An April 22, 2024 decision by the Colorado Supreme Court considered the confusing interplay between Colorado’s statutory Collateral Source Rule and medical malpractice actions under the Health Care Availability Act (HCAA).[1] Specifically, the Court addressed the question of whether the “contract exception” to the collateral source statute applies in a medical malpractice case where the defendant doctor seeks to reduce the damages awarded by a jury. The decision rendered on April 22, 2024 is not easy to understand, but is favorable for subrogation.
Before explaining the ruling in the case, it is important to understand the confusing Collateral Source Rule in Colorado. At common law, trial courts were required to exclude from evidence at trial the amounts paid by a collateral source to cover a plaintiff’s medical bills.[2] Plaintiffs were allowed to recover the full damages awarded even though they received compensation from collateral sources, such as insurance.[3] This pre-verdict evidentiary exclusion for amounts paid by a collateral source prevented the jury from improperly reducing the plaintiff’s damages on the grounds that the plaintiff already recovered his loss from the collateral source. The common law rule was that any third-party payments or benefits received by a plaintiff accrued solely to the plaintiff’s benefit and were not deducted from the amount of the tortfeasor’s liability, even if it resulted in a windfall to the plaintiff.[4] The rule did not apply if the payments or benefits were attributable to the defendant or if the compensation or benefits had been “gratuitously furnished” to a plaintiff by a governmental body.[5]
Today, Colorado’s Collateral Source Rule is governed by three statutes:
- Pre-verdict evidentiary rule barring evidence of collateral sources (§ 10-1-135(10(a)).
- Post-verdict setoff rule reducing any verdict by the benefits that a plaintiff has received from collateral sources (§ 13-21-111.6).
- Medical Malpractice Collateral Source Rule (§ 13-64-402).
Section 10-1-135 (Pre-Verdict Evidence Rule)
Section 10-1-135(10)(a)) now codifies the traditional common law Collateral Source Rule in Colorado. It is a lengthy statute which 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. This statute unambiguously codifies the pre-verdict common law principle by excluding from evidence the fact or amount of any collateral source payment of benefits.”[6] Admitting amounts paid into evidence for any purpose, including the purpose of determining reasonable value, in a collateral source case carries with it an unjustifiable risk that the jury will infer the existence of a collateral source.[7]
Colorado courts apply the Collateral Source Rule prospectively, by using it pre-verdict.[8] The statutory Collateral Source Rule unambiguously codifies the pre-verdict common-law principle that requires trial courts to exclude from evidence the amounts paid by a collateral source to cover a plaintiff’s medical bills. 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.[9]
A defendant cannot introduce at trial evidence regarding the fact that plaintiff has received workers’ compensation benefits.[10]
Section 13-21-111.6 (Post-Verdict Setoff)
In 1986, Colorado enacted § 13-21-111.6.[11] Under this statute, the court must reduce the amount of a verdict by the amount for which such person is “wholly or partially indemnified or compensated . . . in relation to the injury, damage, or death sustained.” Section 13-21-111.6 reads as follows:
- 13-21-111.6. Civil actions—reduction of damages for payment from collateral source.
In any action by any person or his legal representative to recover damages for a tort resulting in death or injury to person or property, the court, after the finder of fact has returned its verdict stating the amount of damages to be awarded, shall reduce the amount of the verdict by the amount by which such person, his estate, or his personal representative has been or will be wholly or partially indemnified or compensated for his loss by any other person, corporation, insurance company, or fund in relation to the injury, damage, or death sustained; except that the verdict shall not be reduced by the amount by which such person, his estate, or his personal representative has been or will be wholly or partially indemnified or compensated by a benefit paid as a result of a contract entered into and paid for by or on behalf of such person. The court shall enter judgment on such reduced amount.[12]
However, there is an important exception in which the verdict is not reduced by the amount by which the plaintiff has been or will be wholly or partially indemnified or compensated by a benefit paid as a result of a contract entered into and paid for by or on behalf of such person. This is known as the “contract exception to the Collateral Source Rule.”
This statute modifies the common law rule to limit the circumstances under which a plaintiff may receive double compensation for an injury. It requires reduction of tort damages awards by the amount a plaintiff “has been or will be wholly or partially indemnified or compensated for his loss by any other person, corporation, insurance company, or fund in relation to the injury, damage, or death sustained….”[13] The underlined portion of the statute, however, constitutes a “contract exception” provision which states that a “verdict shall not be reduced by the amount by which [the plaintiff] … has been or will be wholly or partially indemnified or compensated by a benefit paid as a result of a contract entered into and paid for by or on behalf of [the plaintiff].”[14] This exception prohibits a trial court from considering evidence regarding a plaintiff’s insurance contract liabilities when making a “good cause determination” under the Health Care Availability Act (HCAA), below.
Section 13-64-402 (Medical Malpractice)
There is a different result when dealing with medical malpractice actions.[15] In such situations, the Health Care Availability Act (HCAA) establishes special procedural requirements by which, unlike in other types of tort actions, subrogation issues must be resolved directly in the medical malpractice action itself rather than in separate litigation.[16] Section 13-64-402 provides that a medical malpractice plaintiff must notify the reimbursing third-party payer or provider within sixty (60) days of commencing the action and a subrogated health insurer must then file a subrogation claim within the next ninety (90) days. Otherwise, the third-party payor will waive its “right of subrogation as to such action.” The Act also provides that “before entering final judgment, the court shall determine the amount, if any, due the third party (sic) payer or provider and enter its judgment in accordance with such finding.”[17]
Accordingly, after the jury returns a verdict and awards damages to the plaintiff in a medical malpractice case, the court is required to reduce the amount of the verdict by the amount which the plaintiff has been or for which he will be partially indemnified or compensated from the collateral source.[18] Unfortunately, there will be no such reduction where the plaintiff is wholly or partially indemnified or compensated by a collateral source paying benefits as a result of a contract entered into and paid for by the plaintiff, such as insurance.[19]
Damage Cap. The HCAA caps total damages in a medical malpractice action to $1 million, including any claim for derivative non-economic damages.[20] It also limits direct or derivative non-economic damages (present value) to $250,000, unless it finds good cause that the present value of past and future economic damages would exceed such limitation and that the application of such limitation would be unfair. If such “good cause” is found, the court may award in excess of the cap on the present value of additional past and future economic damages only.[21]
Conflicts Between the Collateral Source Statutes
There is some question about whether the medical malpractice statute overrides the statutory Collateral Source Rule. If it does, then a subrogated health insurer or workers’ compensation carrier may be precluded from subrogating unless timely notice is filed. This position is supported by a Court of Appeals decision.[22] However, the Supreme Court in Van Waters & Rogers, Inc. v. Keelan seems to hold to the contrary.[23] The Supreme Court in Keelan was asked to determine whether a Plan’s disability payments were covered under the statutory collateral source exception found in § 13-21-111.6. It determined that the statutory Collateral Source Rule reflects an intent not to deny a plaintiff compensation to which he is entitled by virtue of a contract that either he, or someone on his behalf, entered into and paid for with the expectation of receiving the consequent benefits at some point in the future. The Supreme Court held that, within the context of the statutory Collateral Source Rule, employment services are analogous to the payment of insurance premiums. Therefore, the Court construed the clause excluding certain types of benefits from set off as broad enough to cover contracts for which a plaintiff gives some form of consideration, whether it be in the form of money or employment services, with the expectation of receiving future benefits in the event they become payable under the contract. Note, however, that the Supreme Court did not expressly overrule the holding in United States Fidelity & Guaranty Co. v. Salida Gas Service Co. The Supreme Court did appear to reject the view espoused in Fidelity that only those payments received from persons or entities with subrogation rights against the tortfeasor are covered by the statutory Collateral Source Rule. A more recent Court of Appeals decision recognizes the potential effect of that decision on the Fidelity case, stating that the Supreme Court’s broad interpretation of the term “contract” leaves “the continuing vitality” of Fidelity in doubt.[24]
Scholle v. Ehrichs, 2024 WL 1710169 (Colo. 2024)
In 2024, the Colorado Supreme Court in Scholle v. Ehrichs was asked to address the question whether the contract exception to the Collateral Source Rule applies in a post-verdict proceeding under the HCAA seeking to reduce a jury’s damages award in a medical malpractice action.[25] The court considered the interrelationship between the § 13-21-111.6 (Collateral Source Rule) and the “contract exception found in §13-64-402 (Medical Malpractice Collateral Source Rule). Did the contract exception to the Collateral Source Rule apply in a post-verdict proceeding to reduce a jury’s damages award in a medical malpractice action? The Supreme Court held that this contract exception does prohibit a trial court or jury from seeing evidence regarding the plaintiff’s “collateral source” insurance contract liabilities when making its “good cause determination” under the HCAA. Moreover, the court held that § 13-64-402 did not prohibit this. The trial court in Scholle had determined that “good cause” existed to allow the plaintiff to recover beyond the statutory $1 million statutory damages cap set forth in §13-64-302(1)(b), so the defendants appealed. The court concluded that the contract exception to the Collateral Source Rule prohibits a trial court from considering a plaintiff’s insurance contract liabilities when making its “good cause” and unfairness determination under the HCAA.
Mark Solomon is a partner in MWL’s Austin branch and is licensed in Texas, Georgia, and Colorado. He can be reached at msolomon@mwl-law.com.
[1] Scholle v. Ehrichs, 2024 WL 1710169 (Colo. 2024).
[2] Smith v. Jeppsen, 2012 WL 1493568 (Colo. 2012); Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070, 1074 (Colo. 1992).
[3] Levy v. Am. Family Mut. Ins. Co., 293 P.3d 40 (Colo. App. 2011), reh’g denied (Apr. 21, 2011), cert. granted in part, 11SC355, 2011 WL 4018206 (Colo., Sept. 12, 2011), cert. denied as improvidently granted (Nov. 9, 2012).
[4] Volunteers of Am. Colorado Branch v. Gardenswartz, 242 P.3d 1080 (Colo. 2010).
[5] Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070 (Colo. 1992).
[6] Sunahara v. State Farm Mutual Automobile Insurance, 280 P.3d 649 (2012).
[7] Wal-Mart Stores, Inc. v. Crossgrove, 276 P.3d 562 (Colo. 2012).
[8] Smith v. Jeppsen, 277 P.3d 224 (Colo. 2012).
[9] Crossgrove, supra.
[10] Jones v. Esurance Ins. Co., 2016 WL 1558622 (D. Colo. 2016).
[11] C.R.S. § 13-21-111.6.
[12] C.R.S. § 13-21-111.6.
[13] C.R.S. § 13-21-111.6, 6A C.R.S. (1987).
[14] Id.
[15] C.R.S. § 13-64-402(1992).
[16] John W. Grund & J. Kent Miller, 7A Colo. Prac., Personal Injury Torts and Insurance § 37.40, at 213 (2d ed. 2000).
[17] C.R.S. § 13-64-402(1)-(3) (2008).
[18] Id.
[19] Id.
[20] C.R.S. § 13-64-302(1)(b).
[21] Id.
[22] United States Fidelity & Guaranty Co. v. Salida Gas Service Co., 793 P.2d 602, 604 (Colo. App. 1989).
[23] Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070 (Colo. 1992).
[24] Simon v. Coppolla, 876 P.2d 10, 18 (Colo. App. 1995).
[25] Susan Ann Scholle as personal representative for the Est. of Daniel B. Scholle, v. Edward Ehrichs, M.D.; Michael Rauzzino, M.D.; & HCA-HealthONE, LLC., supra.
