Letter of the Law: September 2011

On Behalf of | Sep 27, 2011 | Newsletter


PERSONAL INJURY: Measuring Damages Paid by Insurance

PERSONAL INJURY: Vicarious Liability Law in Nevada

EMPLOYMENT: Professional Exemption: Law School Graduates Performing Legal Services are Not Entitled to Overtime

FAMILY LAW: Do Watts Have Anything to Do with Lightbulbs?

Measuring Damages Paid by Insurance

By: Paul T. McBride

The collateral source rule provides that when a plaintiff’s injuries are paid for by insurance, a jury may not be told about the insurance payments. Instead, the plaintiff may recover the full cost of medical treatment provided to him without any reduction for the fact that an insurance company, rather than the plaintiff, paid the medical bills. The rationale for this rule is that the defendant, who caused the injury, should not be allowed to benefit from the fact that the injured plaintiff happened to have insurance. Accordingly, the defendant must pay to the plaintiff the full cost of the medical services provided, even though some or all of the services were paid for by the plaintiff’s insurance company.

For Example: Joe Adams is injured in a car accident through the negligence of Joy Jefferson. Joe is treated for several weeks at Mercy Hospital. His total medical bills are $150,000. Joe signs an agreement when he enters the hospital acknowledging that he is responsible to pay any bills which his insurance company does not cover. Joe’s health insurance carrier is PacifiCare. PacifiCare has an pre-existing agreement with Mercy Hospital which establishes rates it will pay for certain procedures. The pre-existing agreement provides that Mercy will accept the rate reimbursements as payment in full for care provided to a PacifiCare insured. When the $150,000 bill for Joe’s treatment is submitted to PacifiCare, it pays $30,000. This amount, $30,000, is the negotiated rate for the procedures afforded to Joe, and so constitutes payment in full. Therefore, Mercy Hospital cannot seek to recover the unpaid amount from Joe.

Joe sues Joy for his injuries. Joy admits liability. She disputes damages. She claims she is only liable for $30,000, the amount paid by Joe’s insurance company as payment in full for his medical treatment. Joe claims he is entitled to recover $150,000, i.e. the stated cost of his medical treatment. Who is correct?

The California Supreme Court ruled on this question on August 19, 2011, when it issued its opinion in Howell v. Hamilton Meats & Provisions, Inc., 2011 DJDAR 12533. The facts of Howell are essentially those of our Joe Adams/Joy Jefferson scenario, above. The Supreme Court ruled that where the health care provider accepts as payment in full, with no further recourse against the patient, the negotiated fees from the insurance carrier for the patient’s treatment, the amount actually paid by the insurance company sets the limit of the defendant’s liability to the plaintiff. Thus, in our scenario, Joy has to pay $30,000, not $150,000. This decision was endorsed by six of the seven Justices. Only Justice Klein dissented.

In his dissent, Justice Klein argued the majority’s decision confers an unwarranted benefit on the defendant merely because the plaintiff has insurance. If the plaintiff did not have insurance, he would be financially responsible for the entire $150,000 medical bill, and the defendant would therefore be liable to the plaintiff for this entire amount. Instead, the defendant reaps a $120,000 windfall simply because she hit an insured, versus an uninsured, motorist.

Justice Klein admitted the $150,000 bill was probably inflated, and that the hospital did not truly expect anyone to pay this full amount. However, he suggested an evidentiary hearing should have been held to establish the “reasonable” value of the services provided to the plaintiff, which presumably would be somewhere between the $30,000 discounted payment by the insurance company and the $150,000 face amount of the medical bill.

The majority opinion viewed Justice Klein’s suggestion as simply unworkable. It spent several pages discussing health care pricing in California to prove its contention that there is no such thing as a “reasonable” cost for health care in this state. It noted that market forces are but one of several factors behind health care prices, and that the 80% “discount” obtained by PacifiCare in this case is relatively common for large insurance carriers. To prove its point that there is no consistency or, indeed, rationality, in health care pricing, the majority noted the “list” price charged for a simple chest X-ray, prior to any negotiated discounts with insurance providers, ranges from as low as $200 to as high as $1,500 at various hospitals in California.

The Supreme Court decision establishes a bright line rule limiting recovery to the amount actually paid by the insurance company when the provider accepts the insurance payment as payment in full. It reserved for a later day how to treat the situation of the uninsured patient who is, at least in theory, liable for the full, albeit inflated, amount of the medical bill.

Vicarious Liability Law in Nevada

By: Robert L. Thompson

Vicarious liability is liability that is derivatively imposed. Essentially, this means that one person commits a tortious act against a third party, yet another person or entity becomes and liable to the third party. The most common situations encountered in Nevada are the doctrine of respondeat superior, independent contractor situations, and claims against automobile owners for their drivers.

Respondeat Superior

An employer will be liable for tortious acts committed by its employee if the tortious acts occur within the scope of employment relationship. The scope of employment generally encompasses all acts which occur while the employee is at work or on the clock. If an employee takes a minor deviation from his employer’s business for his own purposes, the employer can still be held liable for the employee’s acts. However, if the deviation in time or geographical area is substantial, the employer will not be held liable for the employee’s acts.

Generally, the employer is not responsible for any intentional torts committed by the employee. There are three exceptions to this rule. First, when the force used by the employee is authorized within the employment. The most common example is a bouncer using force against a patron in a bar. The second exception is when the friction itself resulting in the use of force is generated by the type of employment. This type of exception is common among bill collectors and towing companies. Finally, the employer can be held liable for the intentional torts of the employee if the acts are utilized in furtherance of the business of the employer. Typically, these situations often arise when an employee attempts to remove a rowdy customer from a store.

In contrast to the common law of most states, the Nevada courts generally take a more liberal interpretation and have ruled that when a person is injured by the wrongful act of another, and the tortfeasor is employed by another person or corporation responsible for the employee’s conduct, the employer is liable to the person injured. NRS 41.130. See also, Desert Cab Inc. v. Marino, 108 Nev. 32 (1992). Limitations on this rule are recognized by the Nevada courts when: 1) The action was a truly independent venture of the employee; 2) The act was not committed in the course of the very task assigned to the employee; and/or 3) The act was not reasonably foreseeable considering the nature and scope of employment. NRS 41.745.

As you can see, Nevada’s rule is more loosely interpreted than other jurisdictions. This allows a plaintiff’s attorney to bring a claim for an intentional tort of a defendant’s employee and utilize the discovery process to try and tailor the evidence to fit into one of the exceptions. The courts generally will not entertain motions to dismiss on this issue until the close of discovery, which impacts defense fees and costs greatly.

Independent Contractor Situations

Generally, a principal is not held vicariously liable for tortious acts of his or her agent if that person is an independent contractor. There are two broad exceptions that the courts will apply to this rule. First, when the independent contractor is engaged inherently dangerous activities the principal can be found liable for their acts. This commonly occurs on construction sites which are adjacent to public areas, such as when contractors are excavating a sidewalk. The second exception is when public policy considerations simply make the situation a “nondelegable duty.” In Rockwell v. Sun Harbor Budget Suites 112 Nev. 1217 (1997), the Nevada Supreme Court ruled that a landowner who pays a subcontractor to provide security on the premises will be liable for injuries to invitees, even if the injuries are caused by the intentional tort of the subcontractor’s employee.

Automotive Owner for Driver

An automobile owner is generally not vicariously liable for the tortious conduct of another person driving his vehicle. Although different states have different exceptions, the one that is most frequently cited is negligent entrustment. An owner may be sued for their own negligence in entrusting their car to another driver. Additionally, in Nevada, liability against a vehicle owner can be imposed under a “family purpose statute” for the damages caused by the immediate family member. NRS 41.440

Professional Exemption: Law School Graduates Performing Legal Services are Not Entitled to Overtime

The Appellate Court in Zelasko-Barrett v. Brayton-Purcell (2001 DJDAR 12500) recently upheld a trial court ruling that, although the plaintiff had not yet been licensed to practice law in California, he is nonetheless a law school graduate and performed duties that brought him within the professional exemption for those engaged in a learned profession, thus was not entitled to overtime wages. This is an important case that further defines the professional exemption for those engaged in a learned profession.

Labor Code sections 510 and 512 impose overtime compensation and other requirements on California employers, and authorize the California Industrial Wage Commission (IWC) to establish exemptions from the overtime requirements for executive, administrative and professional employees, “provided that the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” Labor Code section 515.

The applicable IWC Wage Order defines the “professional exemption,” as applicable to an employee: “(3)(a) who is licensed or certified by the State of California and is primarily engaged in the practice of one of the following professions: law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting; or (b) who is primarily engaged in an occupation commonly recognized as a learned or artistic profession.”

The “learned” professions are described as those requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education, and from an apprenticeship and training in the performance of routine mental, manual or physical processes. 29 C.F.R. § 541.301(a) (2001).

In this case, using section (b) of the applicable wage order, the Appellate Court reasoned that the plaintiff fell within the “learned” professional exemption. Brayton argued that the plaintiff performed tasks customarily performed by junior attorneys. Although plaintiff was supervised by a licensed attorney and did not sign his name to pleadings, he drafted pleadings and discovery demands and responses, did legal research, drafted memoranda of points and authorities, interviewed witnesses, and assisted in deposition preparation.

The plaintiff’s principle argument was that because “law” is one of the enumerated professions in which licensure is required, he cannot be deemed to have been employed in a law-related professional capacity unless he was licensed to practice law. In defeating this argument, the Appellate Court relied on Campbell v. Pricewaterhouse Coopers, (E.D.CA 2009) 602 F.Supp.2d 1163, which held that the Wage Order states explicitly that a person employed in a professional capacity is any employee who meets all of the requirements in subsection (a) “or” of subsection (b).

The District Court in Campbell v. Pricewaterhouse Coopers noted that the legislative intent behind creating the “learned profession exemption” was added to the Wage Order in 1989 in response to concerns that the “IWC decided that the professional exemption relied too much on credentialism.”

This case is a reminder to all employers to properly classify their employees as “exempt” or “non-exempt.” To do that, an employer needs to: 1) make sure that all job positions have a defined job description which sets forth the major job duties and responsibilities and 2) that the job duties and responsibilities; of your employees are reviewed on an annual basis to ensure that they are working within their defined job duties, and that they continue to remain properly classified.

Attorney Spotlight

Laura Hess was selected as an Ambassador for National Association of Women Business Owners-Orange County in July 2011. Orange County is one of the largest chapters of NAWBO. NAWBO’s mission is to position women business owners to build their power, passion and profits for success. Its strategic goal is to be the organization of choice for Orange County’s 125,000+ women business owners. NAWBO provides leadership training, education on marketing, sales, business development, management, and networking.

As Ambassador, Hess is be responsible for partnering with new members to introduce them into the organization and provide them with information about services and events for business leaders, serving as a table facilitator at monthly member meetings, and serving as a “brand agent” for NAWBO in its community outreach efforts.

Do Watts Have Anything to Do with Lightbulbs?

Short answer: No, at least not in a family law setting.

In a proceeding for the dissolution of marriage or legal separation, there is an opportunity for reimbursement to the community when one of the parties has the sole and exclusive use of an asset while the matter is pending and until a division of the asset is finalized. The reimbursement would be for the reasonable value of the usage. The asset is typically a residence, but can also be a car or other asset. This reimbursement is often referred to as a “right of reimbursement,” but that is a misnomer because the reimbursement is discretionary to the Court. The reimbursement issue derives its name from an appellate decision set forth in re Marriage of Watts, (1985) 171 Cal. App. 3d 366.

The Court has the discretion to consider the totality of the circumstances when determining whether it will or will not order a party to reimburse for Watts charges (aka usage charges). For instance, a typical scenario may involve a husband that voluntarily vacates the family home in order to move in with his girlfriend, leaving his wife and kids to stay in the family home until the divorce is final. His reasons for allowing wife and kids to remain the home may be noble, i.e., not wanting to disrupt the children any further as they transition through the divorce. Let’s say the house is a million dollar house, which would easily rent for $6,000 a month. There is no mortgage on the house. However, after twelve months of bitter litigation with wife, husband may decide he wants to seek retribution by claiming Watts charges on the house for $6,000 per month (rental value) for 12 months (duration of exclusive use), for a total reimbursement claim of $72,000!

There are several factors that the Court would consider when deciding whether to award husband the Watts charges. Factors such as husband’s voluntary vacating of home, the fact that there are children, the reasons for the living arrangements, the relative financial circumstances, the zero mortgage, the division of assets, the amount of support husband was paying, whether wife had advance notice of husband’s intention to seek Watts charges, and whether there was domestic violence, would all be considered by the court.

Please mention this article by name for a FREE initial consultation of your family law matter. You can reach our team by calling 949-345-1621 or by completing a short online contact form. Flexible appointments are available by request.

Kring & Chung Employee News

At the American Bar Association’s 2011 Annual Meeting, Kring & Chung was elected by the SBA Conference (Student Bar Association Presidents from each ABA-approved law school) and confirmed by the Law Student Division Board of Governors to serve a one year term as Vice Chair SBA of the Law Student Division of the American Bar Association. In this position, Philo will oversee the relationship between the SBA and ABA organizations at local, regional and national levels, promote SBA participation and membership in the Division and the ABA, regularly communicate with SBA Presidents at each ABA-approved law school, facilitate discussion on law student issues among the SBA Presidents, and assist with the drafting and filing of policy recommendations on behalf of the SBA Presidents. She will also serve as the SBA Presidents’ liaison to the Division and communicate with leadership of national organizations committed to representing interests of student bar associations.

Philo is currently serving her second term as SBA President of Whittier Law School. She is a part-time evening student and currently works as a litigation paralegal at Kring & Chung’s Irvine office.

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