Wis. SC: Collateral source rule applies to underinsured motorists

By Jessica M. Karmasek | Mar 12, 2012


MADISON, Wis. (Legal Newsline) - The Wisconsin Supreme Court says an injured party is entitled to recover the "reasonable value" of medical services, which includes written-off medical expenses.

The Court, in a unanimous decision Wednesday, affirmed the ruling of the Milwaukee County Circuit Court.

In this case, the injured party, Lindy Orlowski, submitted a claim to State Farm Mutual Automobile Insurance Company under her underinsured motorist, or UIM, coverage.

Orlowski was involved in a car accident, caused by an underinsured motorist, in December 2004.

After which, she recovered damages up to the limits of the underinsured driver's insurance.

In addition, she had health insurance coverage through United Healthcare, which paid a portion of her medical expenses as a result of the accident.

Orlowski also had an automobile insurance policy with State Farm, including UIM coverage.

As required under the arbitration provision in the UIM coverage portion of her policy, Orlowski and State Farm submitted the question of damages to an arbitration panel.

The arbitration panel awarded Orlowski $11,498.55 for medical services provided to her as a result of the accident -- $9,498.55 for the medical lien claimed by United Healthcare and $2,000 for Orlowski's out-of-pocket medical expenses.

The panel did not include in its award the amount of Orlowski's medical expenses that had been written off by her medical provider because of discounts through her health insurance coverage with United Healthcare.

The panel concluded that the state Court of Appeals decision in Heritage Mutual Insurance Company v. Graser precluded Orlowski from recovering, under her UIM coverage, the value of medical expenses that were written off by her medical provider.

Orlowski petitioned the circuit court for modification of the arbitration award, arguing that the panel erroneously relied on Graser.

Milwaukee County Circuit Judge Dennis P. Moroney agreed, and modified the arbitration award to include the value of the written-off medical expenses -- an additional $61,487.39 -- for the full reasonable value of medical expenses, $72,985.94.

These written-off expenses are often referred to as "phantom damages" because no one has actually paid them. However, the plaintiff is awarded the full amount.

The Court of Appeals later certified the case to the state's high court because it perceived an "irreconcilable conflict" between Graser's holding that the collateral source rule has no application in UIM cases and the state Supreme Court's precedent on the law of damages and the collateral source rule.

The collateral source rule provides that a plaintiff's recovery cannot be reduced by payments or benefits from other sources.

The Court of Appeals also noted that Orlowski's policy required the arbitration panel to award the amount that she was "legally entitled to collect" from the underinsured motorist.

"We reaffirm what our prior precedent has clearly established: an injured party is entitled to recover the reasonable value of medical services, which, under the operation of the collateral source rule, includes written-off medical expenses," Justice N. Patrick Crooks wrote for the Court.

"We overrule Graser to the extent that it holds that the collateral source rule has no application in cases involving UIM coverage."

The arbitration panel's decision, Crooks said, was "properly modified" by the circuit court because the arbitrators exceeded their authority by failing to "fully review" and apply the Supreme Court's decisions on the collateral source rule and the law of damages.

"Such review and application was required by the questions submitted from the policy language directing the panel to award Orlowski the amount that she was 'legally entitled to collect' from the underinsured motorist," the justice wrote.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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