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Posted by: Daniel Coughlin on Jan 2, 2018

Shortly before Thanksgiving, Tennessee’s high court issued its long-anticipated opinion in the case of Dedmon v. Steelman, No. W2015-01462, 2017 Tenn. LEXIS 720 (Tenn. Nov. 17, 2017) concerning the collateral source rule[1] and the proper measure of damages in personal injury claims.  In its unanimous decision, the Tennessee Supreme Court affirmed that its decision in the hospital lien case of West v. Shelby County Health Care Corp., 459 S.W.3d 33 (Tenn. 2014) does not apply to the measure of damages in personal injury cases, and that the collateral source rule continues to bar evidence of discounted medical charges in personal injury claims.  After thoroughly reviewing the long history of the rule in Tennessee and throughout our country, the Court found that it remains viable for several important policy reasons, and that alternatives to it have proven less than preferable. 

In its 45-page opinion, the Tennessee Supreme Court noted that the rule could be found at common law in England as early as nearly two centuries ago in 1823, and that the United States Supreme Court adopted it thirty-one years later in The Propeller Monticello v. Mollison, 58 U.S. (17 How.) 152 (1854).[2]  It further noted that Tennessee expressly adopted the rule in 1896,[3] and that all other 49 states (“except perhaps Alabama”) eventually adopted it as well. 

The court found that the rule in Tennessee is “succinctly articulated in the widely-cited Section 920A of the Restatement (Second) of Torts” as both a substantive rule of law and as evidentiary rule.  It noted that, without the rule, “the jury may well reduce the damages based on” payments from collateral sources. (Quoting Kenney v. Liston, 760 S.E.2d 434, 441 (W. Va. 2014); citing Jurgensen v. Smith, 611 N.W.2d 439, 442 (S.D. 2000)).  The court also noted that “tort deterrence has been an inherit, inseparable, aspect of the collateral source rule since its inception over 100 years ago.”  (Quoting Bozeman v. State, 879 So. 2d 692, 699 (La. 2004)).  After conceding that its “overly broad language” in West had caused some confusion, the Dedmon court found that West “was not intended to apply in personal injury cases.”

Despite the length of time which the collateral source rule has been “entrenched” in Tennessee law, the court still agreed to re-consider its continuing viability.  When doing so, it specifically noted that at least two states’ high courts have held that state statutes abrogating the rule are unconstitutional because they violate the separation of powers doctrine. (CitingJohnson v. Rockwell Automation, 308 S.W.3d 135, 142 (Ark. 2009); O’Bryan v. Hedgespeth, 892 S.W.2d 571, 576 (Ky. 1995)).[4]

The Tennessee Supreme Court found that the state statutes modifying or abrogating the collateral source rule “lack any uniformity whatsoever.”  The court then grouped three approaches to the rule by courts in other jurisdictions as follows: 1. actual amount paid; 2. benefit of the bargain; and 3. reasonable value.  Writing for the court, Justice Kirby noted that the first approach (“actual amount paid”) was followed only by “few” courts (led by California), and has been subject to criticism.  Citing the Supreme Court of Virginia, she noted that reducing an insured plaintiff’s recovery “overlooks the fundamental purpose of the [collateral source] rule, … to prevent a tortfeasor from deriving any benefit from compensation or indemnity that an injured party has received from a collateral source.” (QuotingAcuar v. Letourneau, 531 S.E.2d 316, 322 (Va. 2000)).

The second approach (“benefit-of-the bargain”) allows recovery of undiscounted bills only where the plaintiff has somehow paid for the benefits, as by the payment of insurance premiums.  Our Supreme court explained that the negotiated rate differential is the “benefit” for which the plaintiff paid consideration. (Citing id.;Stayton v. Del. Health Corp., 117 A.3d 521, 531 (Del. 2015)).  This approach has been criticized as undermining the collateral source rule by using the plaintiff’s relationship with third parties to measure the defendant’s liability.  (Citing, inter alia, Wills v. Foster, 892 N.E.2d 1018, 1027 (Ill. 2008)).

Under the last approach (“reasonable value”), most courts hold the reasonable value of the expenses to be the full, undiscounted bills.  See, e.g., Montgomery Ward & Co. v. Anderson, 976 S.W.2d 382, 385 (Ark. 1998); Brethren Mut. Ins. v. Suchoza, 66 A.3d 1073, 1081-82 (Md. 2013).  Dedmon noted that Tennessee has generally adhered to this approach.

In the end, the Tennessee Supreme Court decided it would continue to follow the approach of “most state courts … that the negotiated rate differential is a collateral source benefit [allowing] injured plaintiffs to recover the full amount of reasonable medical expenses billed….” (Quoting Lori A. Roberts, Rhetoric, Reality, and the Wrongful Abrogation of the Collateral Source Rule in Person Injury Cases, 31 Rev. Litig. 99, 117 (Winter 2012)).  It noted that the “negotiated rate differential would not exist but for an insurer who ‘negotiated’ the ‘rate differential.’” (Quoting Acuar, supra, 531 S.E.2d at 322). Quoting McConnell v. Wal-mart Stores, 995 F. Supp. 2d 1164, 1170-71 (D. Nev. 2014), the court reasoned that the “actual amount paid” approach would abrogate the rule.  It found “specious” the California Supreme Court’s “fiction” that said approach did not contravene the rule.  It also quoted another Virginia Supreme Court opinion, Radvany v. Davis, 551 S.E.2d 347, 348 (Va. 2001), that negotiated amounts “do not reflect the ‘prevailing cost’ of those [medical] services….” (Emphasis added).

The court further reasoned that its holding was bolstered by Tenn. Code Ann. § 24-5-113 (2017).  Since that statute allows undiscounted bills to be presumed reasonable when properly presented, holding that undiscounted bills are unreasonable (as urged by Appellants/Defendants) would conflict with existing law.

The court also rejected the intermediate appellate court’s “hybrid” method of proving “reasonable value,” which would have permitted defendants to present discounted charges alongside the undiscounted charges. See Dedmon v. Steelman, No. W2015-01462, 2016 WL 3219070, at *11 (Tenn. App. June 2, 2016).  The court found that, like the “actual amount paid” approach, the hybrid method “has not been met with favor,” having been specifically rejected by twenty-two other courts, citing, inter alia, Covington v. George, 597 S.E.2d 142 (S.C. 2004) and Aumand v. Dartmouth Hitchcock Med. Ctr., 611 F. Supp. 2d 78 (D.N.H. 2009).

Finally, the court rejected the potential overcompensation of plaintiffs as a reason to abandon the rule.  It noted that the “law contains no rigid rule against overcompensation.  Several doctrines, such as the collateral [source] rule, recognize that making tortfeasors pay for the damage they cause can be more important than preventing overcompensation.”  (Quoting McDermott, Inc. v. AmClyde, 511 U.S. 202, 219) (1994) (unanimous opinion). 

Having dispatched with all of Appellants’ arguments,[5] as well as the court of appeals’ hybrid solution, the Tennessee Supreme Court held that West does not apply in injury cases outside the interpretation of the hospital lien statute, and that the collateral source rule remains unaltered in Tennessee personal injury cases, as it still is in “the majority of courts.”


[1] The court noted that the rule’s name is derived from Harding v. Town of Townshend, 43 Vt. 536 (1871).

[2] Dedmon further noted that the Court had found the rule to be “well-settled” by 1876 in The Atlas, 93 U.S. 302, 310 (1876).

[3] Anderson v. Miller, 33 S.W. 615, 617 (Tenn. 1896).

[4] It also noted that another state’s supreme court found such statutes unconstitutional under the equal protection clauses of state and federal constitutions in Wentling v. Med. Anesthesia Servs., 701 P.2d 939, 951 (Kan. 1985).

[5] In addition to briefing by the parties and amici curiae on both sides, the court heard oral argument on April 5, 2017.