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Scholle v. Delta Air Lines, Inc.

Court of Appeals of Colorado, Fourth Division

May 23, 2019

William Scholle, Plaintiff-Appellee and Cross-Appellant,
Delta Air Lines, Inc., Defendant-Appellant and Cross-Appellee.

          City and County of Denver District Court Nos. 14CV32213 & 14CV32268 Honorable Robert L. McGahey, Judge Honorable Karen L. Brody, Judge.

          Bendinelli Law Firm, P.C., Marco F. Bendinelli, Blaine L. Milne, Westminster, Colorado, for Plaintiff-Appellee and Cross-Appellant.

          Treece Alfrey Musat P.C., Michael L. Hutchinson, Carol L. Thomson, Kathleen J. Johnson, Denver, Colorado, for Defendant-Appellant and Cross-Appellee.


          NAVARRO JUDGE.

         ¶ 1 When a plaintiff sues a defendant in tort for damages sustained due to the defendant's conduct, the collateral source rule generally forbids admitting evidence of payments for those damages made to the plaintiff by a collateral source such as an insurance company. For instance, evidence of the amount of the plaintiff's medical expenses paid by an insurer is not admissible; instead, the plaintiff may submit, as a measure of damages, evidence of a higher amount of medical expenses billed by the medical provider.

         ¶ 2 But what if (1) the plaintiff was insured by workers' compensation insurance, and by statute a medical provider could not collect payment for medical expenses beyond those paid by the workers' compensation insurer; and (2) the defendant, before trial, extinguished the insurer's subrogated interest in the amounts paid by paying off the insurer's claim for those damages? We hold that the collateral source rule applies all the same - evidence of the amounts paid by the insurer is not admissible at trial, but evidence of the amounts billed is admissible. At most, the defendant, by virtue of its settlement of the insurer's subrogated claim, may receive a post-trial setoff against damages awarded to the plaintiff.

         ¶ 3 In this case, however, the damages awarded to plaintiff William Scholle were reduced during trial through evidence of the amounts his insurer paid to his medical providers and reduced post-trial via a setoff in the amount of defendant Delta Air Lines, Inc.'s settlement with the insurer. As a result, Scholle ultimately recovered nothing in economic damages. Because admitting evidence of the amounts paid by the insurer was error, we reverse the judgment in part and remand for a new trial, as limited by the following discussion. I. Overview

         ¶ 4 This action arises from a luggage tug collision at Denver International Airport. In 2012, Scholle, a United Airlines employee, was driving a luggage tug in the course of his employment. Scholle was stopped when Daniel Moody, a Delta employee also driving a luggage tug, collided with Scholle. Scholle sustained injuries and missed work.

         ¶ 5 United, a self-insured employer under Colorado's workers' compensation system, paid for Scholle's medical expenses and some of his lost wages. To the extent of those payments, United was subrogated to Scholle's rights to recover economic damages from Delta and Moody for causing Scholle's injuries.

         ¶ 6 In 2014, United sued Delta and Moody to recover the amounts United had paid to or on behalf of Scholle. Shortly thereafter, Scholle also sued Delta and Moody to recover for injuries related to the tug collision. The trial court consolidated the actions.

         ¶ 7 Delta eventually settled United's claim by paying United $328, 799.16, and the court dismissed United's case with prejudice. Scholle's claims against Moody were later dismissed with prejudice as well, leaving only Scholle and Delta as parties. Delta admitted liability but disputed Scholle's claimed damages; so the case went to trial on damages.

         ¶ 8 In 2016, a jury returned a damages verdict for Scholle totaling approximately $1.5 million. The court, however, granted Delta's motion for a new trial due to misconduct by Scholle's attorney.

         ¶ 9 The case went to trial again in 2017, this time without a jury and before a new judge. The court considered evidence of the amounts paid by United for Scholle's medical treatment; the court excluded evidence of the higher amounts billed by medical providers. The court awarded Scholle $259, 176, including $194, 426 in economic damages.[1] The court later entered a setoff order reducing Scholle's economic damages award by the amount that Delta had already paid to settle United's claim, effectively reducing the amount owed to Scholle for economic damages to zero.

         ¶ 10 In case number 2018CA0049 (the merits appeal), each party challenges various rulings related to the damages judgment. In case number 2018CA0760 (the costs appeal), Scholle contests a post-trial order denying him costs relating to two expert witnesses struck by the trial court, a ruling at issue in the merits appeal. We consolidated the appeals.

         ¶ 11 Regarding the merits appeal, we reverse the damages judgment insofar as it relates to Scholle's past medical expenses because the trial court misapplied the collateral source rule. Because this evidentiary error affected only the medical expenses portion of the damages award, we affirm the judgment insofar as it pertains to (1) economic damages for lost wages and (2) noneconomic damages.

         ¶ 12 We affirm the order granting a new trial as well as various pre-trial rulings addressing issues that are likely to recur on remand. Because we remand for a new trial as to past medical expenses, we decline to decide any post-trial issues raised by the parties, including any claim raised in the costs appeal.

         II. Evidence of Medical Expenses Paid versus Billed

         ¶ 13 Scholle contends that the trial court erred by admitting evidence of the amount of medical expenses paid by his workers' compensation insurer (United), rather than the amounts billed by his medical providers. He says that the payments were collateral source benefits and, therefore, the pre-verdict evidentiary component of the collateral source rule prohibited their admission into evidence.

         ¶ 14 Delta responds that the trial court properly concluded that the collateral source rule did not apply because Delta's settlement with United meant that the insurance payments no longer constituted payments from a collateral source. Rather, Delta effectively became a source of those payments. In other words, Delta says that, by extinguishing United's interest in recouping the insurance payments, Delta paid compensation for, or contributed to, the source of those payments. Further, Delta argues that the court properly excluded evidence of the amounts billed by Scholle's medical providers because he was not liable for those amounts.

         ¶ 15 We agree with Scholle that the trial court misconstrued Colorado law.

         A. Standard of Review

         ¶ 16 "We review a trial court's evidentiary rulings for an abuse of discretion." Sunahara v. State Farm Mut. Auto. Ins. Co., 2012 CO 30M, ¶ 12. A court abuses its discretion if its decision is based on an incorrect legal standard. Id. We review de novo whether the court applied the correct legal standard. Id.

         B. Relevant Law

         1. The Collateral Source Rule

         ¶ 17 Colorado's collateral source rule consists of two components: (1) a post-verdict setoff rule, codified at section 13-21-111.6, C.R.S 2018; and (2) a pre-verdict evidentiary component, established by common law and codified at section 10-1-135(10), C.R.S. 2018. Sunahara, ¶ 13. The first component requires a trial court to set off tort verdicts by the amount of certain collateral source payments received by the plaintiff unless the payments were made because of a contract entered into and paid for on the plaintiff's behalf. § 13-21-111.6.

         ¶ 18 The second component bars evidence of a plaintiff's receipt or entitlement to benefits received from a collateral source, most often an insurance company, "because such evidence could lead the fact-finder to improperly reduce the plaintiff's damages award on the grounds that the plaintiff already recovered his loss from the collateral source." Wal-Mart Stores, Inc. v. Crossgrove, 2012 CO 31, ¶¶ 12, 20. "A plaintiff's insurer is a collateral source because it is a third party wholly independent of the tortfeasor to which the tortfeasor has not contributed." Id. at ¶ 25.

         ¶ 19 The rule's purpose is to prevent a tortfeasor from benefitting, in the form of reduced liability, from compensation in the form of money or services that the victim may receive from a third-party source. Volunteers of Am. Colo. Branch v. Gardenswartz, 242 P.3d 1080, 1083 (Colo. 2010). Our supreme court has explained that, if either party is to receive a windfall, "the rule awards it to the injured plaintiff who was wise enough or fortunate enough to secure compensation from an independent source, and not to the tortfeasor, who has done nothing to provide the compensation and seeks only to take advantage of third-party benefits obtained by the plaintiff." Id.

         ¶ 20 In 2010, the General Assembly codified the collateral source rule's pre-verdict evidentiary component in section 10-1-135(10)(a), which provides in pertinent part: "The fact or amount of any collateral source payment or benefits shall not be admitted as evidence in any action against an alleged third-party tortfeasor . . . ." See Smith v. Jeppsen, 2012 CO 32, ¶ 17. This statute applies to "cases resulting in recoveries occurring after August 11, 2010," and excludes evidence of the amounts paid by a plaintiff's insurer for medical expenses. Id. at ¶¶ 12, 20.

         ¶ 21 In addition, where a plaintiff's insurer has obliged a medical provider to accept a discounted rate for services (or a "write off" of a portion of the bill), the reduced rate constitutes a benefit received from a collateral source. Gardenswartz, 242 P.3d at 1085. Because the plaintiff would have been responsible for the entire billed amount if the plaintiff had not been insured, the discounts "are as much of a benefit for which [the plaintiff] paid consideration as are the actual cash payments by his health insurance carrier to the health care providers." Id. (citation omitted).

         ¶ 22 The collateral source rule thus prevents a tortfeasor from standing in the plaintiff's shoes and enjoying the same discounted medical rates as the plaintiff's insurance company receives. Id. ("To hold otherwise 'is to allow the tortfeasor to receive a windfall in the amount of the benefit conferred to the plaintiff from a source collateral to the tortfeasor.'") (citation omitted). As a result, a "plaintiff's damages are not limited to the amount paid by her insurer, but may extend to the entire amount billed, provided those charges are reasonable expenses of necessary medical care." Arthur v. Catour, 803 N.E.2d 647, 651 (Ill.App.Ct. 2004), aff'd, 833 N.E.2d 847 (Ill. 2005), quoted with approval in Gardenswartz, 942 P.3d at 1087; see Forfar v. Wal-Mart Stores, Inc., 2018 COA 125, ¶ 28.

         ¶ 23 In sum, the plaintiff "should be made whole by the tortfeasor, not by a combination of compensation from the tortfeasor and collateral sources. The wrongdoer cannot reap the benefit of a contract for which the wrongdoer paid no compensation." Gardenswartz, 942 P.3d at 1083 (citation omitted).

         2. The Workers' Compensation Statute

         ¶ 24 Workers' compensation insurance carriers pay benefits based on a statutory fee schedule. § 8-42-101(3)(a)(I), C.R.S. 2018. The statute declares that "[i]t is unlawful, void, and unenforceable as a debt" for any person or medical provider to "contract with, bill, or charge" any amount in excess of the relevant fee schedule unless approved by the director of the division of workers' compensation. Id. A covered employee is not liable for benefits paid under the workers' compensation statute, and a medical provider may not seek to recover fees or costs from a covered employee once an employer has admitted liability for the employee's medical costs. § 8-42-101(4).

         ¶ 25 An injured employee, in addition to accepting workers' compensation, may also pursue a remedy against a third-party tortfeasor "to recover any damages in excess of the compensation available" under the statute. § 8-41-203(1)(a), C.R.S. 2018.

         ¶ 26 With respect to workers' compensation paid, section 8-41-203(1)(b) provides as follows:

The payment of compensation pursuant to [the workers' compensation statute] shall operate as and be an assignment of the cause of action against such other person to . . . the person, association, corporation, or insurance carrier liable for the payment of such compensation. Said insurance carrier shall not be entitled to recover any sum in excess of the amount of compensation for which said carrier is liable under said articles to the injured employee, but to that extent said carrier shall be subrogated to the rights of the injured employee against said third party causing the injury.

         ¶ 27 This provision creates two claims - "one 'owned' by the employee and one 'owned' by the carrier." Sneath v. Express Messenger Serv., 931 P.2d 565, 568 (Colo.App. 1996). "Each of the parties may prosecute his or its own individual claim" independently of the other. Id.; see also § 8-41-203(1)(e)(II). The right of subrogation created by section 8-41-203(1)(b) extends to all benefits payable under the workers' compensation statute but does not extend to moneys collected for noneconomic damages. § 8-41-203(1)(c)-(d).

         C. Additional Facts

         ¶ 28 To reiterate, United, pursuant to section 8-41-203(1), filed an action against Delta and Moody to recover as damages the compensation United had paid to or on behalf of Scholle. The trial court consolidated United's action with Scholle's later-filed action against the same defendants. Delta then settled United's damages claim for $328, 799.16, and the court dismissed United's complaint. After Moody was dismissed, Scholle and Delta remained as the only parties.

         ¶ 29 Before the first trial, Scholle filed three motions in limine implicating the collateral source rule. In essence, he argued that evidence of the workers' compensation payments he received should not be admitted and that he should be able to present evidence of the amounts billed by his medical providers because those amounts were a truer reflection of the reasonable cost of his medical services. Delta responded that the workers' compensation benefits were not payments from a collateral source because Delta had contributed to the payments by settling United's subrogation claim directly with United. Delta further argued that evidence of amounts billed in excess of the amounts paid should be excluded given that such amounts were void under the workers' compensation statute.

         ¶ 30 The trial court agreed with Delta. The court distinguished this case from a typical collateral source case on the ground that "with respect to the workers' compensation benefits received by Scholle as a result of the incident, United's subrogation claim has been settled and paid by Delta already." Given Delta's settlement, the court concluded that "Delta is not seeking to reap the benefit of a contract for which it paid nothing, nor is this a situation in which Delta has done nothing to provide the compensation . . . ." The court also ruled that, in light of the workers' compensation statute, allowing Scholle to introduce evidence of amounts billed in excess of amounts paid by United "would constitute a windfall in favor of Scholle to recover for medical expenses for which he never incurred liability." For the same reason, the court ruled that evidence of amounts billed was inadmissible under CRE 401 and CRE 403.

         ¶ 31 Therefore, the court declined to apply the collateral source rule and ordered that evidence of the amounts paid to Scholle's medical providers would be admissible while evidence of the full amounts billed would not. Before the second trial, the second judge adopted this ruling over Scholle's objection. The court admitted evidence of the medical expenses paid by United but excluded evidence of the amounts billed by the ...

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