The Hall & Evans Rocky Mountain Litigation Reporter is a periodic online newsletter directed to a select group of individuals and organizations. In this edition, we summarize a trio of recent decisions from the Colorado Supreme Court on the continuing saga of the “billed versus paid” dispute, as well as three recent decisions from the Colorado Court of Appeals.
Topics In This Issue
Evidence of Amount Paid is Not Admissible to Prove Reasonable Value of Medical Services
Court of Appeals Holds that C.R.S. § 13-20-808 Applies Only to Insurance Policies in Existence or Issued on or After May 21, 2010
Attractive Nuisance Doctrine Applies Only to Trespassing Children
Sewage Falls Within Absolute Pollution Exclusion
CASES
Evidence of Amount Paid is Not Admissible to Prove Reasonable Value of Medical Services
It is well known that the cost of medical services is astronomical and constantly rising. As one way to attempt to reduce or control these costs, insurance companies often make arrangements with healthcare providers to pay certain amounts for certain services, in exchange for sending an increased volume of patients to the participating healthcare providers. As a result of this arrangement, it is common for healthcare providers to send bills or invoices to patients for the full amount of costs incurred, but then to accept a greatly reduced amount from the insurance company in full payment for the services rendered. The plaintiff in a personal injury lawsuit is entitled to recover damages for the reasonable value of medical services necessarily provided. It has long been accepted that the amount paid by an insurance company and accepted by a healthcare provider is some evidence of the reasonable value of those services. On the other hand, the collateral source doctrine prohibits a defendant from introducing evidence of the amount paid to a healthcare provider by an insurance company pursuant to a contract entered into by or on behalf of the plaintiff.
The tension between the common law rule of “reasonable value” on the one hand, and the collateral source doctrine on the other hand, came to a head in three decisions recently issued by the Colorado Supreme Court. To understand these decisions, it is necessary to remember that although the collateral source doctrine has a common law origin, it has been modified by statute in Colorado. It is also necessary to understand that the common law version of the collateral source doctrine had two components: a pre-verdict evidentiary aspect and a post-verdict substantive aspect. The pre-verdict evidentiary aspect of the collateral source doctrine held that evidence of payments made by a collateral source (a source “collateral to the defendant”) to a healthcare provider on behalf of an injured plaintiff was not admissible because it could lead the jury to reduce the damages awarded. The post-verdict substantive aspect of the collateral source doctrine held that the trial court should not reduce the damages awarded to a plaintiff in a personal injury suit by any amounts paid to or on behalf of the plaintiff by a collateral source (a source collateral to the defendant).
In 1986, the Colorado General Assembly modified the post-verdict substantive aspect of the collateral source doctrine by adopting C.R.S. § 13-21-111.6. This statute directly alters the post-verdict substantive aspect of the collateral source doctrine by stating that the trial court should reduce the damages awarded to the plaintiff by any amount paid to or for the plaintiff by a source collateral to the defendant, with one significant exception: the damages awarded should not be reduced by any amount paid to or for the plaintiff as a result of a contract paid for or entered into by or on behalf of the plaintiff. But the collateral source statute did not alter the pre-verdict evidentiary aspect of the common law collateral source doctrine.
Noting that the collateral source statute had no effect on the pre-verdict evidentiary aspect of the collateral source doctrine, the Colorado Supreme Court held that evidence of payment by an insurance company to a healthcare provider is not admissible to show the reasonable value of services rendered. The Court stated that “The evidentiary component of Colorado’s common law collateral source [doctrine] completely bars the admission of collateral source evidence because the risk of the fact-finder’s misuse of the evidence outweighs its potential probative value.” The Court also noted that its decision was in complete harmony with C.R.S. § 10-1-135. This statute, enacted in 2010, primarily concerns subrogation actions by insurance companies. But one small provision in this statute states that “The fact or amount of any collateral source payment or benefit shall not be admitted as evidence in any action against an alleged third-party tortfeasor. . . .” C.R.S. § 10-1-135 (10). According to the Court, the plain language of this statute prohibits the introduction of evidence of any payment by an insurer to a healthcare provider for medical services rendered to the plaintiff.
Full text of opinions . . . Wal-mart v. Crossgrove, 2012 Colo. LEXIS 330 (Colo. 2012); Sunahara v. State Farm, 2012 Colo. LEXIS 328 (Colo. 2012); Smith v. Jeppsen, 2012 Colo. LEXIS 331 (Colo. 2012).
Court of Appeals Holds that C.R.S. § 13-20-808 Applies Only to Insurance Policies in Existence or Issued on or After May 21, 2010
A developer entered into an agreement with a general contractor to construct a building. The general contractor then entered into an agreement with a subcontractor to install a roof on the building. Under its commercial general liability policy (the “Policy”), the subcontractor named the general contractor as an additional insured. However, the insurer cancelled the Policy on June 10, 2007 due to nonpayment of the premium.
After a dispute arose between the general contractor and the developer, the general contractor filed suit against the developer, and the developer asserted counterclaims against the general contractor. The crux of the developer’s counterclaims against the general contractor was that the subcontractor improperly installed the roof, resulting in a defective roof and causing the general contractor to breach its contract with the developer. As an additional insured under the Policy, the general contractor demanded that the insurer defend and indemnify it in the underlying suit. In support of this demand, the general contractor argued that C.R.S. § 13-20-808 applied to the Policy. This statute provides, in relevant part, that:
[i]n interpreting a liability insurance policy issued to a construction professional, a court shall presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident unless the property damage is intended and expected by the insured.
Colo. Rev. Stat. § 13-20-808(3) (2011) (emphasis added).
The Colorado General Assembly enacted this statute in response to the decision of the Colorado Court of Appeals in Gen. Sec. Indem. v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009). In that case, the court held that the duty to defend and indemnify under commercial general liability policies issued to subcontractors is generally limited to property damage caused by an “occurrence.” The court observed that the insurance policies in question defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Accordingly, the court held that the policies required an “accident” to trigger an “occurrence.” However, the court also held that “a claim for damages arising from poor workmanship, standing alone, does not allege an accident that constitutes a covered occurrence, regardless of the underlying legal theory pled.”
In the present case, the general contractor argued that the subcontractor’s installation of a defective roof fell within the definition of an “accident” under C.R.S. § 13-20-808(3). Accordingly, it argued that the insurer had a duty to defend and indemnify it in the underlying suit. However, the court observed that the applicability clause of the enacting legislation states that C.R.S. § 13-20-808 “applies to all insurance policies currently in existence or issued on or after [May 21, 2010].” The court also observed that the insurer cancelled the Policy on June 10, 2007. In response, the general contractor argued that the court should apply rules of statutory construction to determine whether the Colorado General Assembly intended the statute to apply retroactively because the phrase “currently in existence” in the applicability clause is ambiguous. The court rejected this argument and held that the statute does not apply retroactively. In support of its holding, the court reasoned that (1) the phrase “currently in existence” in the applicability clause is not ambiguous and (2) statutes are presumed to be prospective in operation.
Alternatively, the general contractor argued that the Policy, an occurrence policy, was “currently in existence” at the time the underlying suit was filed. However, the court rejected this argument and held that a plain reading of the phrase “currently in existence” supports the conclusion that C.R.S. § 13-20-808 applies only to insurance policies with policy periods that were not expired on May 21, 2010. In support of its holding, the court reasoned that the Colorado General Assembly “would have more clearly stated its intentions if it desired the ‘accident’ definition to apply retroactively to expired policies that still may be subject to claims for occurrences within the policy period.”
Full text of opinion . . . TCD, Inc. v. Am. Family Mut. Ins. Co., 2012 Colo. App. LEXIS 554 (Colo. App. 2012).
Attractive Nuisance Doctrine Applies Only to Trespassing Children
In a recent case, the Colorado Court of Appeals held that the doctrine of attractive nuisance applies only to children who have been enticed to trespass on real property by an attractive thing maintained by the landlord. The court rejected plaintiff’s argument that Colorado’s Premises Liability Act altered the traditional common law doctrine, pointing out that the Act expressly preserves that doctrine. The plaintiff also argued that a Colorado Pattern Jury Instruction (C.J.I Civ. 4th 12:4) stated that the doctrine of attractive nuisance applies to children who have entered the property with consent and then have been enticed into injury by an attractive thing. The court rejected that argument and found the pattern jury instruction did not represent a correct statement of Colorado law, explaining that the common law doctrine is based on the theory that the attractive thing acts as an invitation to the child (who is too young to know better) to enter the land.
Full text of opinion . . . SW v. Towers Boat Club, 2012 Colo. App. LEXIS 642 (Colo. App. 2012).
Sewage Falls Within Absolute Pollution Exclusion
Jean Chu owned rental property insured by State Farm. The insurance policy excluded coverage for liability for bodily injury arising from the “escape of pollutants.” The term “pollutants” was defined to mean “any contaminant or irritant . . . including waste.”
A sewer line backed up, causing a toilet in the property to overflow and contaminate the rental property. The tenants sued Chu for bodily injury, and Chu demanded coverage under her State Farm policy. State Farm denied coverage on the basis of the “absolute pollution exclusion” contained in the policy. In an action for declaratory relief, the trial court granted State Farm’s motion for summary judgment, finding that contamination from sewage falls within the absolute pollution exclusion.
Chu appealed, contending that the absolute pollution exclusion should be limited to industrial pollutants or is at least ambiguous. The Court of Appeals rejected Chu’s argument and affirmed the trial court’s grant of summary judgment for State Farm. The Court of Appeals specifically found that the absolute pollution exclusion was not ambiguous when applied to the facts of this case; that sewage is a waste and a contaminant; and that the absolute pollution exclusion barred coverage under the State Farm policy for the injuries claimed by the tenants against Chu.
Full text of opinion . . . Figuli v. State Farm, 2012 Colo. App. LEXIS 459 (Colo. App. 2012).
Contributing Authors and Editors
Andrew D. Ringel, Esq. at (303) 628-3453 or by e-mail at ringela@hallevans.com
Robert M. Ferm, Esq. at (303) 628-3380 or by email at fermr@hallevans.com
Malcolm Mead, Esq. at (303) 628-3301 or by email at meadm@hallevans.com
Lisa F. Mickley, Esq. at (303) 628-3325 or by email at mickleyl@hallevans.com
Daniel Furman, Esq. at (303) 628-3483 or by email at furmand@hallevans.com
Inquires or Comments
If you have inquiries or comments, please contact Robert Ferm, Tel: (303) 628-3380; or Malcolm Mead, Tel: (303) 628-3301
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