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The following article appeared in the December 1999 issue of the Trial News*:

Trial Judge Declares Medical Malpractice Collateral Source Statute Unconstitutional

by Erik F. Ladenburg

    In 1976, the legislature enacted a series of laws that were aimed at alleviating the rising cost of health care. The legislature was convinced, despite a lack of evidence, that a medical malpractice insurance crisis was about to reek havoc on health care cost. One cause of this potential crisis was believed to be medical malpractice lawsuits. As a result, the legislature fashioned new laws that created a different set of rules for medical malpractice plaintiffs than for other plaintiffs. One such law was the eight year statute of repose. Another was RCW 7.78.080, which allows evidence of collateral sources to come before the jury in medical malpractice cases. Over a year ago the statute of repose was declared unconstitutional by the Washington State Supreme Court, and in October of this year the “collateral source” statute was ruled unconstitutional by King County Superior Court Judge JeanetteBurrage.

    In August of 1998, medical malpractice plaintiffs first received a welcome surprise when the Supreme Court ruled the statute of repose in medical malpractice cases was unconstitutional. See, DeYoung v. Providence Medical Center, 136 Wn.2d 136, 144, 960 P.2d 919 (1998). In so holding, the Court found the eight year provision violated the Privileges and Immunities Clause of the Washington Constitution.

    Under Article I, § 12 of the Washington State Constitution, "[n]o law shall be passed granting to any citizen, class of citizens, or corporation other than municipal, privileges or immunities which upon the same terms shall not equally belong to all citizens, or corporations." The 14th Amendment provides a similar protection: "No State shall make or enforce any law . . . [which denies] to any person within its jurisdiction the equal protection of the laws."

    Where the class affected by a given statute is not a suspect class or a semi-suspect class, the Court will review the law under a rational basis test. A statute will survive a constitutional challenge under a rational basis analysis if (1) the legislation applies alike to all members within the designated class; (2) there are reasonable grounds to distinguish between those within and those without the class; and (3) the classification has a rational relationship to the proper purpose of the legislation. DeYoung, 136 Wn.2d at 144.

    Applying the rational basis test, the DeYoung court found the legislature's goal of alleviating or preventing a malpractice insurance crisis was so attenuated to the statute that its distinction between medical malpractice plaintiffs and other plaintiffs was arbitrary or irrational. The Court remarked that a study before the legislature showed less than one percent of malpractice claims reported nation were made by adults more than eight years after the alleged malpractice. The statute of repose therefore "could not possibly have any meaningful impact on the medical malpractice insurance industry. . ." 136 Wn.2d at 149.

    The collateral source statute (RCW 7.70.080) was passed during the same session as the statute of repose. The legislature had the same policy reasons behind RCW 7.70.080 as they did behind the statute of repose i.e., to prevent a medical malpractice insurance crisis. Like the statute of repose, RCW 7.70.080 is not rationally related to the prevention of an insurance crisis and unconstitutionally treats medical malpractice plaintiffs differently than other personal injury plaintiffs.

    RCW 7.70.080 provides in actions for injuries resulting from health care that
           Any party may present evidence to the trier of fact that the patient has already been compensated for the injury complained of from any source except the assets of the patient, his representative, or his immediate family, or insurance purchased with such assets. In the event such evidence is admitted, the plaintiff may present evidence of an obligation to repay such compensation. Insurance bargained for or provided on behalf of an employee shall be considered insurance purchased with the assets of the employee. Compensation as used in this section shall mean payment of money or other property to or on behalf of the patient, rendering of services to the patient free of charge to the patient, or indemnification of expenses incurred by or on behalf of the patient. Notwithstanding this section, evidence of compensation by a defendant health care provider may be offered only by that provider.

          
    The common law collateral source rule, which applies to plaintiffs injured outside of medical negligence, allows an injured party to recover compensatory damages from a tortfeasor without regard to payments the injured party received from a source independent of the tortfeasor. Johnson v. Weyerhaeuser Co., 134 Wn.2d 795, 798, 953 P.2d 800 (1998). The reason usually articulated for doing away with the common law rule is that it allows the plaintiff a double recovery. Adcox v. Children's Orthopedic Hosp., 123 Wn.2d 15, 40, 864 P.2d 921 (1993). This reason lacks merit however, because of the subrogation rights of insurers. Even if plaintiffs were getting a double recovery, abrogation of the common law rule should arguably apply to all plaintiffs equally to be constitutional. To draw an arbitrary distinction between medical malpractice plaintiffs and other personal injury plaintiffs or between plaintiffs who can afford insurance and ones who must rely on the State or the kindness of charities is a violation of equal protection and the privileges and immunities clause of the Washington State Constitution.

    Similar statutes have been stricken down as unconstitutional in many other states. The Kansas Supreme Court held that a Kansan statute allowing evidence of collateral sources in medical malpractice actions violated the equal protection rights of the plaintiff. The Court, quoting a local district court that also declared the statute unconstitutional, reasoned: "This statute is intended to keep down the costs of medical malpractice insurance, and to limit the size of medical malpractice verdicts. The distinction between insured plaintiffs, and ones who must rely upon kindness for some of their pre-litigation care, is not one which furthers that goal. Rather, it substantially undermines that purpose, and at the expense of the indigent litigant. It therefore is violative of the rights of all litigants to equal protection under the Fourteenth Amendment to the United States Constitution." Wentling v. Medical Anesth. Services, P.A., 701 P.2d 939, 950 (1985), quoting Doran v. Priddy, 534 F. Supp. 30, 37 (Kan. 1981).

    An Ohio statute treating evidence of collateral sources in medical malpractice cases differently than non-medical malpractice cases was similarly held unconstitutional. Sorrell v. Thevenier, 633 N.E.2d 504 (OH, 1994). In analyzing an equal protection claim the Ohio Supreme Court held:
           In our view, the ostensible purposes of R.C. 2317.45 do not withstand equal protection scrutiny under a strict scrutiny analysis. Given that one of the purposes of R.C. 2317.45 is to limit double recoveries, the different treatment for medical malpractice tort victims with regard to collateral recovery is not necessary to promote a compelling governmental interest, especially where the statutory classifications are established in response to a crisis that has not clearly been established to have existed. (Citations omitted).

          
Moreover, a statutory classification violates the Equal Protection Clause of the Ohio Constitution if it treats similarly situated people differently based upon an illogical and arbitrary basis. The arbitrariness of the Ohio statute in this regard was explained by the Court, quoting amicus curiae by Ohio Academy of Trial Lawyers:
           'If there was an insurance crisis, it would be a crisis affecting all tort defendants. There is no rational reason for distinguishing between medical malpractice tort defendants and all other tort defendants. This disparate treatment can result in vastly different results involving the same injury. For example two tort victims suffer the identical injury, the laceration of an artery resulting in death. One tort victim is injured by a piece of broken glass while driving a company truck within the scope of employment. The other tort victim is injured by the medical negligence of a physician who lacerates an artery during an elective surgery procedure. Both tort victims remain in the hospital for ten days before their death. Due to the difference in the collateral source statutes, these two identical injuries may result in vastly different compensation for the victim. The Equal Protection Clause mandates that those similarly situated be similarly treated.' Thus, even under the less stringent rational basis test applied by the majority in Morris, supra, we believe that R.C. 2317.45 is constitutionally infirm on equal protection grounds. Accordingly, we hold that R.C. 2317.45 also violates Section 2, Article I of the Ohio Constitution.
Sorrell, 633 N.E.2d at 512-13(1994).

          
    New Hampshire's statute which allowed evidence of collateral sources in medical malpractice actions was likewise held to be unconstitutional. Carson v. Maurer, et al., 424 A.2d 825 (NH, 1980). The Court held:
           We first note that, "(a)bolition of the (collateral source) rule . . . presents the anomalous result that an injured party's insurance company may be required to compensate the victim even though the negligent tortfeasor is fully insured. Not only does this abolition patently discriminate against the victim's insurer, it may eventually result in an increased insurance burden on innocent parties." Jenkins, 52 S.Cal.L.Rev. at 948. Thus, although RSA 507-C:7 I (Supp.1979) may result in lower malpractice insurance rates for health care providers, it may also increase the cost of insurance for members of the general public because they are potential victims of medical negligence. Finally, although the collateral source rule operates so as to place some plaintiffs in a better financial position than before the alleged wrong, its abolition will result in a windfall to the defendant tortfeasor or the tortfeasor's insurer. Moreover, this windfall will sometimes be at the expense of the plaintiff, because "in many instances the plaintiff has paid for these (collateral) benefits in the form of . . . concessions in the wages he received because of such fringe benefits." Moulton v. Groveton Papers Co., 114 N.H. at 509, 323 A.2d at 909. Thus, when the collateral payments represent employment benefits, the price for the public benefit derived from RSA 507- C:7 I (Supp.1979) will be paid solely by medical malpractice plaintiffs. The above considerations make it apparent that RSA 507-C:7 I (Supp.1979) arbitrarily and unreasonably discriminates in favor of the class of health care providers. Although the statute may promote the legislative objective of containing health care costs, the potential cost to the general public and the actual cost to many medical malpractice plaintiffs is simply too high. We therefore hold that RSA 507-C:7 I (Supp.1979) violates the State's equal protection clauses. Cf. Arneson v. Olson, 270 N.W.2d at 137.

          
    The Supreme Court of Georgia struck down Georgia's statute allowing evidence collateral sources. Denton v. Cn-Way Southern Express, Inc., 402 S.E.2d 269 (1991). In declaring that the statute violated Georgia's constitutional requirement that laws must be impartial the Court noted "because inherently prejudicial evidence is allowed only to show the plaintiff's sources, juries will be misled. If for example, both the plaintiff and the defendant are insured, but the jury is only informed of the plaintiff's coverage, it may assume that only the plaintiff has insurance and the plaintiff's insurance should pay for the loss caused by the tortfeasor." Denton, 402 S.E.2d at 272 (GA, 1991).

    The Alabama Supreme Court declared a similar statute unconstitutional. American Legion Post Number 57 v. Leahey, 681 So.2d 1337 (AL, 1996). The Court held that the statute violated the equal protection clause "because it allows evidence of the plaintiff's insurance coverage but not of the defendant's. It denies equal protection because it serves to diminish awards to plaintiff's with insurance, even if their insurer is subrogated to the recovery, but provides no diminution in awards to wealthier plaintiffs who are self insured. This is the point made in Denton when the Georgia Supreme Court says, ''There can be no equal justice where the kind of trial (or the damages) a man gets depends on the amount of money he has.'" Leahey, 681 So.2d at 1346 (1996), quoting Denton, 402 S.E.2d at 272 (GA, 1991).

    Like many of the statutes mentioned above, RCW 7.70.080 violates the equal protection clause because it draws an arbitrary distinction between plaintiffs. First, it allows evidence of collateral benefits of poor plaintiff's who do not have health insurance paid by them or their employer but does not allow evidence of benefits paid by insurance bargained for by the plaintiff. This arbitrary distinction bears no rational relationship to the goal of preventing an insurance crisis. Second, the statute singles out plaintiffs in medical malpractice actions. Not only does this distinction prejudice the plaintiff, but it also prejudices the plaintiff's insurer who would otherwise have a right to subrogation for the benefits paid. The collateral source statute, therefore, is unconstitutional.

    In October 1999, King County Superior Court Judge Burrage agreed and ruled the statute is unconstitutional. Schultz v. South Auburn General Medical Clinic, Inc., No 98-2-11944-6 KNT. The plaintiff in Schultz went to her clinic for a routine cleaning of her ear which had a buildup of wax. Shortly thereafter she developed hearing loss and tinnitus (ongoing ringing) which she attributed to a negligent cleaning.

    The plaintiff's medical bills were paid in part by Medicaid. Believing this information may be prejudicial to the plaintiff filed a motion in limine to exclude evidence of her collateral sources. Relying on the authority cited above, Plaintiff argued that RCW 7.70.080 is unconstitutional. Judge Burrage agreed and ruled that the evidence should be kept out because RCW 7.70.080 violates equal protection and the privilege and immunities clause of the Washington State Constitution.

    Before trial the plaintiff made a demand for $300,000. The defense offered nothing. Midway through trial the plaintiff lowered her demand to $85,000 and received no counter-offer. After eight hours of deliberation the jury brought back a verdict for $244,444. The plaintiff's past medical expenses were $7,944 and her future medical expenses will be $11,500. The jury award included $225,000 for pain and suffering based on a 29 year life expectancy.

Erik F. Ladenburg, WSTLA member, is an attorney with the firm of Krilich, La Porte, West & Lockner in Tacoma and wrote the legal briefing in the Schultz case. He focuses his practice on plaintiff's personal injury litigation.