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The Extension of Stout to Bodily Injury Claims

Health insurance carriers and the payments they make on behalf of plaintiff/claimants have been peripherally involved in personal injury actions for many years. With their leverage, the health carriers have been able to contract with medical providers to secure services at a significant discount off the amount billed by the provider. Health carrier’s often satisfy a provider’s bill for thirty or forty percent of the billed amount. The question then becomes, who is entitled to the benefit of that large discount off of the initial medical bill? Does the plaintiff reap the “windfall” or does the defendant obtain the discount?

The Supreme Court addressed this issue in the No-Fault arena in 2002 with the Stout v. AMCO Ins. Co.,645 N.W.2d 108 (Minn. 2002) decision. In Stout, the Court analyzed the Minnesota No Fault Act and declined to allow the No-Fault carrier to benefit from the settlement agreement between the injured party’s health insurer and medical providers. The court permitted Stout to fully recover all medical expenses billed, concluding that expenses billed equate to “medical expense incurred” as defined by the No-Fault Act. Specifically, the Stout court concluded that “[a] reduction in the amount billed, whether obtained pursuant to a settlement agreement or a health insurer’s fee schedule, does not modify the amount of medical expense incurred.” The court emphasized the No-Fault carrier’s obligation to promptly pay benefits and not to wait for health carriers to step in and pay the bills.

In Foust v. McFarland, 698 N.W.2d 24 (Minn. App. 2005), the Court of Appeals held that a defendant was not entitled to a set off for amounts billed by the injured plaintiff’s medical providers, but discounted pursuant to an agreement between the providers and the plaintiff’s health insurance company. Similar to the holding in Stout, the Foust court held that reductions in amounts billed by medical providers, whether made pursuant to a settlement agreement or health insurer’s fee schedule, do not modify the amount of medical expenses incurred for purposes of applying the collateral source statute. The amount of medical expenses incurred is the amount reflected on the medical bills, not the amount that was actually paid. The court allowed the plaintiff to recover the “windfall” difference between the amount billed by the medical provider and the amount paid by the health insurer to satisfy the bill.

The Court of Appeals considered a similar issue in Tezak v. Bachke , 698 N.W.2d 37 (Minn. App. 2005). Tezak, an injured motorist, brought a personal injury action against Bachke, as a result of a motor vehicle accident. Tezak subsequently died of causes unrelated to the motor vehicle accident and the action was dismissed. Tezak’s health insurance carrier settled all the accident related medical expenses for $32,000, substantially less than the $100,000 billed for such services.

The Tezak estate trustee purchased the subrogation rights from the health insurer and brought an action against Bachke to recover the full amount of the medical expenses billed to Tezak. Bachke sought to limit the trustee’s claim to $32,000, the amount paid by Tezak’s health insurer to settle the claims of the medical providers.

The court again found the Stout decision instructive and held that Tezak’s estate could recover the $68,000 windfall from the defendant.

Based upon the holdings in Stout, Foust, and Tezak, Minnesota courts appear to have established consistent precedent precluding a set off for amounts of bill reductions taken as a result of negotiations between the injured party’s health insurer and the medical providers. However, Stout, Foust, and Tezak did not consider an earlier decision that addressed a similar issue. In Strand v. Illinois Farmers Insurance Company, 429 N.W.2d 266 (Minn. App. 1988), Strand sued his no-fault carrier for declaratory judgment after his nofault carrier denied coverage. The parties settled their disputes over benefits except Strand’s claim that he was entitled to medical expenses paid by his health insurer. The health insurer had paid $18,810.83 to Strand’s medical providers and then completely settled its subrogation claim against the no-fault carrier for $9,355.42. Although Strand was not a party to that settlement, he claimed he was entitled to recover from his no-fault carrier the difference between the amount paid by his health insurer and the amount the no-fault carrier paid to settle the health insurer’s subrogation claim. The Minnesota Court of Appeals held that Strand was not entitled to the surplus caused by the health insurer’s decision to settle with the no-fault carrier for an amount less than the claim. The  Strand court held that, once the health insurer settled its subrogation claim with the No-Fault carrier, Strand “was left without an interest in the remaining funds”. Strand was never addressed by the courts in Stout, Foust, and Tezak .

We have not seen an appellate decision in a case where the defendant affirmatively purchases the health insurer’s lien and pays for a complete assignment of all the subrogation rights. This represents a different fact scenario than Stout, Foust or Tezak . That fact pattern, along with the arguments adopted in Strand, may allow a defendant to obtain a full set off of the medical expenses billed.

The attorneys at Arthur Chapman are available to address and guide our clients through these complex issues.