In a highly anticipated decision, the California Supreme Court yesterday decided the issue of whether tortuously injured plaintiffs with private health insurance get to recover the full rate charged by their doctors and hospitals or the discounted, contract rate their insurers actually pay.

The standard, the California Supreme Court held in Howell v. Hamilton Meats & Provisions, is that personally injured plaintiffs may recover, at most, the dollar amount that actually is paid by their insurers for plaintiffs’ medical services, not the larger amount that generally is billed to those not covered by negotiated contracts between insurance companies and medical providers.

Motivating the Court’s decision was the fact that medical expenses are meant to be recovered by successful tort plaintiffs as economic damages, and insured plaintiffs’ damages are limited to the amounts they are personally obligated to pay—in other words, the amount their insurance company negotiated to pay for their care.

In its decision, the Court extended a rule it previously had adopted for tort plaintiffs with public health coverage, reasoning that regardless of whether public or private insurance is involved, the key issue is the amount of the plaintiffs’ personally liability for their medical bills.

This analysis is not without controversy, however, because of the collateral source rule, which ordinarily prohibits the introduction of evidence of insurance. Where the collateral source rule applies, however, as in products liability cases, the amount paid by an insurer for medical services is now admissible at trial to limit the amount of recoverable damages a plaintiff receives. The Court emphasized that its ruling is consistent with the collateral source rule, which is not meant to cover expenses plaintiffs never incurred in the first instance.

The collateral rule still bars evidence of the source of payment (that is, that an insurance company paid the plaintiff’s medical bills), as well as the undiscounted amount of the medical bills if the insurer has paid a discounted sum.

As to policy considerations, the Court rejected the argument that requiring tortfeasors to pay a lesser amount for their wrongdoing is necessarily an under-deterrent, as the Court observed that providers’ undiscounted bills do not always equal the reasonable value of medical services given the complexities inherent in medical billing in the United States.

The Court also concluded that limiting the recoveries of insured plaintiffs would not serve to punish those with the foresight to obtain insurance because insureds still get what they paid for, that is, having their medical bills satisfied by the insurer. That uninsured plaintiffs might reap larger recoveries, the Court noted, is just a fortuity of life.

The amounts at stake for defendants add up. In just Howell itself, an auto accident case, Howell’s undiscounted medical bills were $130,000, but her private health insurance company paid only $60,000. Given the number of personal injury lawsuits in California, the Howell decision certainly comes as a relief for personal injury defendants.