Indiana Supreme Court Holds Insurance Write-Offs Are Not Recoverable Damages Under Adult Wrongful Death Statute

On April 7, 2009, the Indiana Supreme Court decided the case of James Butler v. Indiana Department of Insurance, 2009 Lexis 342, 2009 WL 944383.  The case addressed the situation which arises when medical providers issue statements of charges for medical services, but thereafter accept a reduced amount in full satisfaction as a result of negotiations with a health insurer, Medicaid or Medicare.  The supreme court held that, in the context of Indiana’s Adult Wrongful Death Statute (I.C. § 34-23-1-2), a plaintiff may not recover the total charges billed, but is only entitled to the amount ultimately paid after the insurance adjustments.

In Butler, plaintiff, the estate of the deceased party, sued a medical provider pursuant to the Indiana Adult Wrongful Death Statute (which applies only to adults without dependents).  Medicare and Medicaid had paid a portion of the decedent’s medical expenses, the total of which was approximately $410,000.  About $288,000 was adjusted by Medicare and written-off by the medical providers.  The defendant attempted to introduce evidence of the write-offs at trial and thereby limit the plaintiff’s recoverable damages. 

The Indiana Collateral Source Statute (I.C. § 34-44-1-2) excludes evidence of collateral source payment made (i) by insurance for which the plaintiff or her family has paid directly or (ii) by a state or the United States (i.e., Medicaid and Medicare).  The Indiana Court of Appeals in Butler held that the collateral source rule did not apply since the write-offs were not “payments.”  The court reasoned that an injured party should be compensated for medical expenses for which they are liable, but should not receive a windfall by recovering for amounts which did not represent an “actual pecuniary loss” to the plaintiff.  Accordingly, evidence of the write-offs was held by the appellate court to be admissible.  Transfer was then granted by the Indiana Supreme Court.

The Indiana Supreme Court first noted that, under the common law, “the extent of recovery by an injured plaintiff for medical expenses depends not upon what the plaintiff paid for such services but rather their reasonable value.”  However, the court went on to observe that the plaintiff in the present case was presenting a statutory, not a common law, cause of action.  The court also noted that statutes in derogation of the common law, like the Adult Wrongful Death Statute, were to be construed narrowly. 

The Adult Wrongful Death Statute itself allows recovery for “reasonable medical expenses necessitated by” the tortious conduct.  Focusing on the word “necessitated”, the court found that, where charges for medical services which are billed but thereafter settled for a lesser amount, the difference between the amount billed and the amount paid is not a necessitated expense.  In short, the supreme court held that the trial court had not erred in introducing into evidence the amounts actually paid for the decedent’s medical expenses.  The supreme court’s holding appears to overrule the holding of the district court of the Northern District of Indiana, in Maurer v. Iehl, 2008 U.S. Dist. LEXIS 69296 (N.D. Ind. Sept. 10, 2008), which was decided while the Butler case was on transfer before the Indiana Supreme Court.

It is critical to emphasize, however, that the supreme court’s holding was limited to the context of the Adult Wrongful Death Statute.  The holding may not even apply to the Wrongful Death Statute (for adults with dependents) (I.C. § 34-23-1-1), which does not contain the phrase “necessitated by” (but does include the word “necessary”), although it may well apply to the Child Wrongful Death Statute (I.C. § 34-23-2-1), which does contain the phrase “necessitated by.”

The Court is still set to decide the same issue in the context of a common law claim for damages, in the case of Stanley v. Walker.  The court of appeals in Stanley v. Walker, 888 N.E.2d 222 ( Ind. Ct. App. 2008), reached the opposite conclusion as the court of appeals in Butler.  In Stanley, the appellate court reasoned that write-offs constituted an insurance benefit for which the plaintiff had paid his premiums, and thus fell under the exclusionary rule of the Collateral Source Statute.  The court also observed that the fact that medical bills are written-off does not necessarily mean that the plaintiff is not obligated to pay the billed amount. 

In any case, the Stanley court held that the collateral source rule does apply to write-offs and that evidence of insurance write-offs should be excluded from the calculation of the plaintiff’s damages.  The supreme court has yet to issue its ruling. 

However, given the limited nature of the Butler holding and the supreme court’s observation that, under the common law, plaintiffs may recover the “reasonable value” of medical services, not the amount actually paid, it will not be surprising should the supreme court uphold the court of appeals’ holding in Stanley. 

[Editor’s Note:  The October 2007 decision of the Indiana Court of Appeals in Butler v. Ind. Dep't of Ins., 875 N.E.2d 235 (Ind. Ct. App. 2007) was discussed along with other cases on this set-off issue in our November 2008 newsletter.  See, Insurance Law Update: Indiana Courts Join the Fray in the Debate over Insurance Write-Offs, John Halstead – Querrey & Harrow, Ltd.  http://www.querrey.com/newsletter-33.html]

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John Halstead, an associate in our Merrillville, Indiana office, concentrates his practice in civil litigation, title defense, and mechanics liens.  Prior to joining Querrey & Harrow, John gained experience as a plaintiff's attorney in personal injury, contract, and estate law, which provides him a view of opposing perspectives in a lawsuit or in a contract dispute.