any personal liability for his medical expenses, and had Medi-Cal insurance, as opposed to private health insurance. The plaintiff in Howell, by contrast, had incurred “pecuniary detriment” by executing financial responsibility agreements with her healthcare providers pursuant to which she became contractually obligated to pay for the costs of the medical care provided to her (notwithstanding that her medical providers later extinguished a portion of her medical bills by agreeing to accept the insurer’s payment of part of the bills as payment in full). The court also distinguished Nishihama, which did involve private health insurance, on the basis that it was decided based on plaintiff’s statutory lien rights as opposed to the collateral source rule.

Depending on which way the California Supreme Court rules, successful plaintiffs stand to lose out on substantial sums of money depending on how skilled their insurers are when they negotiate reimbursement rates with hospitals or other medical providers, and there are arguments on both sides of the issue.

Denying plaintiffs the monetary benefits of having insurance seemingly violates the public policy behind the collateral source rule, which is that injured plaintiffs should recover their medical care costs on an objective basis, determined by the reasonable value of services – usually, the amount that was billed. Otherwise, where two injured plaintiffs each break a hip and are billed $16,000 for the repair, the plaintiff without insurance would be eligible to recover $16,000 while the insured plaintiff’s recovery would be limited to the lesser amount actually paid by the insurance company, thus punishing those who had the foresight to protect themselves by buying insurance.

On the other hand, injured plaintiffs should be made whole, not given a windfall. To the extent medical providers agree to accept less than the amount billed, awarding injured plaintiffs the full amount of their medical bills gives them a windfall at the expense of defendants. Moreover, for insured plaintiffs who pay nothing out-of-pocket for medical care, limiting their recovery to amounts paid by their insurers arguably will not put them in any worse position financially.

Should the California Supreme Court rule that injured plaintiffs are entitled to recover the full billed amount of medical care costs, the prospect of higher jury awards may trigger the filing of more personal injury lawsuits – something unlikely to benefit California businesses. It also may leave defendants with less leverage in settlement negotiations with personal injury plaintiffs. For now, all eyes are on the Supreme Court pending its decision in Howell.