Modifying Colorado's Collateral Source Rule

Colorado's collateral source rule forbids evidence of payments made to a plaintiff by an insurance company. Workers compensation insurance carriers in Colorado pay benefits based on a statutory fee schedule, which also bars medical providers from billing in excess of the schedule. Colorado law also allows a plaintiff to present the higher amount of medical expenses that the plaintiff's medical provider billed, as evidence of plaintiff's alleged damages. While Colorado courts consider workers compensation benefits to be collateral sources, the practical impact was blunted by the prohibition on excess billing.

In mid-2019, a divided panel of the Colorado Court of Appeals held for the first time that a plaintiff receiving workers compensation payments could present evidence of excess medical expenses billed by their providers.). The ruling, which was part of the case Scholle v. Delta Air Lines Inc., could result in plaintiffs receiving a windfall of their medical provider's excess billed amounts, despite the fact that under the workers compensation statute such excess bills are prohibited, not the plaintiff's responsibility, and wholly uncollectable by the provider.

Facts and Ruling

Scholle, a United Airlines employee, was driving a luggage tug at Denver International Airport when another tug driven by a Delta Airlines employee collided with him. Scholle was injured and missed work. As a self-insured employer, United paid for Scholle's medical expenses and lost wages. United then sued Delta in subrogation to recover the amounts paid to Scholle. Scholle also sued Delta for injuries related to the collision.

Delta settled United's claim, but Scholle's case continued. At trial, the court admitted as damages evidence the amount paid by United as workers compensation benefits, rather than the amounts billed by his medical providers. Although the trial court awarded Scholle a monetary judgment, the court reduced Scholle's economic damages award by the amount Delta had already paid to settle United's claim, effectively reducing his recovery to zero.

On appeal, the court considered the interplay between Colorado's collateral source rule and its workers compensation statute. Under the collateral source rule, evidence of the amount of a plaintiff's medical expenses paid by an insurer is not admissible. Instead, the plaintiff may submit evidence of the amount of medical expenses billed by the provider as damages. The workers compensation statute declares that "it is unlawful, void, and unenforceable as a debt" for a medical provider to bill in excess of the statutory fee schedule. Covered employees are not liable for benefits paid, and a provider may not seek to recover from an employee.

While the majority reiterated that workers compensation payments are collateral sources, for the first time it also held that a plaintiff could submit evidence of amounts billed by their provider in excess of the statutory fee schedule as damages. The majority reasoned that to hold otherwise would allow a tortfeasor to benefit twice from the same settlement with the victim's insurer.

While acknowledging that this would allow Scholle to seek damages for bills that he never, as a matter of law, had a legal obligation to pay, the majority held that simply because a bill is uncollectable does not render it irrelevant to the reasonable value of the medical services provided. However, the majority allowed for an offset of any amounts actually paid by a tortfeasor to a workers compensation carrier. The appeals court reversed the trial court's judgment and remanded for a new trial on Scholle's damages claim.

The dissent strongly objected to the majority's reasoning, noting that the settlement of United's subrogated claim fully extinguished Scholle's claim for past medical expenses against Delta. In addition, the dissent argued that under the workers compensation statute, it is unlawful for a provider to bill in excess of the statutory fees, and any such bills would be void and unenforceable under the statute. Allowing Scholle to sue for such excess amounts would put the trial court in the position of enforcing an unlawful, void, and unenforceable contract.

What This Means for Personal Injury Claims in Colorado

Clients in Colorado now faced with personal injury claims from plaintiffs who received workers compensation benefits should now be wary of inflated damages arising from the plaintiff's workers compensation providers. Scholle is also likely to make subrogated claims more valuable for workers compensation insurers, particularly in the context of negotiating a resolution with plaintiffs. Workers' compensation carriers may be less amenable to discounting their liens against recovery when that potential recovery can now far exceed the amounts actually paid to the plaintiff.