John L.A. Lyddane and Barbara D. Goldberg ()
In many, if not most medical malpractice actions, the plaintiff’s actual “loss” for past and future lost earnings and medical expenses will be substantially less than what the jury awarded. Awards for past medical expenses are typically based on the total of past medical bills without regard to the plaintiff’s actual out-of-pocket expense, while awards for future lost earnings and medical expenses are based on the findings made by the jury pursuant to CPLR 4111(d): the annual amount in current dollars, the applicable period of years and the applicable growth rates, without regard to disability benefits, private insurance payments or the income taxes that would have been owed. Various statutory provisions, however, allow for reduction of the jury’s awards so that the plaintiff’s recovery more closely coincides with the actual loss, thereby furthering the dual objectives of assuring fair and just compensation to the plaintiff or the decedent’s distributees while avoiding a “windfall” recovery at the defendant’s expense.
The most familiar of these provisions is CPLR §4545, the “collateral source” rule, which provides for reduction of an award for pecuniary loss by the amount of collateral source payments such as insurance or disability benefits. As amended in 2009, CPLR §4545(a) provides in pertinent part that the trial court “shall,” upon finding that an item of economic loss was or will be, with reasonable certainty, replaced or indemnified from any collateral source, reduce the plaintiff’s award accordingly, after making an adjustment to account for any premiums paid by the plaintiff.
Life insurance and “those payments as to which there is a statutory right of reimbursement” are excluded from the definition of “collateral source.” In addition, CPLR §4545(b) excludes voluntary charitable contributions received by an injured party, although if household services were provided gratuitously by the plaintiff’s friends or family members, the defendant would have a valid argument that no actual “loss” was incurred.1
In a “wrongful birth” case, Foote v. Albany Medical Center Hospital, decided by the Court of Appeals in 2011, the plaintiffs sought recovery for the extraordinary expenses involved in rearing a child born with a debilitating neurological disorder, which resulted in pervasive developmental and behavioral deficits. The Court of Appeals left open the question of whether benefits received free of charge through certain governmental programs could be used to offset an award of damages after trial. The defendants had moved for summary judgment on the ground that the extraordinary expenses necessary for the child’s care had been and would continue to be available free of charge through the programs.
The Court of Appeals agreed with the Appellate Division that the existence of governmental programs would not, as a matter of law, eliminate the plaintiffs’ financial obligations for their son’s extraordinary medical and educational expenses. Accordingly, it did not reach the Appellate Division’s second ground for denial of the motion: that the availability of another source of compensation did not obviate the plaintiffs’ injury, but could offset any damages awarded after trial.2
The most common “collateral sources” with respect to lost earnings are Social Security and/or private disability benefits. Disability benefits are typically set off against awards for past and future lost earnings, but may not be applied to other items of pecuniary loss, consistent with the holding of the Court of Appeals in Oden v. Chemung County Industrial Development Agency3 that a collateral source payment “correspond” to a particular category of loss for which the jury awarded damages.
The Appellate Division, First Department, recently held that since the defendant bears the burden of establishing its entitlement to a set-off with “reasonable certainty,” pretrial disclosure of the benefits that have been or will be received by the plaintiff is “material and necessary” to the defense of the action.4 The “reasonable certainty” standard has been interpreted by all four Departments of the Appellate Division as meaning “highly probable.”5
Often, plaintiffs argue that defendants cannot meet this burden since the criteria for the receipt of benefits may change or the plaintiff’s eligibility for benefits may be reviewed by the Social Security Administration (SSA), or that the continued viability of the Social Security Administration is in doubt. Numerous courts, however, have rejected these arguments and have allowed set-offs for projected future Social Security disability benefits.6
Establishing the amount of a set-off for past disability benefits is a simple arithmetic calculation. The amount of benefits paid to the plaintiff up to the date of the verdict is simply deducted from the jury’s award for past lost earnings. Determining the amount of a set-off for future benefits is more complicated and may require the testimony of an expert economist to project the amount of future benefits over the plaintiff’s remaining work-life expectancy.
The proof submitted to satisfy the “reasonable certainty” requirement with respect to future Social Security disability benefits typically includes the records and reports of treating and examining physicians, the award letter from the SSA and the trial testimony of experts and treating physicians. In addition, the parties may call experts who are versed in disability law, such as former administrative law judges from the SSA.
Disability pension benefits received by public employees such as police officers and firefighters may be considered collateral source benefits provided that the defendant can demonstrate that the necessary “correspondence” is present.7
Although the current version of CPLR §4545(a) does not explicitly refer to health insurance, employing instead the broad language “any collateral source,” it is well established that “[p]rivate health insurance benefits are collateral source payments to be deducted from damages awards.”8 In addition, the statute specifies that the court “…shall reduce the amount of the award by such finding, minus an amount equal to the premiums paid by the plaintiff for such benefits for the two year period immediately preceding the accrual of such benefits and minus an amount equal to the projected future cost to the plaintiff of maintaining such benefits.”9
As with past disability benefits, determining the amount of a set-off for past insurance benefits is relatively simple: the set-off is the amount of the past benefits less the premiums for the two-year period prior to the accrual of the benefits.
With respect to future medical benefits, a potential impediment to the defendant’s entitlement to a set-off is the “reasonable certainty” requirement. Unlike future Social Security disability benefits, which represent a protected interest in a government entitlement,10 the courts have typically held that insurance benefits provided by the plaintiff’s or a family member’s employer are not reasonably certain to continue, since the employee may lose his or her job, change employers or decide to stop working, or the employer or insurance company may change benefits.11 In addition, where benefits were provided through a self-funded ERISA plan, the employer has a statutory right of reimbursement under the Employee Retirement Income Security Act statutes.
With the advent of the Patient Protection and Affordable Care Act, however, which took effect Jan. 1, 2014, a different analysis should apply to private insurance benefits. Individuals are now required to purchase “minimum essential coverage,” and insurers may no longer deny coverage because of pre-existing conditions and the like. “Minimum essential coverage,” which all qualified insurance plans are required to provide, includes emergency room services, hospitalization, prescription drugs and rehabilitation services and devices, all common items of damages in medical malpractice actions. Inasmuch as “minimum essential coverage” is mandated by federal law, defendants have a strong argument that future insurance payments for such items of damages are “reasonably certain” to continue.
Accordingly, where the plaintiff has purchased private insurance, defendants should be entitled to a set-off for projected insurance benefits under the Affordable Care Act minus the projected future cost to the plaintiff of maintaining the coverage. In cases involving catastrophic injuries to an infant plaintiff where, because of the time or manner of the onset of injury the plaintiff does not meet the statutory criteria for enrollment in the Medical Indemnity Fund,12 the Affordable Care Act may enable defendants to significantly reduce the cost of future medical and custodial care, typically the largest single items of damages in such cases.
In addition, consistent with the plaintiff’s obligation to mitigate damages, defendants may have a valid argument that a plaintiff who did not obtain minimum essential coverage should not be entitled to recover the full amount of past and future medical expenses awarded by the jury. It has long been the law in this state that a person who claims to have suffered injuries as a result of another’s negligence is required to use reasonable and proper efforts to make the damages as small as practicable, and may not recover for any damages which might thereby have been avoided.13 The requirement of mitigation of damages is applied in a variety of contexts, and in appropriate cases, can even include the obligation to undergo necessary medical treatment.14 Logically, therefore, the plaintiff’s obligation to mitigate damages extends to the purchase of insurance coverage mandated by law which will cover, at least in part, the cost of future medical care.
In such a case, defense counsel should consider consulting an expert economist to determine what payments would have been made by a qualified plan and the cost that minimum essential coverage would have been. If it can be shown that the plan would pay for specific categories of loss for which the jury awarded damages, the court may be receptive to an argument that the jury’s awards should be adjusted accordingly.
Outside the Presence of Jury
If the parties cannot reach an agreement as to the amount of collateral source set-offs, the court conducts a collateral source hearing after the jury has rendered its verdict. CPLR §4545(a) states that “[a]ny collateral source deduction required by this subdivision shall be made by the trial court after the rendering of the jury’s verdict. The plaintiff may prove his or her losses and expenses at the trial irrespective of whether such sums will later have to be deducted from the plaintiff’s recovery.” Since the plaintiff has an incentive to argue total disability at trial so as to maximize the recovery for lost earnings and future medical expenses, it is only fair that the plaintiff be held to that position at the collateral source hearing so that the plaintiff does not, in effect, receive a double recovery.
Although the jury is not usually made aware of the plaintiff’s receipt of collateral source benefits, in one recent case the plaintiff’s attorney opened to the jury at a damages trial on the theory that the plaintiff had applied for Social Security disability and that the jury would hear from doctors and from “experts in rehabilitation how difficult it is for the government to declare you as disabled for Social Security disability and they declared that she was permanently disabled….”15
In that same case the plaintiff entered judgment before the defendant had moved for a collateral source hearing. The Appellate Division held that the Supreme Court had providently exercised its discretion in ordering a hearing, “since ‘[i]t appears that [the plaintiff's] efforts to enter a judgment may have been undertaken, at least in part, to circumvent potential collateral source setoffs.’”16
In the case of police officers and firefighters, the availability of very substantial disability benefits may provide an incentive to take early retirement even if an injury is not particularly severe. Even though proof of the receipt of insurance or disability benefits is typically inadmissible at trial, it may nevertheless be possible to approach the issue indirectly by showing that an apparently healthy plaintiff voluntarily retired. The Court of Appeals held several years ago that while evidence that the plaintiff voluntarily chose to retire is often so prejudicial as to be inadmissible, it may be allowed in the trial court’s discretion in limited circumstances “where it has significant probative value with respect to a validly raised question about the plaintiff’s malingering or motivation for not working.”17
The court, however, distinguished between the fact of retirement and the receipt of benefits: “[t]he fact that [plaintiff] had voluntarily terminated her employment and elected to take retirement status (as opposed to having received any amounts of retirement income) was of sufficient probative value on the critical issue of whether plaintiff, although claiming to be unable to work because of her injury, had, in truth, ceased working because she preferred not to work at all.”18 Defense counsel in such cases must therefore be diligent in obtaining the necessary disclosure so that the “correspondence” requirement can be satisfied at the collateral source hearing.
Reduction for Income Taxes
Other statutory provisions applicable to medical malpractice actions and wrongful death actions based on medical malpractice provide for an adjustment of a lost earnings award by the amount of the income taxes that would have been paid. The statute applicable to medical malpractice actions, CPLR §4546, provides that “…evidence shall be admissible for consideration by the court, outside of the presence of the jury, to establish the federal, state and local personal income taxes which the plaintiff would have been obligated by law to pay.”
The defendant bears the burden of proving the amount of the income taxes that the plaintiff would have been required to pay with reasonable certainty. In practice, the CPLR §4546 reduction is typically determined together with the CPLR §4545(a) set-off at the collateral source hearing.
The provision applicable to wrongful death actions based on medical malpractice, EPTL §5-4.3(c)(i), allows the jury to consider the amount of income taxes that the decedent would have been required to pay. Subdivision (c)(ii) provides that the court shall instruct the jury to consider the amount of federal, state and local personal income taxes “which the jury finds, with reasonable certainty, that the decedent would have been obligated by law to pay in determining the sum that would otherwise be available for the support of persons for whom the action is brought.”
This is one of the few instances where a jury is allowed to consider the effect of income taxes in making an award of damages. Therefore, defense counsel in a wrongful death medical malpractice action should consider calling an expert economist even if the plaintiff has not done so.
John L.A. Lyddane is a senior partner and trial attorney at Martin Clearwater & Bell. Barbara D. Goldberg is a partner at the firm and head of its appellate department.
1. See Schultz v. Harrison Radiator Division General Motors Corporation, 90 N.Y.2d 311, 320-321 (1997).
2. Foote v. Albany Medical Center Hospital, 16 N.Y.3d 211 (2011).
3. 87 N.Y.2d 81 (1995).
4. See Stolowski v. 234 East 178th Street LLC, 89 A.D.3d 549 (1st Dept. 2011).
5. See, e.g., Quezada v. O’Reilly-Green, 24 A.D.3d 744, 746 (2d Dept. 2005); Ruby v. Budget Rent-A-Car Corp., 23 A.D.3d 257, 258 (1st Dept. 2005); Sternfeld v. Forcier, 248 A.D.2d 14, 16 (3d Dept. 1998); Caruso v. Russell P. LeFrois Builders, 217 A.D.2d 256, 257-258 (4th Dept. 1995).
6. See, e.g., French v. Schiavo, 63 A.D.3d 403 (1st Dept. 2009); Caruso, supra; Frey v. Chester E. Smith & Sons, 751 F.Supp. 1052, 1056 (N.D.N.Y. 1990).
7. See Iazzetti v. City of New York, 256 A.D.2d 140 (1st Dept. 1998) (direct correspondence between three-quarters disability pension and award for lost earnings and pension benefits); Gonzalez v. Iocovello, 249 A.D.2d 143 (1st Dept. 1998) (motion to reduce awards for lost earnings by accident disability pension properly denied because defendant failed to demonstrate that the benefits would replace those awards).
8. Panattoni v. Inducon Park Associates, 247 A.D.2d 823, 824 (4th Dept. 1998).
9. CPLR §4545(a).
10. See Bryant v. New York City Health & Hospitals Corporation, 93 N.Y.2d 592 (1999).
11. See Kihl v. Pfeffer, 47 A.D.3d 154, 164 (2d Dept. 2007); Giventer v. Rementeria, 184 Misc.2d 744 (Sup. Ct., Richmond County 2000).
12. The Medical Indemnity Fund (Public Health Law §§2999-g to 2999-j) was created in 2011 to provide a funding source for “birth related neurological injuries” and reduce premium costs for medical malpractice insurance coverage. Where an infant is found to be a “qualified plaintiff,” payments for future medical expenses and the like are paid from the Fund.
13. Lyons v. Erie R. Co., 57 N.Y. 489, 490-491 (1874); Blate v. Third Avenue R. Co., 44 App. Div. 163, 167 (1899); see also Pattern Jury Instruction (PJI) 2:325.
14. See Skaria v. State, 110 Misc.2d 711 (Court of Claims, 1981); cf. Williams v. Bright, 230 A.D.2d 548 (lst Dept. 1997).
15. Turuseta v. Wyassup-Laurel Glen Corp., 91 A.D.3d 635 (2d Dept. 2012) (quotation from trial transcript).
16. Id. at 637 (citation omitted).
17. Kish v. Board of Education, 76 N.Y.2d 379, 381 (1990).
18. Id. at 385-386.