Saturday, April 30, 2011

Theory and practice of collateral source rule

Overlawyered has a post today, "Plaintiff seeks phantom damages 6 times greater than actual costs”, citing to an article on the Colorado Civil Justice League blog.

It seems the CCJL is critical of a recent decision by that state's Supreme Court, Volunteers of America Colorado Branch v. Gardenswartz, 242 P.3d 1080 (Colo. 2010), because that case would apparently allow a plaintiff in a currently pending to seek as medical expenses an amount six times the amount actually expended on his behalf. The discrepancy stems from the difference between the amount billed for medical treatment and the amount that the treater accepts in settlement of the bill. Although the Volunteers of America case turns on the interpretation of Colorado statutes and the CCJL article concerns a proposed amendment to the Colorado statutes that would overturn that result, the subject of the case, the collateral source rule, is of interest to tort reformers, lawyers, judges, and other shapers of public policy all over the country.

In Illinois, the collateral source rule was recently explained (and reaffirmed) in Wills v. Foster, 229 Ill.2d 393, 892 N.E.2d 1018 (2008). In Wills, the Illinois Supreme Court explained (229 Ill.2d at 399):
"'Under the collateral source rule, benefits received by the injured party from a source wholly independent of, and collateral to, the tortfeasor will not diminish damages otherwise recoverable from the tortfeasor.'" [citing Arthur v. Catour, 216 Ill.2d 72, 78, 833 N.E.2d 847 (2005), and quoting Wilson v. The Hoffman Group, Inc., 131 Ill.2d 308, 320, 546 N.E.2d 524 (1989).] As set forth in section 920A(2) of the Restatement (Second) of Torts (Restatement (Second) of Torts § 920A(2), at 513 (1979)), the rule provides that, "Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable." The rule has been described as an "established exception to the general rule that damages in negligence actions must be compensatory." 25 C.J.S. Damages § 172 (2002). Although the rule appears to allow a double recovery, the appellate court correctly noted that, typically, the collateral source will have a lien or subrogation right that prevents such a double recovery.
It is the lien or subrogation rights of third parties -- that vary widely from state to state -- that make sweeping generalities about the collateral source rule difficult to formulate.

In a rational world, the collateral source rule would be easy to understand and apply. Consider: Dan Driver is cruising down Main Street with one hand on the wheel and the other on his smart phone, texting his strong views about boycotting Donald Trump to NPR. Thus distracted, he fails to see (1) the light turn red on Main Street and (2) Peter Pedestrian entering the crosswalk, with the Walk light, attempting to cross the street directly in Driver's path. Happily, Pedestrian survives the collision. The hospital charges $50,000 to fix Pedestrian up. Pedestrian writes a check. When Pedestrian sues Driver for negligence, what part of his medical bills, if any, may he hope to recover against Driver?

No one would quibble with Pedestrian's right to recoup his entire $50,000 outlay. There's no "collateral" source in that example at all; Peter can recover what Peter paid. But what if Pedestrian had armed himself with health insurance? In our rational world example, the entire $50,000 hospital bill is now paid by the insurance company. Under the collateral source rule, Pedestrian can still recover the entire $50,000. Why should he be penalized for having the foresight to procure health insurance? Not everyone may see the fairness in such a rule... until the proposition is flipped around: Why should Driver obtain a windfall because he had the good luck to hit an insured person?

It's when we leave the rational world and rejoin the real one that things get complicated.

If Peter had insurance in the real world, the hospital bill might have been $75,000 and the insurance company might have paid $30,000. If Peter had no insurance, the hospital bill might have been $150,000 and Medicaid might have paid $12,000. Eventually. (We can defer to another time the very real question of why a hospital would bill a person who has no insurance more for the same services than it would bill a person who has insurance.) If Peter's accident was in Illinois, the private insurer might have subrogation rights; Public Aid would assert a lien. If Peter were a senior citizen, the hospital bill might have been still another amount. Medicare would pay some small fraction -- which may or may not bear some relation to the eventual Medicare lien.

With the hospital bill a moving target, the collateral source rule becomes a little harder.

In trying to figure out what amount plaintiffs like Peter Pedestrian get to present in damages cases, courts in various states have come up with three distinct approaches. The Wills court, citing Bozeman v. State, 879 So.2d 692, 701 (La.2004), identified these as (229 Ill.2d at 404): (1) actual amount paid; (2) benefit of the bargain; and (3) reasonable value.

Under the actual amount paid approach, as the name suggests, the court focuses "on the objective of compensatory damages as making an injured party whole," allowing the jury to hear only the amount actually paid by whatever source -- plaintiff, insurer, public aid. The theory, as the Wills court explained, "the written-off [or contractually adjusted] amounts are not damages incurred by the plaintiff." (229 Ill.2d at 405.)

Courts using the the benefit of the bargain approach distinguish between plaintiffs who have paid some consideration for the benefit received from the collateral source (e.g., insurance premiums) and those who have not (e.g., Medicaid recipients). The Wills court explained (229 Ill.2d at 406), "Under this approach, courts allow plaintiffs who have private insurance to recover the full amount of their medical expenses because they have bargained for the benefits they received. These courts also hold that plaintiffs whose bills are paid by Medicaid may not recover the reasonable value of their medical expenses and are limited to the amount paid by Medicaid. The courts distinguish between Medicare and Medicaid recipients, holding that, unlike Medicaid recipients, Medicare recipients should be treated the same as those with private insurance because Medicare recipients pay for their coverage through compulsory payroll taxes." The Illinois Supreme Court noted that this approach as been criticized as "discriminatory" and because it "undermines the collateral source rule by using the plaintiff's relationship with a third party to measure the tortfeasor's liability." (229 Ill.2d at 406-407.)

But, in Wills, the Illinois Supreme Court explained that this state follows the "reasonable value" approach. Most states follow this approach, the Wills court stated, although even here there is a majority and minority position. The minority position, the court stated (229 Ill.2d at 408), allows a plaintiff to seek only what was actually paid; however, the "vast majority of courts to employ a reasonable-value approach hold that the plaintiff may seek to recover the amount originally billed by the medical provider." (229 Ill.2d at 410.)

But is that "reasonable?" Well, in Illinois, "a paid bill constitutes prima facie evidence of reasonableness." (Wills, 229 Ill.2d at 403.) After Arthur v. Catour, 216 Ill.2d 72, 833 N.E.2d 847 (2005), however, some defendants suggested that it would be appropriate to also introduce the actual paid bills. There are states that allow both sets of bills to come in. See, Martinez v. Milburn Enterprises, Inc., 290 Kan. 572, 233 P.3d 205 (Kan. 2010) (both the amount billed and the amount actually paid would be admissible and the "finder of fact shall determine from these and other facts the reasonable value of the medical services provided to plaintiff"). But, by statute, Kansas prohibits insurers from issuing "contracts of insurance in Kansas containing a 'subrogation' clause applicable to coverages providing for reimbursement of medical, surgical, hospital or funeral expenses" (233 P.3d at 229).

In Illinois, however, where subrogation is a fact of life, Wills explained (229 Ill.2d at 218) that, in Arthur, "this court made clear that the collateral source rule 'operates to prevent the jury from learning anything about collateral income' (emphasis added) and that the evidentiary component prevents 'defendants from introducing evidence that a plaintiff's losses have been compensated for, even in part, by insurance.'" Under Wills, "defendants are free to cross-examine any witnesses that a plaintiff might call to establish reasonableness, and the defense is also free to call its own witnesses to testify that the billed amounts do not reflect the reasonable value of the services. Defendants may not, however, introduce evidence that the plaintiff's bills were settled for a lesser amount because to do so would undermine the collateral source rule." (229 Ill.2d at 218.)

Tort reformers, like the Colorado group in today's Overlawyered post, have serious problems with the collateral source rule. But the problems in the application of the collateral source rule are at least as much the fault of irrational medical billing practices as anything.

Tuesday, April 19, 2011

Local kid wins Irish dance world championship

A kid from west suburban Villa Park has won the boys’ gold medal in the Under 14 category at the 41st World Irish Dance Championships, now ongoing in Dublin. On April 18, 13-year old Peter Dziak became the first solo gold medal winner in this category in the 30-year history of Chicago's famous Trinity Academy of Irish Dance. (Until yesterday, the boys' U14 category was the only category that had not been won by dancers from the Trinity school.)

Persons familiar with this blog may be pleased to learn of young Mr. Dziak's splendid victory but question the reason for my ranging so far afield from the usual sort of post offered here.

As it happens, there is a perfectly good reason. Peter Dziak is the son of Joan and Dick Dziak. Joan Dziak (nee Sullivan) is my cousin. Me and my two left feet are happy and proud for all of them.

Incidentally, I pulled Peter's picture from the linked story in TimeOut Chicago Kids. The photo credit is given to Anne Dziak, Peter's sister. On April 21, Anne sheds her photojournalist persona and becomes a competitor at "the Worlds" herself.

Sunday, April 17, 2011

Looking more at the Madigan judicial recommendations

The story in this weekend's Chicago Tribune, Madigan letters offer glimpse of clout in Cook County judge selection, will be seen by some as further evidence of systemic corruption or, at least, wholly undue political influence on our judiciary.

But is it?

The article, by Tribune reporters Jeff Coen and Todd Lighty, 'reveals' that the Michael Madigan, the Speaker of the Illinois House, has sent letters to judges advising of his preferences during recent associate judge selections. (Associate judges are elected by sitting circuit judges from a list of finalists put together by a committee of circuit court judges. The graphic below, copied from today's Tribune, is intended to illustrate the process.)

(Click to Enlarge)

The 'revelation' that a prominent public figure would have and express opinions about who should attain the bench is about as newsworthy as a revelation that the Sun rises in the east and sets in the west. Indeed, the Tribune article notes that, in addition to Madigan, "[Ald. Edward] Burke, former state Sen. President Emil Jones, D-Chicago, and a variety of other local politicians also promote candidates for the associate judge spots."

In fact, the very first thing that happens after application process closes, at least in recent years, is that the Cook County Chief Judge's office publishes the names of all applicants and solicits comments from the public. Non-lawyers reading this post may be surprised to learn this; most lawyers will be familiar with notices in this regard published every day for at least a couple of weeks in the Chicago Daily Law Bulletin (I can't recall, at this moment, how long the notices usually run). The Chicago Tribune or Sun-Times could publish this list as well but -- to my knowledge -- neither has.

In any event, the Tribune's angle can not be that Mr. Madigan makes recommendations; recommendations can be made by anyone. A closer reading of the Tribune article suggests that the concern is, rather, that Mr. Madigan makes so many recommendations and that these are so successful.

According to the Tribune, "Since 2003, Madigan has recommended 37 lawyers to become associate judges, and 25 were selected outright." Roughly two out of three people recommended by Mr. Madigan, therefore, were appointed as associate judges and, according to the Tribune, others made it to the bench through appointments. (In Illinois, the Supreme Court can fill vacancies by interim appointment. Sometimes the persons appointed will later be elected to these vacancies; sometimes not.)

That so many persons attain the bench after receiving the Speaker's recommendation seems extraordinary. However, in recommendations, as in everything else in this world, timing is everything.

The Tribune obtained copies of Mr. Madigan's letters from 2003, 2005, 2007, 2008 and 2009. The 2007 letter is undated, but the 2008 letter is dated August 18; the 2009 letter is dated August 24.

In other words, these letters -- at least -- were written after the major winnowing of the applicants had already been accomplished. For example, as the Tribune article notes, there are now 240 persons hoping to be selected to 10 associate judge positions now open (full disclosure: I am one of these 240). Assuming the number of vacancies does not increase while the evaluation process is completed, this pool will be reduced to only 20 "finalists." (Two finalists must be certified for each by a nominating committee composed of Cook County Circuit Court judges; see, Supreme Court Rule 39.)

If one makes recommendations only from the finalists' pool, the odds of making successful recommendations are pretty good: After all, half of those on the finalists' list will be chosen.

Nine associate judges were chosen in mid-September 2008. The August 18, 2008 letter was, therefore, issued after the finalists' list appeared. The 2009 finalist list came out on August 20; ten associate judges were chosen on September 25. Mr. Madigan's letter was dated August 24.

Getting a little further inside the numbers, only one of Mr. Madigan's three recommendations was elected an associate judge in 2009 (although another was subsequently appointed by the Supreme Court to a circuit vacancy). On the other hand, six of the eight persons named in the Speaker's 2008 letter are now associate judges, while another was elected as an associate judge in 2008 and then won election (that same year) as a full circuit judge from the 13th subcircuit. But two of these successful 2008 aspirants were also named in the Speaker's 2007 letter; the Speaker's recommendation did not carry the day for them on that occasion.

In other words, a recommendation from the Speaker is obviously something that boosts the chances of a judicial hopeful, but it is not dispositive. And a lot of judicial hopefuls don't achieve their ambition the first time -- or even the second, third or fourth time -- even with apparently powerful sponsors. (I'd prefer not to have to total up how many times I've applied.)

Persons concerned about undue political influence in the associate judge selection process should keep in mind that new judges are chosen by Cook County circuit judges voting by secret ballot. Politicians, even the most powerful ones, have limited influence over circuit court judges. An offended politician can not slate someone to run against a circuit judge at the next election. (Once elected, circuit judges only have to face a retention ballot every six years.) I therefore see nothing intrinsically wrong in either desiring or obtaining this sort of recommendation.

Wednesday, April 13, 2011

Illinois the best state in which to make a living?

That's the perhaps surprising conclusion of this article posted today on Yahoo! Finance. The April 12 article, by Kathy Kristof of CBS MoneyWatch.com, more or less summarizes this April 5 article by Richard Barrington on MoneyRates.com.

Barrington's article cites four factors that were considered by MoneyRates.com in calculating "adjusted-average income." These were:
  • Average state wages
  • State unemployment rate
  • State tax rate
  • State cost of living
Based on all these factors, MoneyRates.com calculated an adjusted-average income for each state - the average income adjusted for your chances of finding a job, how much you would lose to state taxes, and how much purchasing power that income would have based on the cost of living in that state.
Applying these factors, MoneyRates.com decided that Illinois is the best state in the nation in which to make a living. Of Illinois, the article states in pertinent part (emphasis supplied):
At $41,986.51, Illinois had the best adjusted-average income. The unemployment rate in Illinois is not especially low, but the state benefits from relatively high average wages, a low state tax rate, and a below-average cost of living.
Low tax rate?

I wanted to check when the articles were posted, just to verify that the source articles didn't pre-date our recent income tax hike. As you'll note, the source article is quite recent -- posted only 8 days ago -- and, thus, post tax hike.

Illinois gets a lot of bad press these days for its supposedly hostile business climate. But if an argument can be made that our state is the best state in which to make a living, maybe our problems aren't so hopeless after all.

Interestingly, neither Indiana nor Wisconsin makes the Top 10 list. Hawaii tops the MoneyRates.com list of the worst states in which to make a living.

Monday, April 11, 2011

Recycling the old-fashioned way

My wife and I had accumulated a couple of burnt-out compact fluorescent light bulbs, a bunch of dead batteries, and a pile of electronic junk over the past several months. On April 2, we loaded it all in the family van and headed to the City of Chicago Household Chemicals and Computer Recycling Facility at 1150 N. North Branch Street.

The City facility is open for drop-offs only on the following days:
  • Tuesdays (7 am – 12 pm)
  • Thursdays (2- 7 pm)
  • The first Saturday of every month (8 am – 3 pm).
We got rid of the batteries and CFL's -- but we had decidedly mixed results in our efforts to get rid of the electronics.

An old inkjet printer was cheerfully accepted, as were a bunch of old computer cables. But a burnt out coffee maker was rejected, as was an old CD/radio/cassette player (which, with its detachable speakers, was quite the almost-portable entertainment center in its day). We had a string of long-dead Christmas lights we'd been meaning to get rid off as well -- but it, too, was rejected.

Sure enough, when I went back to check, "stereo equipment" was on the list of items that the City would not accept. But the facility will take old DVD and MP3 players. (The link in this paragraph will take you to the complete list of what the City will and will not accept at the North Branch Street facility.)

I don't understand why the City makes these distinctions.

Aren't cassette players and DVD players both made from similar components? Isn't it the innards that have value? I keep hearing about the 'cost' of bringing blue cart recycling to Chicago, but I never hear about the revenues that should be realized from recycling. After all, every grade school in the area raises funds by hosting newspaper collection bins. Presumably the companies paying the schools for old newspapers would not be doing that unless they were selling the newspapers at a profit somewhere else. Aren't there similar marked for old plastics and so forth?

I'm looking into these questions and I propose to report back here on what I find out.

In the meantime, though, I found a way to recycle the old boom box: I put it out next to the garbage cart the night before our regular pickup. In the night, someone came by and took it. Recycling -- old school.