Maritime Collateral Source Rule Clarified By Fifth Circuit

In an eminently reasonable, but apparently (surprisingly) res nova decision, the United States Fifth Circuit Court of Appeal has clarified that the maritime collateral source rule does not allow for recovery of medical amounts billed but later written down by the medical providers. Deperrodil v. Bozovic Marine, Inc., —F.3d —, 2016 WL 6810728 (5th Cir. Nov. 17, 2016).

This practical outcome prevents a plaintiff from recovering the full amount of medical bills when that full amount has never actually been paid by any insurer or by the plaintiff him/herself. The ruling also brings Fifth Circuit jurisprudence in line with the analogous rule in Louisiana (Hoffman v. 21st Century N. Am. Ins. Co., 2014-2279 (La. 10/2/15) (“[Plainitff] did not actually incur the ‘written-off’ portion of the charges, [and so] the collateral source rule does not apply.”), Texas (Haygood v. De Escabedo, 356 S.W.3d 390, 399 (Tex. 2011) (citing Tex.  Civ. P. & Rem. Code §41.0105), and the Fifth Circuit’s own prior rule in the analogous context of seaman’s maintenance and cure (Manderson v. Chet Morrison Contractors, Inc., 666 F.3d 373, 381 (5th Cir. 2012).

The collateral source rule is a long-standing common law rule that prevents a defendant from offering proof that a plaintiff recovered certain of his/her claimed damages from a collateral source – i.e. an outside source of payment that derives/relates in some way from the plaintiff’s compensation for his/her work at the time of injury – in order to reduce the defendant’s liability for those damages:

The collateral source rule is a substantive rule of law that bars a tortfeasor from reducing the quantum of damages owed to a plaintiff by the amount of recovery the plaintiff receives from other sources of compensation that are independent of (or collateral to) the tortfeasor.

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Generally speaking, when a employee has bargained for a fringe benefit as additional consideration for employment, compensation received by the employee under that fringe benefit should not be deducted from damages awarded to the employee as a result of the employer’s negligence. As the employee is already contractually entitled to that benefit, allowing the employer to deduct such compensation would both undercompensate the employee and provide the employer with an undeserved windfall. Thus, in evaluating whether a benefit derives from a collateral source, we ordinarily assess whether that benefit is in the nature of a fringe benefit (or deferred compensation) or instead reflects a tortfeasor’s effort to anticipate potential legal liability. Current application of the collateral source rule thus turns on the character of the benefits received, as well as the source of those benefits.

Davis v. Odeco, Inc., 18 F.3d 1237, 1243 (5th Cir. 1994).

The issue before the court in Deperrodil involved an injury to an employee of Petroleum Engineers, Inc. (PEI) on a crew boat chartered by PEI to bring the plaintiff to an offshore platform. The plaintiff received LHWCA compensation through PEI’s (his comp-immune employer) LHWCA insurance, which covered all of his medical expenses; but he then brought suit against the crew boat owner/operator (“Bozovic”) for his injuries and damages. The trial court awarded plaintiff the full amount of his billed medical expenses against Bozovic – notwithstanding that PEI’s LHWCA insurer had negotiated those bills down at a significant (1/3) discount from the as-billed amounts – on the basis that the collateral source rule prohibited any discount in favor of the third-party tortfeasor Bozovic who had no part in contributing to the collateral source LHWCA compensation coverage.

After a comprehensive survey of the law in this area, and an initial determination that PEI’s LHWCA compensation insurance was a statutorily mandated (see 33 U.S.C §932) fringe benefit of plaintiff’s employment and thus a collateral source vis-à-vis Bozovic, the Fifth Circuit held as a matter of general maritime law that the collateral source rule does not allow for recovery of amounts billed but never paid: “LHWCA medical-expense payments are collateral to a third-party tortfeasor only to the extent paid; in other words, under those circumstances, plaintiff may not recover for expenses billed, but not paid.” Depperodil, 2016 WL 6810728 at p. 7. The court noted that just as the collateral source rule itself seeks to avoid “a windfall for the tortfeasor,” the corollary is also true: a plaintiff should not collect a “windfall” by recovering medical expenses that no one has ever paid on his behalf and that no medical provider ever collected.

The Fifth Circuit’s holding in Deperrodil is an important “black letter” ruling for all parties in all maritime personal injury cases, particularly given the often (and increasingly) substantial discounts medical providers are willing to negotiate off of initially significant billed amounts for routine procedures vis-à-vis common industrial injuries. Likewise, as between immune employers and their potentially at-fault contractors, the Depperodil ruling underscores the importance of obtaining discovery of the actually paid medicals bills, as opposed to simply the as-billed amounts.