Are California Laws Unfavorable to Businesses?
A national survey released by the U.S. Chamber Institute for Legal Reform indicated that California has the 47th worst lawsuit climate in the country, reported the Los Angeles Times. These numbers were determined by asking business executives to rank states based on their treatment of tort cases, contract cases, class action cases, jury fairness and judicial competence and impartiality.
“While survey results indicate that California’s legal climate makes the state unattractive to businesses, the reality is that there are some significant limitations on the rights of plaintiffs, providing a great deal of protection for businesses,” explained personal injury lawyer James Ballidis.
The $250,000 limit on non-economic damages set forth in the Medical Injury Compensation Reform Act (MICRA) is one example. MICRA was passed in 1975 and has been upheld numerous times, including in a 2011 case where the 5th Appellate District Court of Appeals upheld the cap and reduced a $6 million jury award to $250,000. California is one of around 30 states with damage caps, but has one of the lowest caps of these states (Nebraska, by contrast, has a $1.75 million cap).
A recent California case called Howell v. Hamilton Meats & Provisions, Inc. 52 Cal. 4th 541 (2011) further limited the rights of injured plaintiffs. In this case, the Supreme Court addressed the question of whether a plaintiff could recover undiscounted amounts of medical costs in a tort action or would be limited to discounted amounts that providers accept as full payment.
When an insurance company pays the bills after an accident, typically they pay at a significant discount as compared to what the medical services would normally cost. The majority rule and trend in most states is to allow the plaintiff to recover what the medical services would normally cost, not taking into account the discounted rate. This makes sense for a few reasons. First, the “windfall” of the extra compensation above-and-beyond what was really paid helps to compensate the plaintiff. Second, a rule called the “collateral source” rule prohibits evidence that a plaintiff was paid by an outside source so that a defendant doesn’t avoid having to pay for financial losses he or she caused simply because a plaintiff was prudent enough to have insurance.
The California Supreme Court, however, broke with the trend in Howell and said a plaintiff could only collect compensation for medical bills at the discounted rates. This is a huge blow to plaintiffs. In the Howell case, for example, the court’s decision made the difference between the plaintiff collecting the $190,000 billed at “reasonable and customary” rates for medical service and the $60,000 actually paid.
The damages cap and the recent case further limiting the rights of plaintiffs are only two examples of the ways in which California may not really present such an unfavorable lawsuit climate for businesses, despite what the study says. A Law.com article also highlighted the difficulties that advocate groups have had in recent years in providing broader protection for plaintiffs. In fact, all three bills proposed from 2011-2012 that could potentially have helped plaintiffs and hurt businesses were unsuccessful.
The first of these bills was an attempt to change the rules set forth in Howell v. Hamilton Meats & Provisions. The proposed change, found in SB 1528, said that injured individuals whose healthcare was provided “though a public or private capitated health services plan” would be “entitled to recover as damages the reasonable and necessary value of medical services.” The Bill failed.
The second failed bill was an attempt to restore class action rights to plaintiffs who had been limited by a case called AT&T Mobility v. Concepcion. In AT&T Mobility, the Supreme Court ruled that if an agreement mandated arbitration for group claims, plaintiffs would have to abide by it. In other words, it effectively allowed businesses to contract out of class action litigation. The Bill, SB 491, stipulated that any term in an adhesion contract waiving the right to consolidated claims or class actions would be deemed void, due to lack of authority to consent to the waiver. This bill, however, was also struck down.
The third, SB 558, was an attempt to lower the standard of proof in cases of elder abuse. The Bill would provide for attorneys fees and costs when a preponderance of the evidence showed the defendant was liable for physical abuse or neglect along with recklessness, oppression, fraud or malice. This bill, too, did not pass.
With all of these pro-plaintiff bills failing and legislative trends including the Howell decision showing a pro-business attitude, it seems the study results indicating that California is a bad lawsuit climate for business may not be based on hard fact.
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