The Fifth Circuit recently published a maritime decision that may have an effect on Longshore and Defense Base Act claims. The issue was whether the collateral-source rule allows a plaintiff to recover the unpaid, written-off portion of his billed medical expenses, when the remaining, paid portion of the billed expenses was through Longshore work comp insurance.
Insurance companies do not pay the full price of any medical bills. Instead, a negotiated amount is paid. This issue addresses the difference between the face value of the medical bill and the amount paid.
What is the collateral-source rule?
Basically, the person who commits the tort cannot reduce his liability by the amount a plaintiff recovers from another, independent source.
In its simplest form, the rule asks whether the tortfeasor contributed to, or was otherwise responsible for, a particular income source. See Bourque v. Diamond M. Drilling Co., 623 F.2d 351, 354 (5th Cir. 1980). If not, the income is considered “independent of (or collateral to) the tortfeasor”, and the tortfeasor may not reduce its damages by that amount. Davis, 18 F.3d at 1243. In practice, the rule allows plaintiffs to recover expenses they did not personally have to pay. See id. Without the rule, however, a third-party income source would create a windfall for the tortfeasor. Id. at 1244. Thus, the rule reflects a policy determination: better a potential windfall for the injured plaintiff than the liable tortfeasor. See Restatement (Second) of Torts § 920A cmt. b. (Am. Law Inst. 1979) (“[I]t is the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor”.).
The analysis is complicated when a tortfeasor contributes to a portion of the collateral source. See, e.g., Davis, 18 F.3d at 1244. For instance, an employer-tortfeasor may pay part of an employee’s health-insurance plan. See Johnson, 544 F.3d at 305. In that situation, courts ask whether the collateral source is a bargained-for fringe benefit. See id. If so, the fringe benefit is compensation to which the employee is already entitled; as a result, an employer cannot reduce its liability by paying employment compensation. Davis, 18 F.3d at 1244. Thus, bargained-for fringe benefits are considered collateral to an employer’s liability. Id. On the other hand, when an employer obtains a liability-insurance plan, it is providing pre-accident insurance to protect itself from post-accident expenses. See Phillips v. Western Co., 953 F.2d 923, 932 (5th Cir. 1992) (citing Allen v. Exxon Shipping Co., 639 F.Supp. 1545, 1547–48 (D. Me. 1986)). There, the collateral-source rule does not apply. See id.
What about Longshore insurance?
Apparently, there is no direct authority addressing the interplay between the “treatment of written-off [Longshore Act] medical expenses in the maritime tort context.” The Longshore and Harbor Workers’ Compensation Act is a statutory scheme that “incorporates and replaces several aspects of maritime common law.” Under the Longshore Act (or LHWCA):
When a third-party tortfeasor is responsible for the employee’s injury, cure and LHWCA insurance function in the same manner: the employer (or its insurer) has an immediate duty to pay medical expenses even though it is not at fault. These similarities counsel that Manderson—prohibiting write-off recovery—provides the correct rule for both maritime cure and LHWCA maritime-tort cases.
In sum, LHWCA medical-expense payments are collateral to a third-party tortfeasor only to the extent paid; in other words, under those circumstances, plaintiff may not recover for expenses billed, but not paid. Therefore, the district court erred in awarding the full amount billed. Instead, the proper measure of those damages is the far lesser amount the insurer paid to cover . . . medical expenses . . .
Application to the typical Longshore or DBA claim:
It remains to be seen how this could affect Longshore and DBA claimants. Perhaps courts will limit it to Longshore claims involving a third party lawsuit. Perhaps not. Either way, the dollar value is significant enough to warrant consideration.