Local governments, schools fight windfall for plaintiffs’ lawyers

California’s economic downturn has touched everyone in some way.  Cities, counties and school districts from Del Norte to Imperial have been grappling with massive budget deficits.  Public entities have slashed thousands of jobs for police, fire fighters, social workers and teachers while also cutting important services provided to tax payers.  The City of Stockton is considering bankruptcy. To make matters worse, the California Legislature is considering legislation this summer that will force a new financial burden on public entities only to give plaintiff attorneys higher profits from lawsuits.

SB 1528 is sponsored by the Consumer Attorneys of California and they say the bill is intended to establish a framework for compensating injured people that are hurt by a third party.  California’s court system already has a framework to compensate injured parties that has been available for decades.  Under existing law an injured party gets their day in court and is “made whole” through compensation for general or economic damages which pays for pain and suffering, lost wages, property damages, any medical damages and all out-of-pocket expenses.

The true agenda of SB 1528 is to increase the amount of medical damages that are paid.  Presently, health insurers have negotiated rates they contract for with health care providers.  When a patient checks into a hospital or goes to a doctor that medical provider knows they will be compensated at those negotiated rates.  The amount billed to an injured party is arbitrary and is often many times larger than the health care provider actually expects to receive from the insurer based on those negotiated rates.  Once a doctor or hospital is paid the contracted amount by the health insurer that bill is paid in full and is considered final.  The medical provider does not expect to be paid the billed amount.   The injured party’s medical expenses are paid completely and they face no future liability for unpaid bills.  

California’s highest court reaffirmed how medical damages are calculated – billed or contracted – last year in a 6 to 1 Supreme Court decision in the case of Howell vs. Hamilton Meats.  The Court clearly said in their decision “We hold no such recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.”  Since the injured party has no liability for the difference between the rate paid by the insurers and the arbitrary amount billed, allowing the injured party to collect this difference, amounts to a “windfall” to injured parties and their attorneys.

The plaintiffs’ bar is sponsoring SB 1528 to overturn the Howell decision because they want to increase the amount of medical damages which would sub-sequentially amplify and increase the amount of pain and suffering damages awarded.  It’s about perception; higher damages give the impression of greater injury and therefore more compensation for the plaintiff seems appropriate.  For instance, a shoulder injury from an auto accident that has $35,000 in medical expenses is seen as more harmful than one with a $9,000 medical bill.  The $35,000 may be the billed amount but $9,000 is what the medical insurer actually paid under their contract with the provider.  Why do plaintiff attorneys want these higher damage awards?  That is how they make their money.  Plaintiff attorneys are paid 33 – 40 percent of any damage awards an injured party receives. 

Cities, counties and school districts face thousands of lawsuits every year.  Some cases are small and some cases are expensive, but every dollar paid out for lawsuits comes out of taxpayer dollars.  Under the current system public entities are paying for any and all medical expenses and the injured parties face no future cost or liability.  Why should local entities, school districts, libraries and special districts divert money away from important public services to increase payouts to plaintiff attorneys?  That is not good public policy and Assembly Members Mike Feuer-Chair, Don Wagner-Vice Chair, Toni Atkins, Roger Dickenson, Beth Gaines, Jeff Gorell, Alyson Huber, Brian Jones, Bill Monning and Bob Wieckowski should vote “No” when SB 1528 comes before the Assembly Judiciary Committee later this month.

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Ed’s Note: Brad Reager is the Liability Claims Manager for CSAC Excess Insurance Authority.  CSAC EIA is a California Joint Powers Authority representing approximately 1600 public entities statewide including 93% of the state’s counties, 60% of its cities and 8% of all school districts and assorted other special districts.