The Federal Fifth Circuit and the Collateral Source Rule in Maritime Cases

In Deperrodil, the plaintiff-passenger sued a third-party vessel owner for negligence related to injuries he suffered in rough seas on the vessel. The plaintiff’s injuries were covered by the Longshore and Harbor Workers’ Compensation Act (LHWCA) through his non-negligent employer, and the LHWCA insurer paid all of his related medical expenses. The question was presented because the Longshore insurer of the non-tortfeasor employer had paid only a portion of the billed medical expenses because of the pre-arranged discounts and schedules with the medical providers. The unpaid portion of the medical bills was totally written off and the employee was not obligated to pay any additional expenses for his medical care. The plaintiff claimed that the payment by the LHWCA insurer was from a “collateral source” and the district court, applying collateral source rule, awarded the plaintiff the full amount billed as medical expense rather than what was actually paid by the LHWCA insurer. In short, the Fifth Circuit reversed the district court after fully discussing the jurisprudence and policy arguments regarding the application of the collateral source rule and deciding that the plaintiff should not be allowed to recover the unpaid discounted portion of his medical expenses from the maritime defendant.

In tort suits in both maritime and non-maritime contexts, the collateral source rule has been used to bar a tortfeasor from reducing his liability for damages by amounts a plaintiff may recover for his injuries (medicals or compensation) from independent sources not arranged for by the tortfeasor. What has occurred in practice? The collateral source rule allows a plaintiff to recover medical expenses he or she did not personally have to pay but were paid by some medical insurer or employer, just so that the tortfeasor does not receive a “windfall” due to the plaintiff’s foresight in obtaining health insurance or fortuity of being a workers’ compensation employee. Furthermore, this rule allowed the plaintiff’s recovery from the tortfeasor these medical expenses regardless of whether the plaintiff was obligated to reimburse all or just some of those expenses to its insurer.

Initially, the collateral source rule provided a windfall for the plaintiff only to the extent that his or her medical bills had already been paid and the plaintiff was receiving those funds again from a tortfeasor. However, due to the customary business practice of the medical health benefit plan insurers being able to negotiate significant discounts from medical providers, a growing differential between what is actually paid to the medical providers by the health plan insurers and what had been billed by the medical providers has increased, such that a plaintiff’s recovery from the tortfeasor for medical expenses usually far exceed the actual payments for the medical treatment. Recently, the differential between billed and discounted medical expenses has increased so dramatically that some courts have taken notice and are re-thinking the use of the collateral source rule.

In Deperrodil¸ the Fifth Circuit reviewed the maritime law jurisprudence noting that the collateral source rule and its application to maritime tort cases had been further complicated where the tortfeasor actually may have contributed to the premiums for the collateral source insurance, such as when an employer could also be sued in tort under the Jones Act. When the employer-tortfeasor paid part of an employee’s health insurance plan, the analysis required the courts to determine whether the collateral source is a bargained-for “fringe benefit” or whether the health insurance was the employer’s effort to control the medical costs and liability. Davis v. Odeco, Inc., 18 F.3d 1237, 1243 (5th Cir. 1994). The court noted that the “[c]urrent application of the collateral source rule thus turns on the character of the benefits received, as well as the source of those benefits”. Davis, 18 F.3d at 1244. Furthermore, a five-factor test was developed to determine whether the collateral source rule applied to workers’ compensation insurance. Phillips v. Western Co., 953 F.2d 923 (5th Cir. 1992). This analysis at least allowed an employer who was sued in tort to receive the benefit of its foresight in obtaining medical benefits for injured employees as the collateral source rule was held to be inapplicable in many cases.

The Fifth Circuit in the Deperrodil next reviewed the jurisprudence as to collateral source rules found in the state tort suits within the three States comprising the Fifth Circuit - Mississippi, Texas and Louisiana. The court noted that in Mississippi, the collateral source rule allowed plaintiffs to recover for the write-off or discounted amounts of the medical expenses—basically to recover billed versus paid medical damages. Wal–Mart Stores, Inc. v. Frierson, 818 So.2d 1135, 1139–40 (Miss. 2002) (allowing plaintiff to submit evidence of written-off Medicaid expenses). However in Texas, the collateral source rule did not “allow recovery as damages of medical expenses a health care provider is not entitled to charge to the plaintiff.” Haygood v. De Escabedo, 356 S.W.3d 390, 396 (Tex. 2012). Finally, the court noted that in Louisiana, the collateral source rule did allow for recovery of the written-off or discounted medical expenses only if the plaintiff provided consideration for the benefit or suffered a “diminution in patrimony” to receive the discount. Bozeman v. State, 879 So.2d 692, 705–06 (La. 2004). While not discussed in Deperrodil, a more recent Louisiana Supreme Court case is even more restrictive as to the collateral source rule regarding the discounted portion of medical bills. In Hoffman v. 21st Century North America Ins. 2015 WL 5776131 --- So.3d --- (La. S.Ct. 10/2/2015), the Louisiana Supreme Court created a “bright-line rule” that “attorney-negotiated discounts” as to medical charges for treatment of his clients obtained through the litigation process, were not subject to the collateral source rule and the plaintiff was not able to recover the discounted unpaid amounts of the medical expenses.

Next, the Fifth Circuit in the Deperrodil considered how the collateral source rule has been applied in other maritime contexts, such as maritime Jones Act cases involving maintenance and cure payments. Here, the Court discussed how in the case of Manderson v. Chet Morrison Contractors, Inc., 666 F.3d 373 (5th Cir. 2012), the Fifth Circuit had previously decided that the collateral source rule was inapplicable to the written-off or discounted portion of the medical expenses paid by a Jones Act employer and/or its insurer as part of its maritime cure obligations. The court held that seaman could only recover the amount actually paid for medical treatment rather than the amount charged. While noting that the Manderson case involved maritime cure payments and so was not binding on the issue, the Fifth Circuit found that the case rationale was “very persuasive” because of the similarities between maritime maintenance and cure obligations and the insurance obligations placed on Longshore employers under the LHWCA. Ultimately, the Fifth Circuit stated that “Manderson—prohibiting write-off recovery—provided the correct rule for both maritime cure and LHWCA maritime-tort cases as to the collateral source issue.” Deperrodil, 842 F. 3d at 361.

After the full review of jurisprudence, it was the Fifth Circuit holding that “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.” Deperrodil, 842 F. 3d at 361 (emphasis added). This seems to be consistent with several other trends as to allowing for recovery of full retail charges for heavily discounted medical expenses. Some courts, rather than turning to the collateral source rule, simply allow for the maritime defendants to challenge whether the retail medical expenses are “reasonable and customary” given the nature of the routine, heavy discounts obtained by medical insurers, and even plaintiff attorneys.

Douglas W. Truxillo is a shareholder with Onebane in Lafayette, Louisiana.

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