Protection Against Punitive Damage Claims at Pleading Stage Denied to California Health Plan


California Code of Civil Procedure section 425.13 precludes a claim for punitive damages in an action seeking damages arising out of a health care provider's negligence unless the plaintiff first obtains a court order. To garner such an order, plaintiffs must show there is a substantial probability they will prevail on the claim at trial. In a case of first impression, the California Court of Appeal in Kaiser Foundation Health Plan, Inc. v. Superior Court (Rahm), __ Cal.App.4th __ (February 15, 2012) held that section 425.13 does not apply to a health care service plan.

Anna Rahm and her parents sued the health plan and two affiliated health care providers for injuries Rahm alleged she sustained because of a delay in diagnosing a fast-growing cancer. Plaintiffs asserted the delay resulted from initial refusals of the health care providers to approve a diagnostic MRI. Further, they alleged the health plan – which delegated to its contracted physicians the responsibility of deciding what medical care to provide plan members – induced their physicians to deny costly medical services to plan members. More specifically, the plaintiffs contended the plan required its physicians to base their approval of medical care (at least in part) on the cost of the care, and then incentivized the physicians to withhold more costly care through a bonus system directly dependent upon cost savings the plan realized. The plaintiffs alleged tort and contract claims and sought punitive damages against all defendants.

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