Generally overlooked in the national debate surrounding the Patient Protection and Affordable Care Act (ACA) is the effect the new law will have on personal injury litigation. If standard loss-allocation and mitigation rules are followed, the new law should have a significant impact on a personal injury plaintiff’s ability to recover the cost of future medical care, thus limiting a defendant’s exposure for such damages. Though no definitive judicial rulings have been issued on this topic, the new law has the potential to substantially lower the risk of exposure to defendants and their insurers.
The cost of future medical care can be a significant component of a plaintiff’s economic damages, often running into the millions of dollars. In states that do not enforce the common law collateral source rule, which precludes the reduction of a personal injury award by the amount of compensation a plaintiff receives from a source other than the tortfeasor, such awards should be reduced to the cost of obtaining necessary insurance to pay for the care, so long as the insurer does not maintain a legal right of subrogation. Some jurisdictions, such as New York, have limited an insurer’s right of subrogation while other subrogation rights are guaranteed by statute.
Judicial Consideration of the Affordable Care Act
Once the ACA was upheld by the United States Supreme Court and the key provisions of the law took effect, courts began to consider limiting a plaintiff’s economic damages by admitting evidence at the time of trial pertaining to insurance available under the new law.
For example, in Caronia v. Philip Morris USA, Inc., 2013 N.Y. Slip Op. 8372 (December 17, 2013), the New York State Court of Appeals considered whether the plaintiffs (who were smokers for 20 years or more, but who had not yet been diagnosed with a smoking-related disease) could pursue an independent cause of action and recover the cost of monitoring for future diseases. The court ruled that they could not because the plaintiffs had not yet sustained an injury. In a dissenting opinion, Chief Judge Lippman found unpersuasive the defendants’ argument that under the terms of the ACA, the plaintiffs would soon be able to obtain free access to such monitoring. However, he acknowledged that there was a potential for an offset under the law for a reduction of the plaintiffs’ damages. See also, Cowden v. BNSF Railway Company, 2013 U.S. Dist. LEXIS 155486 (E.D.Mo., October 2013).
Duty to Mitigate Damages and Collateral Offset Rules in New York
New York is one of several states to abandon the common law collateral source rule. To prevent double recoveries and to help allocate the costs of compensating plaintiffs for injuries, the New York State Legislature enacted section 4545(a) of the Civil Practice Law and Rules. Pursuant to this rule, a judgment in a personal injury or wrongful death action must be reduced by the amount of collateral source payments. Such payments include amounts that a plaintiff has received or will, “with reasonable certainty,” receive from collateral sources such as insurance.
Section 4545(a) provides that a collateral source should be “pursuant to a contract or otherwise enforceable agreement.” Although the ACA is not, in and of itself, a contract or an agreement, the mandatory insurance policies one must purchase pursuant to it are contracts. Even if a plaintiff has not yet purchased health insurance coverage under the Act, it should be assumed that he or she will do so since it makes little economic sense to pay the higher costs of the medical care than the lower costs of the insurance. This issue has not yet been resolved by the courts. Nevertheless, because a plaintiff has a duty to mitigate his or her damages, the courts should be encouraged to apply the law so as to avoid the inequitable result of a plaintiff receiving a double recovery.
Duty to Mitigate Damages
There is a long-standing common law rule that limits an injured party’s recovery if he or she has failed to reasonably mitigate his or her damages (sometimes referred to a “duty to mitigate”). The Restatement Second of Torts describes the rule as follows: “one injured by the tort of another is not entitled to recover damages for any harm that he could have avoided by the use of reasonable effort or expenditure after the commission of the tort.”
Williams v. Bright, 230 A.D.2d 548, 550 (1st Dept. 1997), citing Blate v. Third Ave. RR Co., held that “a party who claims to have suffered damage by the tort of another is bound ‘to use reasonable and proper efforts to make the damage as small as practicable,’” and citing Hamilton v. McPherson, “If an injured party allows the damages to be unnecessarily enhanced, the incurred loss justly falls upon him.” Applying this rule of law to the ACA, it becomes clear that because insurance is now available to everyone, regardless of any preexisting medical conditions, sound public policy would require an injured plaintiff to purchase insurance to pay for his future medical care.
The proper time to apply the new law would be immediately after a verdict is reached. Before a court may enter judgment on a verdict in an action to recover damages for personal injury, injury to property or wrongful death, it must first apply to the findings of past and future damages any applicable rule of law, including setoffs, credits and any reductions for comparative negligence. See, CPLR § 5041(a) (Consol. 2013). Following a verdict, a defendant cast in damages should immediately move for a collateral source offset hearing. Failure to grant such a hearing in cases involving a structured verdict is in error and requires a judgment be set aside (Garrison v. Lapine, 22 Misc. 3d 1128(A) (Sup. Ct., Ulster Cty. 2009) aff’d 72 A.D.3d 1441 (3d Dept. 2010).
Section 4545(a) specifically does not apply to insurance or other collateral sources to which there is a statutory right of subrogation. Such statutory rights to subrogation exist for Workers’ Compensation insurance as well as benefits paid under Title XVII of the Social Security Act (codified as 42 USC Section 1395, et seq.), which govern health insurance for the aged and disabled. A review of the provisions of the ACA does not indicate that there is any similar right to repayment, reimbursement or subrogation under the Act. As noted previously, New York has recently limited an insurer’s right of subrogation to recover amounts paid for medical care from any settlement for personal injury, medical, dental or podiatric malpractice or wrongful death. Thus, in New York, a defendant should be entitled to a reduction for amounts awarded for future medical care, unless that medical care will be paid for by Medicare, Medicaid, Workers’ Compensation insurance or, in certain circumstances, Personal Injury Protection benefits awarded under a no-fault automobile policy.
Recommended Best Practices
The issue of collateral source offsets and the implications of the ACA should be raised at the earliest possible time in defending a tort action. Mitigation of damages and the reduction of any award based on collateral source offsets should be pled as affirmative defenses in a defendant’s answer. If an action is already pending and if these defenses have not been raised, counsel should move to amend the answer to assert them.
The application of the Affordable Care Act, Article 50b of the CPLR and section 5-335 of the General Obligations Law, should be pled in a defendant’s bill of particulars where appropriate. Discovery demands should include authorizations for all health insurance records, Workers’ Compensation records, and the Centers for Medicare and Medicaid Services.
Defense counsel may wish to consider retaining an expert insurance actuary to testify to the cost of insurance, and the expert should be disclosed as early as possible. Preparing these arguments at an early stage can have benefits if and when a case is presented for alternative dispute resolution. It should also be anticipated that a plaintiff will move to preclude any evidence of insurance from the trial. The prudent practitioner should be prepared with memoranda of law to support the relevance of the insurance provisions of the ACA. Finally, defense counsel should move for a collateral source hearing as soon as possible following any verdict. Failure to make a timely application for such relief could result in a waiver of a substantial right.
To date, no court of record has applied the provisions of the ACA to reduce or limit an award for future economic damages. By applying existing principles to the new law, however, a practitioner should be able to use the Act to prevent an excess recovery by a plaintiff and to limit the exposure of a defendant or the defendant’s insurer. Because the purpose of an award for economic damages is to compensate a plaintiff for his actual damages and not to bestow a windfall, this should be seen as a matter of simple justice and equity.