Colorado Comp Carrier’s Settlement With Third-Party Defendant Partially Undermines Employee’s Tort Claim
A deeply divided Supreme Court of Colorado (three justices dissenting), reversing in relevant part a decision of a split division of the Court of Appeals, held that a settlement between a workers’ compensation insurer and a third-party tortfeasor for all past medical expenses paid as a result of a work-related injury extinguishes the plaintiff-employee’s claim to recover damages for those past medical expenses from the third-party tortfeasor [Delta Air Lines, Inc. v. Scholle, 2021 CO 20, 2021 Colo. LEXIS 234 (Apr. 12, 2021)]. Accordingly, since the claim for medical expenses was extinguished, the collateral source rule was not implicated, and the employee could not introduce any evidence as to the amounts that had been billed or paid. The case illustrates the fact that while the employer/insurer stands in the shoes of the injured employee, its interests and those of the employee are not aligned.
In a companion case, Gill v. Waltz, 2021 CO 21, 2021 Colo. LEXIS 271 (Apr. 12, 2021), answering certified questions of law from the U.S. District Court for the District of Colorado, a divided Supreme Court of Colorado (again, three justices dissenting) issued an opinion that conformed, in all relevant aspects, to its decision in Scholle.
Background
Scholle worked for United Airlines, driving luggage tugs from the terminal to waiting planes, loading or unloading the bags, and returning to the terminal. In June 2012, Scholle was stopped at a stop sign on a return trip to the terminal when he was rear-ended by Moody, a Delta Air Lines employee. Scholle sustained several serious injuries that required him to miss work and to receive medical treatment over the course of several years. He applied for and received workers’ compensation insurance benefits from United, a self-insured employer under Colorado’s workers’ compensation scheme. Pursuant to Colorado’s workers’ compensation laws, United covered all medical expenses resulting from Scholle’s injuries, as well as a portion of his lost wages. Scholle’s medical providers apparently produced bills for the services he received that reflected costs in excess of what was permitted by the workers’ compensation fee schedule, though they never tried to collect amounts beyond those permitted by the fee schedule.
In 2014, United exercised its subrogation right and sued Delta and Moody to recover the payments it made to and on behalf of Scholle. Scholle separately sued Delta and Moody for their negligence, seeking to recover compensation for economic damages, noneconomic damages, physical impairment, and disfigurement he suffered as a result of the collision. The trial court consolidated the actions. Eventually, Delta settled United’s subrogation claim, and the trial court dismissed United’s case. Scholle’s claims against Moody were later dismissed as well, leaving only Scholle and Delta as parties. Delta admitted liability for the accident, and the case went to trial on damages.
Collateral Source Rule
In pretrial motions in limine, Scholle argued that the collateral source rule should preclude Delta from admitting evidence of the amount paid by Scholle’s workers’ compensation insurance to cover the medical expenses arising from his injuries. Instead, Scholle contended, the higher amounts billed by his medical providers reflected the true reasonable value of the medical services provided to him and should be admissible at trial.
The trial court disagreed, reasoning that when Delta settled with United, it effectively paid Scholle’s medical expenses, such that amounts paid for those expenses were no longer payments by a collateral source. The court further noted that, under the workers’ compensation statute, any amount billed for medical treatment in excess of the statutory fee schedule was “unlawful,” “void,” and “unenforceable” [see § 8-42-101(3)(a)(I), C.R.S. (2020)]. The trial court determined that allowing Scholle to introduce evidence of any amount billed in excess of that actually paid by United would allow Scholle to seek damages for bills that never, as a matter of law, amounted to a legal obligation to pay.
Jury’s Verdict Set Aside
At trial, the jury returned a verdict for Scholle totaling approximately $1.5 million. This verdict was, however, set aside for reasons not relevant to the legal issues before the court. In the resulting bench trial, the court awarded Scholle $64,750 in noneconomic damages and $194,426 in economic damages. In light of Delta’s settlement with United, the court reduced the award by the amount that United paid in workers’ compensation, effectively reducing Scholle’s economic damages award to zero.
Divided Appellate Court Reverses
A split division of the court of appeals reversed the judgment with respect to Scholle’s medical expenses [Scholle v. Delta Air Lines, Inc., 2019 COA 81M, 2019 Colo. App. LEXIS 966 (May 23, 2019)]. The court reasoned, in relevant part, that Delta had not contributed to the contract between Scholle and United and was not entitled to “reap the benefit of a contract for which [it] paid no compensation” [Id. at ¶ 34 (quoting Volunteers of Am. Colo. Branch v. Gardenswartz, 242 P.3d at 1083). Therefore, the majority determined, the trial court should not have permitted Delta to introduce evidence of the amounts United paid Scholle’s medical providers for the services he received.
We conclude that United’s settlement with Delta extinguished Scholle’s claim for medical expense damages with regard to those services paid for by his workers’ compensation insurance. Because Scholle cannot pursue a claim against Delta for damages arising out of past medical expenses relating to the services covered by workers’ compensation, the collateral source rule has no application in this case.
Divided Supreme Court Reverses
Initially, the majority of the Supreme Court provided an excellent summary of the interaction between the employer/insurer’s obligation to pay workers’ compensation benefits, on the one hand, and the employer/insurer’s right to a subrogation claim against negligent third parties [for an even more complete discussion, see Larson’s Workers’ Compensation Law, § 117.01, et seq.].
The majority stressed that because a workers’ compensation insurer pursuing or settling a subrogation claim is standing in the shoes of the employee with regard to the claim, when an insurer settles the subrogation claim, it is in fact settling the employee’s claim. Of course, the insurer’s resolution of the subrogated claim only extinguished an employee’s claims to the extent they were co-extensive with that subrogated claim.
Scholle’s Primary Argument
Scholle argued that United’s settlement could, at most, extinguish his right to pursue the amount that it paid for medical expenses; it could not extinguish Scholle’s right to recover the difference between the amount his medical providers billed for the services they provided and the amount that United actually paid for those services. He argued that this argument was supported by the language of section 8-41-203(1)(b), providing that a subrogated insurer “shall not be entitled to recover any sum in excess of the amount of compensation for which said carrier is liable” under the Act. This provision, Scholle argued, must mean that United’s subrogation right extended only to the amount it paid, and that he retained a claim for medical expenses for any amount “in excess” of what United paid.
Majority Disagreed
The majority said it was unconvinced by Scholle’s argument. It stressed that when United settled with Delta, the settlement extinguished any claim for past medical expenses arising out of the treatment for which United paid. Contrary to the conclusion reached by the court of appeals, said the majority, there was no separate claim for the difference between amounts billed and amounts paid that can be decoupled from the underlying claim for recovery of medical expenses. Since any bill for medical services in excess of what United paid—and then settled—would be void under the Act, it made little sense to conclude that Scholle retained any claim to damages for medical expenses that survived United’s settlement with Delta.
The majority concluded that because Scholle’s claim to damages for medical expenses was extinguished by United’s settlement of its subrogation claim, there was no reason to present evidence of either the amounts billed or the amounts paid for medical expenses. Thus, the applicability of the pre-verdict evidentiary component of the collateral source rule was not at issue. Accordingly, the judgment of the division below was reversed and the case was remanded for further proceedings consistent with the majority’s opinion.
As noted above, three justices dissented, essentially agreeing with the rationale that had been stated in the divided appellate division’s opinion.