Is an insured legally entitled to recover the incurred amount of medical expenses or a reasonable amount of medical expenses?

This issue often arises in first-party bad faith cases arising from uninsured motorist (“UM”) and underinsured motorist (“UIM”) claims because many Insuring Agreements in UM and UIM coverages state: the insurer “will pay compensatory damages which an insured is legally entitled to recover from the owner or operator of an uninsured/underinsured motor vehicle…”

This issue also arises in third party bad faith claims arising from an insurer’s alleged breach of the duty to give equal consideration to an insured’s interests when considering settlement offers, and, of course, general liability claims because many Insuring Agreements in auto or homeowners liability policies state: the insurer “will pay compensatory damages for bodily injury for which any covered person becomes legally liable because of an auto accident” or “damages because of bodily injury” “for which the insured is legally liable.”

Numerous Arizona cases indicate medical expenses must be reasonable. Also, despite a recent attempt to delete the reasonableness requirement, Arizona’s model jury instruction regarding personal injury damages explicitly states “expenses for necessary medical care, treatment, and services” must be “reasonable.” RAJI (Civil) 7^th Personal Injury Damages 1, Measure of Damages (2013).

The Takeaway

In Arizona, insureds and personal injury plaintiffs are legally entitled to recover the reasonable amount of medical expenses rather than the incurred amount of medical expenses.

The Authority

At least five published Arizona Supreme Court and Court of Appeals cases indicate a plaintiff’s recovery of medical expenses is limited to the reasonable amount of medical expenses.

• In Meyer v. Ricklick, 99 Ariz. 355, 358 (1965), the Supreme Court analyzed whether a personal injury award should be overturned as inadequate. In so doing, the Supreme Court: (1) noted “the medical expenses [plaintiff] allegedly incurred were not proven as reasonable” (emphasis added); and (2) distinguished plaintiff’s failure to prove the reasonable amount of the medical expenses versus plaintiff’s failure to prove causation of the medical expenses as separate and distinct bases on which the jury could have limited its verdict. Indeed, the Supreme Court stated, “The jury could very well have limited their verdict based on any or all of the following factors: (1) that the medical expenses she allegedly incurred were not proven as reasonable; ... [or] (3) that some part of such medical expense and loss of earnings may have been due to [i.e. caused by] either the congenital deformity of the spine or the prior automobile accident..." Id. (emphasis added).

• In Larsen v. Decker, 196 Ariz. 239, 241 (App. 2000), amended (Feb. 22, 2000), the Court of Appeals indicated a personal injury plaintiff must prove medical bills are “necessary and reasonable” when it favorably cited Patterson v. Horton, 929 P.2d 1125, 1130 (Wash.App. 1997) for the proposition that a “negligence plaintiff cannot rely only on medical records and bills to show medical expenses were necessary and reasonable; other evidence must establish the latter.” (emphasis added).
• In Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 207 (App. 2006), the Court of Appeals held that a personal injury plaintiff was “entitled to claim and recover the full amount of her reasonable medical expenses for which [she] was charged, without any reduction for the amounts apparently written off by her healthcare providers pursuant to contractually agreed-upon rates with her medical insurance carriers.” (emphasis added).
  • In so holding, the Court of Appeals merely prohibited reductions of medical expenses based on health insurance rates alone.
  • Lopez did not address reductions of medical expenses based on unreasonable amounts because the Court of Appeals specifically noted the defendant stipulated that the billed charges ($59,700) were "reasonable and customary medical expenses" and whether the amount accepted by the providers ($16,700) was "the reasonable value of the medical services was not preserved for appeal" Id. at 202 n. 4 (emphasis added). Of course, this begs the questions:
    • If proof of the “reasonable value” of medical services is not required under Arizona law, then why did defendant stipulate that $59,700 was a reasonable value?
    • Why would the Court of Appeals bother noting the “reasonable value” of the medical expenses was not preserved for appeal?
  • Nonetheless, Lopez indicates recovery of medical expenses is limited to the “reasonable value of medical services”—not simply the amount charged. Id. at 204, 205 (emphasis added).
    • Lopez noted, “Restatement [of Torts] § 924, which is entitled ‘Harm to the Person’ and found under the topic heading of ‘Compensatory Damages for Specific Types of Harm,’ provides that a tort victim may recover damages for ‘reasonable medical and other expenses.’” Id. at 204 (emphasis added).
    • Furthermore, Lopez remarked that “comment f to § 924 states, in part: 'The injured person is entitled to damages for all expenses and for the value of services reasonably made necessary by the harm.’” Id. (emphasis added).
    • Additionally, Lopez specifically found Restatement § 924 “directly applicable to the issue presented here,” the proper measure of personal injury damages. Id.
• In Sanchez v. Gama, 233 Ariz. 125, 126-127 (App. 2013), as amended (Sept. 4, 2013), the Court of Appeals examined whether a treating physician was entitled to compensation for his subpoenaed deposition testimony, i.e. whether the treating physician was a fact witness or an expert witness. In its analysis, Sanchez stated, “As part of her prima facie case, [plaintiff] would have to prove that she was injured, and that her treatment and the charges were reasonable and necessary.” (emphasis added).
• In Benedict v. Total Transit Enterprises, 252 Ariz. 151 (App. 2021), the Court of Appeals recently analyzed whether a neurologist’s testimony that all plaintiff’s medical expenses were reasonable was admissible and cited Larsen as “hold[ing] that a plaintiff may not rely solely on medical records and bills to establish the reasonableness of medical expenses; instead, this court noted, the plaintiff must offer ‘other evidence’ that the expenses were reasonable.” Id. ¶ 18 (emphases added) (citing Larsen, 196 Ariz. at 243, 244).

See also Burns v. Jaquays Min. Corp., 156 Ariz. 375, 380 (App. 1987) (“Compensation for reasonable and necessary medical expenses is consistent with well accepted legal principles.”); LaBombard v. Samaritan Health System, 195 Ariz. 543, 552 (App. 1998) (hospital lien allowed recovery of “customary charges” rather than “billed charges” so hospital could not recover “billed charges” if the hospital regularly accepted less than “billed charges” as payment in full); Canyon Ambulatory Surgery Ctr. v. SCF Arizona, 225 Ariz. 414, 423, 424 (App. 2010) (upheld trial court’s determination that “the reasonable value of [a medical providers’] services was best measured by the overall rate of payment accepted from other payors for the same services” rather than the billed charges); Jimenez v. Progressive Preferred Ins. Co., 2020 WL 2037113 (D. Ariz. Apr. 28, 2020) (held the phrase “reasonable expenses incurred for necessary medical services” in medical payments coverage “are those expenses which the healthcare provider accepts as payment in full.”).

Arizona’s model jury instruction states a plaintiff’s recovery of medical expenses is limited to the reasonable amount of medical expenses.

• The model instruction for the measure of personal injury damages states, “If you find Defendant liable to Plaintiff, you must then decide the full amount of money that will reasonably and fairly compensate Plaintiff for each of the following elements of damages proved by the evidence to have resulted from the fault of the Defendant: ... 3. Reasonable expenses for necessary medical care, treatment, and services already incurred and reasonably probable to be incurred in the future.” RAJI (Civil) 7^th Personal Injury Damages 1, Measure of Damages (2013) (emphasis added).
• The Arizona Supreme Court approved of the reasonableness requirement in the model instruction. Although the Arizona Supreme Court stopped approving model instructions after the first edition in 1974, the first edition included the reasonableness requirement.

At least two unpublished Arizona Court of Appeals cases also indicate a plaintiff’s recovery of medical expenses is limited to the reasonable amount of medical expenses.

• Haven v. Taylor, 2014 WL 3608782, at *3 (Ariz.App. July 10, 2014) (“The court, as a result, did not abuse its discretion by limiting Dr. Freberg to testifying as a fact witness and precluding him from testifying that the medical records and bills from the other doctors were necessary, reasonable, and causally related to the accident.”) (emphasis added) (analyzed separately whether medical bills were admissible to prove causation (¶14) or reasonableness (¶15)).
• Dennis v. Ryan, 2010 WL 3211910, at *3 (Ariz.App. Aug, 12, 2010) ("'Reasonableness' relates to the amount charged for the medical services and 'necessity' describes a degree of casual connection between the accident in question and the medical services.") (noting "the traditional foundation required for the admission of medical bills is a showing of reasonableness and necessity.") (emphasis added).

Secondary authority also indicates a plaintiff’s recovery of medical expense is limited to the reasonable amount of medical expenses:

• The Restatement (Second) of Torts, § 924 “Harm to the Person,” states, “One whose interests of personality have been tortiously invaded is entitled to recover damages for past or prospective: … (c) reasonable medical or other expenses; …” (cited favorably by Lopez, 212 Ariz. at 204) (emphasis added).
• American Jurisprudence (Second), Damages, § 396 states “generally, a plaintiff who has been injured by the tortious conduct of the defendant is entitled to recover the reasonable value of medical and nursing services reasonably required by the injury…” Am.Jur.2d Damages § 396, at 358 (2003) (emphasis added) (cited favorably by Lopez, 212 Ariz. at 204).

Meyer, Larsen, Lopez, Sanchez, Benedict, Taylor, Ryan, the Restatement, and American Jurisprudence could have simply stated a personal injury plaintiff is entitled to recover incurred or billed medical expenses, but they did not. Rather, they each indicate or state that a tort victim’s recovery must be limited to “reasonable” medical expenses and/or the “reasonable value” of medical expenses.

Arizona’s limitation of plaintiffs' recovery of medical expenses to the reasonable amount of medical expenses is also consistent with the overwhelming majority rule.

• No opposing counsel or member of the Arizona plaintiff’s bar has called the author’s attention to a case, from any jurisdiction, that holds a plaintiff’s medical expenses need not be reasonable.
• Furthermore, a 50-state survey revealed cases from at least 46 states that require the amount of a plaintiff’s medical expenses to be reasonable to be recoverable.