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Insurance Law

Colorado Allows Doctor’s Billing Rather Than True Value of Services

 By Barry Zalma, Attorney and Consultant

The Supreme Court of Colorado was asked to review an unpublished decision of the Court of Appeal in in Sunahara v. State Farm Mutual Automobile Insurance Co., No. 09CA0599, slip op. (Colo. App. May 6, 2010) (not selected for official publication), to determine whether the court of appeals erred under Colorado's collateral source doctrine when it admitted evidence of the amounts paid by Respondent State Farm Mutual Automobile Insurance Company (State Farm) for medical expenses that Petitioner Jack Sunahara incurred as a result of a car accident in Petitioner v. Respondent, 2012 CO 30 (Colo. 04/30/2012).


A vehicle driven by Raymond Mallard collided with Sunahara in a parking lot. Sunahara alleged that the accident resulted in injuries to his back and shoulders that required surgery and other medical treatment. He carried a motor vehicle insurance policy with State Farm at the time of the accident that included underinsured motorist (UIM) coverage. Sunahara reported the incident to State Farm pursuant to that policy. State Farm opened a claim file, made initial liability assessments, and established reserves and settlement authority for the case. State Farm then covered Sunahara's medical expenses, paying approximately $14,000 in full satisfaction of the medical bills even though Sunahara's healthcare providers billed him over $50,000 for their services.

Sunahara subsequently sued Mallard for negligence. The action settled and Mallard's insurance company paid Sunahara $100,000 in damages - the limit on Mallard's policy.

Seeking additional damages, Sunahara then filed a UIM claim with State Farm pursuant to the UIM portion of his insurance policy. Sunahara's UIM coverage had a $2,000,000 limit and provided that State Farm would pay damages for bodily injury that Sunahara was legally entitled to collect from the owner or driver of an underinsured motor vehicle. State Farm argued in response to Sunahara's claim that Sunahara was at least partially at fault for the accident with Mallard, and that it was not required to pay Sunahara any damages pursuant to the UIM policy.

Sunahara filed a motion in limine to exclude evidence of the discounted amount State Farm paid to satisfy Sunahara's medical bills. The trial court denied the motion, reasoning that the $14,000 paid was admissible for the purpose of determining the reasonable value of Sunahara's medical expenses. The jury returned a verdict in Sunahara's favor, but also found that Sunahara was 25 percent at fault for the accident. It awarded him $0 in past economic damages, $50,000 for non-economic damages, $50,000 for physical impairment, and $11,000 for future economic damages.

Admissibility of Evidence of the Amounts Paid by a Collateral Source

The Supreme Court concluded that the court of appeals erred under the common law evidentiary component of the collateral source rule when it affirmed the trial court's admission of evidence of the amounts paid by State Farm to cover Sunahara's medical expenses because a trial court may not admit evidence of the amounts paid by a collateral source to reimburse healthcare providers for medical expenses incurred by an insured plaintiff.

Colorado's collateral source rule consists of two components:

(1)     a codified post-verdict setoff rule; and

(2)     a pre-verdict evidentiary component, described by the common law.

The second component remains in effect, applies in this pre-verdict case, and excludes evidence of collateral source benefits 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.

Under the proper legal standard, evidence of the amount paid by State Farm to satisfy Sunahara's medical bills is inadmissible because it is evidence of a collateral source benefit.

The Supreme Court concluded that Sunahara is entitled to a new trial on the issue of damages because the trial court's erroneous admission of the amounts paid evidence prejudiced Sunahara's economic damages award.

In a dissent, three justices stated they would hold that the fact that a medical provider accepted an amount less (here, $14,000) than the amount billed (here, $50,000) as full payment is admissible because it is relevant to the reasonable value of medical services provided, and does not run afoul of the collateral source doctrine because the identity of who paid the medical provider (in this case, plaintiff's health insurer) is irrelevant.

They disagreed with the majority's assertion that because the jury knew plaintiff's medical providers accepted less than $50,000 in payment for the medical bills, it awarded no past economic damages. The majority does not consider an alternative explanation of the jury's award - namely, that the nature of the plaintiff's injuries was hotly contested at trial by both sides, including the fact that he had significant pre-existing injuries to both of his shoulders and his lower back.


The decision of the Colorado Supreme Court is an invitation to fraud. Just because a doctor or health care provider bills $50,000 for its services but agrees to accept only $14,000 as full payment for their services that is clear and convincing evidence of the true value of the services rendered. If Mr. Sunahara had no insurance, was billed $50,000 by his doctors and they agreed to accept $14,000 from him as the true value of his services, he should not be allowed to collect from a tortfeasor an additional $36,000 because his doctor overbilled.  That fact should not be kept from a jury any more than when a house is destroyed shortly after a sale could the owner assert its value was the $1 million asking price when it sold for $150,000. That the house was over priced is not an example of its true value, the true value is what the seller was willing to take from the buyer and that the buyer was willing to pay.

Since it costs nothing for the doctor to bill $50,000 for $14,000 in services because he is still paid what he is owed, that bill should be questioned. The collateral source rule should not, nor can it, prevent the defendant from calling the doctor as a witness and forcing the doctor to testify to the amount he is willing to accept as the true value of his services.

I had some medical problems lately and just reviewed the report from Medicare and my insurer on what they were billed and what was accepted by the health care providers. The true value of the services I received, like the true value of what Sunahara received, was what the providers accepted, not what they billed which, in my case, was about as excessive as that in this case.

Recently, the California Supreme Court, in Rebecca Howell v. Hamilton Meats & Provisions, 257 P.3d 1130, 52 Cal.4th 541, 129 Cal.Rptr.3d 325 (Cal. 08/18/2011), found that "[a]n injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial. In so holding, we in no way abrogate or modify the collateral source rule as it has been recognized in California; we merely conclude the negotiated rate differential-the discount medical providers offer the insurer-is not a benefit provided to the plaintiff in compensation for his or her injuries and therefore does not come within the rule." To rule otherwise, as did the Supreme Court of Colorado, allows the plaintiff to be unjustly enriched and recover as economic damages more than he was obligated to pay. subscribers can access the Lexis enhanced version of the decisions with summary, headnotes, and Shepard's, Sunahara v. State Farm Mut. Auto. Ins. Co., 2012 CO 30 (Colo. 2012).

Reprinted with Permission from Zalma on Insurance, (c) 2011, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," "Murder and Insurance Fraud Don't Mix" and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.

Zalma on Insurance is a LexisNexis Insurance Law Community Top Insurance Blogs for 2011 winner.

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