Life Sciences Legal Update : Life Sciences Lawyers & Attorneys : Reed Smith Law Firm : Healthcare, Food and Drug Law, Biotechnology, Privacy, Product Liability

This post was written by Farah Tabibkhoei and Ginger Pigott.

In a highly anticipated decision, the California Supreme Court yesterday decided the issue of whether tortuously injured plaintiffs with private health insurance get to recover the full rate charged by their doctors and hospitals or the discounted, contract rate their insurers actually pay.

The standard, the California Supreme Court held in Howell v. Hamilton Meats & Provisions, is that personally injured plaintiffs may recover, at most, the dollar amount that actually is paid by their insurers for plaintiffs’ medical services, not the larger amount that generally is billed to those not covered by negotiated contracts between insurance companies and medical providers.

Motivating the Court’s decision was the fact that medical expenses are meant to be recovered by successful tort plaintiffs as economic damages, and insured plaintiffs’ damages are limited to the amounts they are personally obligated to pay—in other words, the amount their insurance company negotiated to pay for their care.

In its decision, the Court extended a rule it previously had adopted for tort plaintiffs with public health coverage, reasoning that regardless of whether public or private insurance is involved, the key issue is the amount of the plaintiffs’ personally liability for their medical bills.

This analysis is not without controversy, however, because of the collateral source rule, which ordinarily prohibits the introduction of evidence of insurance. Where the collateral source rule applies, however, as in products liability cases, the amount paid by an insurer for medical services is now admissible at trial to limit the amount of recoverable damages a plaintiff receives. The Court emphasized that its ruling is consistent with the collateral source rule, which is not meant to cover expenses plaintiffs never incurred in the first instance.

The collateral rule still bars evidence of the source of payment (that is, that an insurance company paid the plaintiff’s medical bills), as well as the undiscounted amount of the medical bills if the insurer has paid a discounted sum.

As to policy considerations, the Court rejected the argument that requiring tortfeasors to pay a lesser amount for their wrongdoing is necessarily an under-deterrent, as the Court observed that providers’ undiscounted bills do not always equal the reasonable value of medical services given the complexities inherent in medical billing in the United States.

The Court also concluded that limiting the recoveries of insured plaintiffs would not serve to punish those with the foresight to obtain insurance because insureds still get what they paid for, that is, having their medical bills satisfied by the insurer. That uninsured plaintiffs might reap larger recoveries, the Court noted, is just a fortuity of life.

The amounts at stake for defendants add up. In just Howell itself, an auto accident case, Howell’s undiscounted medical bills were $130,000, but her private health insurance company paid only $60,000. Given the number of personal injury lawsuits in California, the Howell decision certainly comes as a relief for personal injury defendants. 

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This post was written by Farah Tabibkhoei.

The California Supreme Court soon will render its long-awaited decision in Howell v. Hamilton Meats & Provisions, Inc., No. S179115 (review granted March 10, 2010) and declare whether personal injury plaintiffs can recover the full amount of their medical bills versus the lesser amount actually paid by insurers. The Howell decision has garnered national attention as has the potential to dramatically affect personal injury litigants, the insurance industry, large corporations, and consumers.

Howell arose out an automobile collision between the driver of a Hamilton Meats & Provisions truck and motorist Rebecca Howell. A jury awarded Howell the full $130,000 face amount of her medical bills, but the trial court reduced the award to $60,000, the amount actually paid by Howell’s private health insurance. The Fourth District, Division 1 reversed, holding that pursuant to the collateral source rule, Howell was entitled to recover the full amount of her past medical expenses as billed. See Howell v. Hamilton Meats & Provisions, Inc., 179 Cal. App. 4th 686 (2009).

Prior to Howell, California courts traditionally limited personal injury recoveries to the amount actually paid for medical care – not the amount initially billed. For example, in Hanif v. Housing Authority, 200 Cal. App. 3d 635 (1988), the Third District limited recovery to the amount Medi-Cal paid for medical care, even though the reasonable value of the services plaintiff received turned out to be greater and had simply been written off by the hospital. And three years later, in Nishihama v. City and County of San Francisco, 93 Cal. App. 4th 298 (2001), the First District followed Hanif and limited plaintiff’s damages to the amount the insurer contracted to pay instead of damages based on the medical center’s customary rate.

In Howell, however, the court approved an award based on the full amount of the plaintiff’s medical bills rather than what insurance had paid, and thus created a conflict ripe for resolution by the California Supreme Court. Howell first distinguished Hanif on the basis that the plaintiff in Hanif was a minor who had not assumed any personal liability for his medical expenses, and had Medi-Cal insurance, as opposed to private health insurance. The plaintiff in Howell, by contrast, had incurred “pecuniary detriment” by executing financial responsibility agreements with her healthcare providers pursuant to which she became contractually obligated to pay for the costs of the medical care provided to her (notwithstanding that her medical providers later extinguished a portion of her medical bills by agreeing to accept the insurer’s payment of part of the bills as payment in full). The court also distinguished Nishihama, which did involve private health insurance, on the basis that it was decided based on plaintiff’s statutory lien rights as opposed to the collateral source rule.

Depending on which way the California Supreme Court rules, successful plaintiffs stand to lose out on substantial sums of money depending on how skilled their insurers are when they negotiate reimbursement rates with hospitals or other medical providers, and there are arguments on both sides of the issue.

Denying plaintiffs the monetary benefits of having insurance seemingly violates the public policy behind the collateral source rule, which is that injured plaintiffs should recover their medical care costs on an objective basis, determined by the reasonable value of services – usually, the amount that was billed. Otherwise, where two injured plaintiffs each break a hip and are billed $16,000 for the repair, the plaintiff without insurance would be eligible to recover $16,000 while the insured plaintiff’s recovery would be limited to the lesser amount actually paid by the insurance company, thus punishing those who had the foresight to protect themselves by buying insurance.

On the other hand, injured plaintiffs should be made whole, not given a windfall. To the extent medical providers agree to accept less than the amount billed, awarding injured plaintiffs the full amount of their medical bills gives them a windfall at the expense of defendants. Moreover, for insured plaintiffs who pay nothing out-of-pocket for medical care, limiting their recovery to amounts paid by their insurers arguably will not put them in any worse position financially.

Should the California Supreme Court rule that injured plaintiffs are entitled to recover the full billed amount of medical care costs, the prospect of higher jury awards may trigger the filing of more personal injury lawsuits – something unlikely to benefit California businesses. It also may leave defendants with less leverage in settlement negotiations with personal injury plaintiffs. For now, all eyes are on the Supreme Court pending its decision in Howell.

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This post was written by Keith Yandell and Lisa Baird.

This morning, May 18, 2009, the California Supreme Court issued its ruling in In re Tobacco II Cases, a case that will shape how parties litigate California Unfair Competition Law (“UCL”) claims. At issue was the viability of UCL actions that seek to certify a class despite the fact that not all putative plaintiffs suffered injury as a result of a defendant’s allegedly unfair practice. Since California’s infamous UCL (also known as Bus. & Prof. Code, § 17200 et seq.) is often used to add broad “consumer fraud” claims to product liability lawsuits against the life sciences industry (as well as many other industries), the outcome of In re Tobacco II garnered substantial attention. 

Questions Presented

(1) In order to bring a class action under the UCL, as amended by Proposition 64, must every member of a proposed class action have suffered “injury in fact,” or is it sufficient that only the class representative comply with that requirement?

(2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

Background of the Case

The gravemen of the plaintiffs’ Complaint was that defendant tobacco manufacturers and researchers engaged in a decades-long conspiracy to conceal the health effects and addictiveness of cigarettes and, in so doing, made numerous false and misleading statements to consumers.

The Court of Appeal unanimously affirmed the trial Court’s holding that every class member must have suffered injury in order to maintain a class action under the UCL.

The California Supreme Court Ruling

The Court answered the above questions as follows:

(1) “[S]tanding requirements are applicable only to the class representatives, and not all absent class members.” In re Tobacco II Cases, slip Op. at p. 2 (Cal. May 18, 2009).

The Court also repeated the “likely to deceive” standard, and concluded “the language of section 17203 with respect to those entitled to restitution — to restore to any person in interest any money or property, real or personal, which may have been acquired” (italics added) by means of the unfair practice — is patently less stringent than the standing requirement for the class representative — “any person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204, italics added.) . 

(2) “[A] class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.” A class representative, however, need not plead or prove that they actually relied on a particular advertisement or statement when the unfair practice is a fraudulent advertising campaign. Id.

As to whether class representatives actually have standing, the court did conclude that Prop. 64 “imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong. This conclusion, however, is the beginning, not the end, of the analysis of what a plaintiff must plead and prove under the fraud prong of the UCL. . . .While a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause. ‘It is not . . . necessary that [the plaintiff’s] reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor influencing his conduct. . . . It is enough that the representation has played a substantial part, and so had been a substantial factor, in influencing his decision.’ [Citation.] [¶] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. . . .Nor does a plaintiff need to demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement.” Id. at p. 31.  

Additional Materials

The opinion is available at the judicial branch website and copies are available at the Supreme Court Clerk’s Office.

For a summary of the oral argument in this matter, please see "California Supreme Court Hears Landmark Consumer Fraud Case".

The lower Court’s ruling is available here.

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This post was written by Keith Yandell.

This morning, March 3, 2009, the California Supreme Court heard argument in In re Tobacco II Cases, a case that will shape how parties litigate California Unfair Competition Law (“UCL”) claims. At issue is the viability of UCL actions that seek to certify a class despite the fact that not all putative plaintiffs suffered injury as a result of a defendant’s allegedly unfair practice. Since California’s infamous UCL (also known as Bus. & Prof. Code, § 17200 et seq.) is often used to add broad “consumer fraud” claims to product liability lawsuits against the life sciences industry (as well as many other industries), the outcome of In re Tobacco II is garnering considerable attention.

Question Presented

(1) In order to bring a class action under the UCL, as amended by Proposition 64, must every member of a proposed class action have suffered “injury in fact,” or is it sufficient that only the class representative comply with that requirement?

(2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

Background of the Case

The gravemen of the plaintiffs’ Complaint is that defendant tobacco manufacturers and researchers engaged in a decades-long conspiracy to conceal the health effects and addictiveness of cigarettes and, in so doing, made numerous false and misleading statements to consumers.

The Court of Appeal unanimously affirmed the trial Court’s holding that every class member must have suffered injury in order to maintain a class action under the UCL.

Report From This Morning’s Argument

At the argument, Daniel Collins represented Phillip Morris, and Mark Robinson represented the plaintiffs. Justice Moore, of the 4th Appellate District, replaced Justice George who recused himself. Justice Kennard presided as Chief Justice.

Mr. Robinson focused his argument on the Mervyn’s decision¹, where the Court held that Proposition 64 did not change the substantive requirements of a UCL cause of action. According to Mr. Robinson, if the tobacco companies’ theory were correct, the UCL would be reduced to “nothing more than a fraud cause of action that does not allow damages.” Justices Baxter and Chin responded with a series of questions focusing the lack of symmetry that would result if absent class members could use the UCL to bring claim they would not have had standing to maintain individually. Mr. Robinson countered that the UCL “has always been broad” and has never included a reliance requirement. Justice Werdegar offered the insightful query, “As a practical matter, what did Proposition 64 change?” Plaintiff’s counsel responded that it changed standing requirements. When pressed, however, he had no answer for how the statute’s new reference to California Code of Civil Procedure Section 382’s class action requirements changed the UCL. 

Mr. Collins ably fielded a number of questions including: from where in the statute he derives his conclusion that all class members must show injury in fact (Justice Kennard); whether a request for injunctive relief as opposed to restitution affected standing (Justice Moore), and whether the term “claimant” refers only to a representative class member (Justice Chin). The theme of Mr. Collins’ responses was that a class member cannot use the class action mechanism to recover under a claim that he or she could not have brought individually. Therefore, Section 17204’s new language mandating compliance with C.C.P. § 382 could only be read to require that all class members must have suffered injury in fact as a result of the allegedly deceptive conduct. This message appeared to resonate with Justice Baxter, who aptly summarized Mr. Collins’ position.

In the end, the Court will balance Mr. Robinson’s argument that Proposition 64 did not change the substance of the UCL against the truism that allowing absent class members to recover for claims they could not have maintained individually would render the UCL’s new reference to C.C.P. 382 a nullity. Regardless of the outcome, as both parties acknowledged, this decision will have a dramatic impact on California class action litigation.

The California Channel, a public affairs cable network, broadcast live coverage of oral argument on many cable stations. It also carried a live streaming Webcast at www.calchannel.com.

We will post the decision as soon as it is released, which should be within the next 90 days.

Additional Materials

The Supreme Court’s website allows users to obtain additional information and sign-up for e-mail notices about this case. 

The lower Court’s ruling is available at courtinfo.ca.gov.

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UPDATE: After more than two years, on February 3, 2009, the California Supreme Court finally set argument in an important UCL case, In re Tobacco II for Tuesday, March 3, 2009, at 9:00 a.m., in San Francisco. With the Court's 90-day rule, a decision can be expected by June 1, 2009 in the ordinary course.

California product liability lawsuits against life sciences defendants often include claims under California's Unfair Competition Law (or 'UCL"), Cal. Bus. & Prof. Code § 17200 et seq. Sometimes UCL claims are the main theory of liability against life sciences clients, particularly when the plaintiff, or plaintiff class, has not suffered personal injuries from a medical device or drug they have used.

The UCL is controversial. For many years, critics complained that allowed individuals or groups to sue businesses on behalf of the "general public" over allegedly "unfair", fraudulent, or illegal practices, even if they never suffered any type of loss or harm, personal injury or otherwise. The voters passed Proposition 64 in November 2004, however, and imposed limitations to stem what were fairly viewed as abuses of this law. UCL plaintiffs now must show that they suffered an actual injury and lost money or property as a result of the defendant's alleged practice, and lawsuits brought on behalf of the general public now also must meet must traditional class action requirements. 

In response to Proposition 64, some entreprenurial plaintiffs' lawyers turned from the UCL to another statute, California's Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code §1750 et. seq., seeking another broad and malleable cause of action. (For more background about the UCL and CLRA, see this page or the always informative UCL Practitioner.

But the CLRA remains more limited than the pre-Proposition 64 version of the UCL. Last week, the California Supreme Court issued an important new CLRA decision, Meyer v. Sprint Spectrum L.P., unanimously affirming judgment for Sprint and concluding that a CLRA plaintiff lacks standing "without some allegation that he or she has been damaged by an alleged unlawful practice." Sprint was represented in the California Supreme Court by Reed Smith's own Ray Cardozo and Dennis Maio.

Meyer began in early 2004 with allegations, on behalf of the general public, that Sprint violated the UCL by including mandatory binding arbitration and other provisions in its customer service agreements. After Proposition 64, the original plaintiff (who was not a Sprint customer) was replaced by new named plaintiffs, and CLRA and declaratory relief causes of action were added. Sprint challenged the amended complaint because even the new plaintiffs had not alleged that the contract provisions had been enforced against them, and they also did not allege that they were personally damaged by the provisions. Although plaintiffs argued that the CLRA imposed no damage requirement whatsoever, the court concluded that California's Legislature had "set a low but nonetheless palpabale threshold of damage." It also noted that with statutes like the UCL and CLRA, "any rule that would expand the ability of individuals to bring lawsuits has costs as well as benefits." There is little to say other than that Meyer is a sound and well-reasoned decision that provides important and clear guidance for future CLRA claims.

On a different subject, more traditional personal injury class actions, the Drug and Device Law Blog has a good post regarding a Washington Legal Foundation paper by John Beisner and Jessica Miller, "Litigate the Torts, Not the Mass: A Modest Proposal for Reforming How Mass Torts are Adjudicated," proposing some long-overdue revisions to American Pipe tolling.

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