Good News for Defendants and Their Insurers: Colorado Supreme Court Holds Collateral Source Rule Inapplicable in Workers Compensation Cases

In two recent opinions, the Colorado Supreme Court concluded an injured worker cannot claim medical expenses against a third-party tortfeasor if the expenses were paid by a workers compensation insurer and the tortfeasor has settled the insurer’s subrogated claim for the expenses. In the two cases, Delta Air Lines, Inc.i v. Scholle and Gill v. Waltz,ii the court determined the tortfeasors’ settlements of the insurers’ subrogated claims extinguished the workers’ claims for those medical expenses. The opinions give tort defendants a means to significantly reduce exposure for medical expenses in personal injury suits filed by injured workers who received workers compensation benefits.


Background of
Scholle

In Scholle, an employee of United Airlines, Inc. (“United”), William Scholle, was seriously injured in an accident involving an employee of Delta Air Lines (“Delta”). United, which is a self-insured employer under Colorado’s workers’ compensation scheme, paid Scholle’s medical expenses. United then sued Delta and its employee, asserting its subrogated right to recover the amounts it had paid. Scholle filed his own suit against Delta and its employee. After the two suits were consolidated, Delta settled United’s subrogated claim, which the trial court then dismissed. The trial court also dismissed Scholle’s claims against Delta’s employee.iii

Scholle’s claims against Delta went to trial on damages only. Scholle had moved to preclude Delta from introducing evidence showing United had paid off his medical expenses for less than the amounts the providers had billed. The trial court denied Scholle’s motion. In the eventual bench trial, the trial court awarded Scholle $194,426 for economic damages, but reduced the award by the amount United had paid in workers’ compensation benefits. This reduction essentially eliminated Scholle’s economic damages award.iv

On appeal, a divided panel of the Colorado Court of Appeals reversed, concluding the amounts United had paid to Scholle’s medical providers should not have been introduced at trial under Colorado’s collateral source rule. The dissent on the Court of Appeals panel concluded Delta’s settlement of United’s subrogated claim extinguished Scholle’s claim for past medical expenses altogether, so it was unnecessary to decide the admissibility of the amounts paid on the bills.v


Background of
Gill

In Gill, plaintiff Joseph Gill was injured in an accident involving a truck owned by Swift Transportation Company, LLC and driven by one of its employees. Gill’s medical providers billed nearly $628,000 for treatment, but workers’ compensation insurer Pinnacol Assurance resolved the bills for much less. Pinnacol asserted and settled its subrogated claim against Swift. Gill and his spouse then sued Swift and its employee in state court.vi

The suit was removed to the U.S. District Court for the District of Colorado, where Swift filed a motion for partial summary judgment, arguing under Colorado’s workers’ compensation statute, a third-party tortfeasor’s settlement of a workers’ compensation insurer’s subrogated claim deprived the injured worker of standing to pursue the damages covered by the insurer. Rather than rule on the summary judgment motion, the federal trial court certified the question to the Colorado Supreme Court.vii


Colorado Supreme Court’s Conclusion

Taking up Scholle and Gill, the Colorado Supreme Court concluded a tortfeasor’s settlement of a workers’ compensation insurer’s subrogated claim for medical expenses paid to or for an injured worker extinguishes the worker’s right to pursue those expenses against the tortfeasor. This meant plaintiffs in Scholle and Gill no longer had the right to assert claims for those medical expenses paid by their workers compensation insurers.viii

The Court grounded its decision in the law of insurance subrogation. Under Colorado’s workers compensation act, a workers compensation insurer which pays benefits to or for an injured worker is subrogated to the underlying claims the worker might have against the third-party tortfeasor. The insurer can pursue a claim directly against the tortfeasor. If it does so, it stands in the shoes of the injured worker regarding the claim, and “when an insurer settles the subrogation claim, it is in fact settling the worker’s claim.”ix

The Court also rejected Scholle and Gill’s arguments the settlements with the workers compensation insurers only partially extinguished their claims, leaving them free to seek damages for the difference between the amounts the insurers paid and the amounts the medical providers billed. The Court found their arguments to be contrary to Colorado’s workers compensation act.x

The Court cautioned a workers compensation insurer’s settlement of its subrogated claim with the tortfeasor would not preclude the injured worker from pursuing economic damages not fully covered by workers’ compensation, such as lost wages, physical impairment, or non-covered medical services. The injured worker also would be able to pursue any noneconomic damages against the third-party tortfeasor.xi


Takeaways

In Colorado, a personal injury plaintiff can generally recover the full amounts billed for medical treatment, and the amounts paid on the bills by plaintiff’s insurer—which often are significantly less than the billed amounts—are not admissible under the state’s collateral source rule. This usually results in a windfall to plaintiff for medical expenses.xii

In the workers compensation context, the opinions in Scholle and Gill give defendants the means to reduce this windfall and significantly limit its exposure for medical expenses. If workers compensation paid injured plaintiff’s medical bills, defendant can attempt to eliminate plaintiff’s claim for those expenses by settling the insurer’s subrogated claim. Because the amounts paid by the workers compensation insurer on the medical bills likely will be less than the full amounts billed, defendant may be able to eliminate the claim for medical expenses for a fraction of what it would take to settle the claim with plaintiff directly.

i 484 P.3d 695 (Colo. 2021).

ii 484 P.3d 691 (Colo. 2021).

iii Scholle, 484 P.3d at 697-98.

iv Id. at 698.

v Id. at 698-99.

vi Gill, 484 P.3d at 693.

vii Id.

viii Id. at 694; Scholle, 484 P.3d at 700-01.

ix Id.; Gill, 484 P.3 at 693-94.

x Id. at 694; Scholle, 484 P.3d at 701-02

xi Id. at 702; Gill, 484 P.3 at 694.

xii Volunteers of Am. Colorado Branch v. Gardenswartz, 242 P.3d 1080, 1083–84 (Colo. 2010)

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