Connecticut Legislators Consider Reductions to Personal Injury Awards Involving Collateral Source Payments

In Connecticut, lawmakers are considering a bill that would reduce economic damages in personal injury and wrongful death awards where a third party has a right of subrogation arising from collateral source payments. Senate Bill 213, which is currently before the Connecticut General Assembly’s Committee on the Judiciary, has widespread support from the defense bar and industry groups, while the plaintiffs’ bar argues it would unfairly impact those harmed by negligent actions.

Current Law Regarding Collateral Source Payments

The goal of awarding economic damages in personal injury lawsuits is to make the injured party financially “whole.” Economic damages often include medical expenses that the plaintiff incurred due to injuries that resulted from the defendant’s negligence. However, in many cases, health insurance covers some or all of these medical expenses, which complicates economic damage awards in personal injury cases. If a damages award does not account for health insurance payments, the plaintiff could receive compensation for expenses he didn’t incur. To prevent this scenario, Connecticut General Statutes section 52-225a et seq., known as Connecticut’s “collateral source” rule, requires that a trial judge reduce awarded economic damages by the amount determined to have been paid or written down by collateral sources, such as health insurers, less any credits for the amount paid to secure the benefit, such as insurance premiums. It is important to note that these calculations take into account the actual contracted rates paid by the insurer to the healthcare provider, which are often significantly lower than the billed amounts. 

Connecticut law does not provide for a collateral source reduction for any payments when the insurer has a right of subrogation. The concept behind this exception is that when insurers have a right of subrogation, they can recover the amounts they paid by asserting a lien on a plaintiff’s award or settlement or by suing the plaintiff. In Connecticut, only plans governed by federal statutes, such as Medicare, Medicaid, and Employee Retirement Income Security Act (ERISA) plans, have the right of subrogation.

In the 2016 case of Marciano vs. Jiminez, the Connecticut Supreme Court narrowly construed Connecticut General Statutes §52-225a et seq. in holding that where a right of subrogation exists in any amount, the trial court cannot make any collateral source reduction. Critics say the Marciano ruling went against the legislative intent by allowing plaintiffs to recover the full amount billed by providers, for which they would never be responsible because providers accept the contracted rates as full payment and write off the rest.

What Proponents of SB 213 Say

Proponents of SB 213 say the statutory amendment is necessary in the wake of Marciano. “Because of the Marciano decision, plaintiffs in lawsuits can currently recover medical expenses that no party and no entity ever paid,” Wyatt Bosworth, counsel for the Connecticut Business & Industry Association (CBIA), told the Committee on the Judiciary. “In essence, when there is a plaintiff’s verdict, defendants and their insurers are obligated to pay for medical treatment even though the doctor or hospital accepted a far lower amount as satisfactory payment for the treatment. If the medical bills were paid by entities with a lien, i.e., Medicaid and Medicare, a defendant is forced to pay the full ‘sticker’ price of those bills”, he added. Bosworth provided a hypothetical in which hospital A charged $50,000 in medical bills and accepted $10,000 in full payment. “Prior to Marciano, the losing defendant would owe $10,000 in damages,” he noted. “After Marciano, the losing defendant would owe $50,000, providing plaintiff and their attorneys a windfall of $40,000 known as ‘phantom damages’ – damages that no one paid, that do not represent economic loss, and that directly results in higher settlements and verdicts.” As Bosworth asserted, SB 213 “remedies this injustice” by allowing for a post-verdict collateral source reduction of $40,000 in the above hypothetical. “Limiting economic damages to cases where plaintiffs have suffered an actual financial loss, as opposed to phantom damages, will enable defendants’ insurers to lower insurance premiums and prevent windfall recoveries to plaintiffs,” he added.

According to a position statement by Kelly Petter on behalf of the Connecticut Defense Lawyers Association, while Marciano may not have changed the words used within the statute, “it changed the entire process of case evaluation and negotiation of settlements. Before Marciano, it was a commonly accepted practice that the value of [the] plaintiff’s claims would be estimated based on the amount actually paid by or on behalf of, and/or owed by [the] plaintiff, rather than the amount charged by the medical provider. Following Marciano, Marciano is routinely used as a bargaining chip to inflate settlement values resulting in a windfall to plaintiff and her lawyer.”

What Opponents of SB 213 Say

SB 213 opponents say the proposal favors the insurance industry over those harmed by wrongful conduct. “The proposed changes would inequitably alter tort reform and effectively wipe out one of its fundamental components and a component which was negotiated with the input of the insurance industry when it was passed long ago,” according to a position statement of the Connecticut Trial Lawyers Association (CTLA). “As the Supreme Court stated in Marciano and many times before, ‘in enacting § 52–225a, [the legislature] sought to achieve an ‘equitable balance … between barring plaintiffs from recovering twice for the same loss, on the one hand, and preventing defendants from benefiting from reduced judgments due to collateral source payments, on the other.’ [The bill] would upset the balance of equities struck by the tort reform acts from 1986 and 1987 for no valid reason”, the CTLA argued.

According to the CTLA, the proposed language would allow the person or entity who caused the harm (or their liability insurance company) to “receive the full benefit of the victim’s efforts not only to obtain insurance, but also the victim’s efforts to negotiate a lien down from its full amount.” This language, the CTLA argued, would destroy any balance of equities and shift the balance entirely in favor of negligent parties and their insurance companies.

Looking Ahead

Those interested in this proposal will be closely watching the bill to see if it is voted out of committee to the full chamber for further consideration and a potential vote on passage.  The regular session of the Connecticut General Assembly concludes on May 8, 2024. 

Brian E. Tims, a partner at FLB Law in Westport, Conn., represents businesses and individuals in a variety of litigation matters. He previously worked for one of the country’s largest property and casualty insurance companies and has more than a decade of private legal practice focused on litigation, including insurance defense. Contact Brian at tims@flb.law or 475.236.5219.