Dan Berexa's Tennessee Law Blog

Tennessee Supreme Court Holds Noneconomic Damages Cap is Constitutional

On February 26, 2020, the Tennessee Supreme Court issued its much-awaited opinion in Jodi McClay v. Airport Management Services, LLC, M2019-00511-SC-R23-CV, a case in which the plaintiff challenged the constitutionality of Tennessee's tort caps. In McClay, the 3-2 Court held that Tennessee’s statutory cap on noneconomic damages does not violate the Tennessee Constitution.

The noneconomic damages cap was enacted as part of the Tennessee Civil Justice Act of 2011, which was one of Governor Bill Haslam’s major legislative initiatives upon taking office. The caps statute, enacted as Tennessee Code Annotated § 29-39-102, generally provides for a $750,000 cap on noneconomic damages. The cap is increased to $1,000,000 for “catastrophic loss or injury,” such as injuries resulting in severe burns, multiple amputations, paraplegia, quadriplegia or the wrongful death of a parent with surviving minor children. The statute exempts certain kinds of cases from the cap, such as those in which the defendant had specific intent to inflict serious physical injury, was intoxicated, under the influence of drugs or committed a felony when causing the injury.

The constitutional challenge to the noneconomic damages cap in McClay came about after a United States District Court jury awarded a plaintiff $930,000.00 in noneconomic damages, including pain and suffering, permanent injury and loss of enjoyment of life. Following the plaintiff’s constitutional challenge to the cap statute, the District Court certified three questions of law to the Tennessee Supreme Court. In the 3-2 decision, the Tennessee Supreme Court held that the statutory cap on noneconomic damages does not violate the plaintiff’s right to a trial by jury under the Tennessee Constitution. The Court also rejected  challenges to the cap under the separation of powers and equal protection provisions of the Tennessee Constitution.

Prior to the release of the McClay opinion, the viability of the noneconomic damages cap was in doubt. In August of 2019, a Williamson County trial court judge found the cap unconstitutional, for violating the right to a trial by jury, as established in the Tennessee Constitution. That decision is overruled by McClay.

Tennessee has a separate cap statute limiting punitive damage awards. The constitutionality of Tennessee’s cap on punitive damages has never been decided by the Tennessee Supreme Court. In Lindenberg v. Jackson National Life Insurance Company, the United States Court of Appeals for the Sixth Circuit held that the statutory cap on punitive damages violated the right to a jury trial under the Tennessee Constitution.  (See 12/26/2018 post regarding Lindenberg) While the McClay court was not called upon to determine the constitutionality of the punitive damages cap, the Court noted: “Decisions by federal circuit courts of appeals are not binding on this Court” and expressed dissatisfaction with the Lindenberg opinion. These comments, and the Court’s analysis of the constitutionality of the noneconomic damages cap, are good indicators that the Tennessee Supreme Court would have upheld the constitutionality of the punitive damages cap if the issue was before the court.

The McClay opinion bodes well for the viability of both caps absent a change in the makeup of the Tennessee Supreme Court. While the Lindenberg decision striking down the punitive damages cap remains on the books, it is unlikely to be followed.

Links:
McClay Opinion, Justice Bivens
Concurring opinion, Justice Kirby
Dissent, Justice Clark
Dissent, Justice Lee

 

Sixth Circuit Holds Tennessee's Statutory Cap on Punitive Damage Awards Violates Tennessee Constitution

On December 21, 2018 the Sixth Circuit issued an opinion in Lindenberg v. Jackson National Life Insurance Company holding that Tennessee's statutory cap on punitive damages violates the right to trial by jury set forth in Article I, § 6 of the Tennessee Constitution. The cap on punitive damages was enacted as Tenn. Code Annotated §29-39-104 and was part of the Tennessee Civil Justice Act of 2011, which was one of Governor Haslam's major legislative initiatives upon taking office. The cap statute provides that punitive damage awards are generally limited to the greater of either double the compensatory damages awarded or $500,000. The statute sets forth various exceptions, for which the cap is inapplicable, and defines the requisite level of conduct and burden of proof necessary to sustain a punitive damages claim.

Linderberg also held that an insurance company can be held liable for punitive damages for the bad faith failure to pay a claim, in addition to the remedy available under Tennessee's bad faith statute, Tenn. Code. Ann. § 56-8-113. Previous decisions held that the bad faith statue was the exclusive remedy permitted for bad faith claim against an insurer.

More commentary on this decision will follow shortly. The opinion can be viewed with the link below.

Download Lindenberg v. Jackson Nat'l Life Ins. Co.

Dan Berexa
Nashville, Tennessee

 

 

Tennessee Supreme Court reverses Dedmon v. Steelman - holds amount of discounted medical expenses are not admissible in personal injury actions

On November 17, 2017, the Tennessee Supreme Court delivered its long awaited opinion in Dedmon v. Steelman, holding that personal injury plaintiffs may submit evidence of the injured party’s full, undiscounted medical bills as proof of reasonable medical expenses and that defendants are precluded from submitting evidence of discounted rates accepted by medical providers from the insurer to rebut the plaintiffs’ proof that the undiscounted charges are reasonable. In addition to rejecting the argument that a plaintiff's recovery should be limited to the discounted amounts accepted by medical providers, the Court rejected the argument that introducing evidence of the actual amount paid does not violate the collateral source rule:

[T]he Defendants argue that the actual amount paid approach is not contrary to the collateral source rule because it does not involve evidence of payments from a collateral source. They note that, under this approach, plaintiffs are still permitted to introduce evidence of all medical expenses actually incurred by them or paid on their behalf, without indicating who made the payments. The negotiated rate differential is not a collateral-source benefit to the plaintiff, they insist, because it benefits only the plaintiff’s insurance company. We disagree.

The Court's summary of its holding follows:

We granted this appeal to address whether our holding in West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014), applies in personal injury cases. We hold that it does not. West held that “reasonable charges” for medical services under Tennessee’s Hospital Lien Act, Tennessee Code Annotated sections 29-22-101 to –107 (2012), are the discounted amounts a hospital accepts as full payment from patients’ private insurers, not the full, undiscounted amounts billed to patients. West, 459 S.W.3d at 46. West defined “reasonable charges” in the context of interpreting the Hospital Lien Act, and its holding is limited to that Act. As an alternative argument, we are asked in this appeal to consider applying the principles in West to the determination of reasonable medical expenses in personal injury cases. Doing so involves the collateral source rule, which excludes evidence of benefits to the plaintiff from sources collateral to the tortfeasor and precludes the reduction of the plaintiff’s damage award by such collateral payments. The rule is based on the principles that tortfeasors should be responsible for all of the harm they cause and that payments from collateral sources intended to benefit an injured party should not be used to reduce the liability of the party who inflicted the injury. After a thorough review of court decisions in Tennessee and across the country on the collateral source rule, we decline to alter existing law in Tennessee. We hold that the collateral source rule applies in this personal injury case, in which the collateral benefit at issue is private insurance. Consequently, the plaintiffs may submit evidence of the injured party’s full, undiscounted medical bills as proof of reasonable medical expenses. Furthermore, the defendants are precluded from submitting evidence of discounted rates accepted by medical providers from the insurer to rebut the plaintiffs’ proof that the full, undiscounted charges are reasonable. The defendants remain free to submit any other competent evidence to rebut the plaintiffs’ proof on the reasonableness of the medical expenses, so long as that evidence does not contravene the collateral source rule. The decision of the Court of Appeals is affirmed in part and reversed in part, and the case is remanded to the trial court for further proceedings.

The full opinion is available at this link: Dedmon v. Steelman

Dan Berexa
Nashville, Tennessee

 

Tennessee's Evolving Approach to Medical Expenses and Insurance Discounts - what is Reasonable?

UPDATE - On October 21, 2016 the Tennessee Supreme Court granted the application for permission to appeal filed on behalf of the defendants in Dedmon v. Steelman.

Below is an excellent article authored by C & C attorney Sean Wlodarczyk discussing the Tennessee Court of Appeal's recent opinion in Dedmon v. Steelman 2016 Tenn. App. LEXIS 386 (Tenn. Ct. App. 2016), which permits defense counsel to introduce evidence of the amount accepted by a health care provider in satisfaction of its charges in connection with the determination of the "reasonable value" of medical services claimed as damages. As Sean points out, the Dedmon decision allows defendants to argue to the finder of fact that the amount actually paid, rather than the amount charged, more accurately represents the reasonable value of the claimed medical expenses. 

Dan Berexa
Nashville, Tennessee

Medical Damages Post-West and Dedmon
by Sean Wlodarczyk

Modern medical billing practices are less than straightforward. Typically, health care providers maintains two sets of prices. The first is a list price the provider ostensibly charges for a service. The second is a discounted price the provider is willing to accept pursuant to an agreement with a patient’s health insurer. Over time, these prices have diverged greatly, with services being listed at prices five to ten times greater than the amount the provider accepts as full compensation. Naturally, in personal injury and wrongful death cases, plaintiffs and their counsel routinely seek to recover the list price—hoping to profit on the difference between what the provider accepted, and what could be wrung from a defendant. In turn, defendants are usually precluded from putting on evidence of the actual amount accepted as payment from an insurer due to the collateral source rule. That, however, appears to be changing in Tennessee. Recent case law allows Tennessee defendants to assert that the amount the provider accepted as payment—the discounted price—is the real measure of medical damages.

The trend towards allowing defendants to argue that the measure of damages is the discounted price began in Tennessee with the Tennessee Supreme Court’s 2014 decision in West v. Shelby Cty. Healthcare Corp., which can be located at 459 S.W.3d 33. In West, two individuals were injured in separate accidents. In turn, they came to a hospital for treatment, and the bill was paid by their insurers at the contractually agreed upon discounted rate. Despite this, the hospital asserted a lien against the patients under Tennessee’s Hospital Lien Act for the higher list price, claiming that—because the accidents were caused by third parties who could be sued—the hospital was entitled to recover the list price just as a normal personal injury plaintiff would be entitled to. Essentially, the hospital wanted a cut of the patient’s potential recovery from the third-party tortfeasors.

In addressing the situation laid out in West, the Tennessee Supreme Court determined that the Hospital Lien Act only allowed for the recovery by the hospital of amounts charged for reasonable medical expenses, and that—at least for lien purposes—the list price is unreasonable if the hospital has accepted a discounted amount as payment in full. While the holding in West referred only to the Hospital Lien Act, its implications were obvious. Since West, four Tennessee Circuit Courts and five Federal District Courts have held that West’s logic applies to personal injury cases—and therefore that plaintiffs may no longer seek the higher list price as damages.

Since West, only one appellate decision has come down addressing this issue, and it was decided only in early June 2016. That decision is Dedmon v. Steelman, 2016 Tenn. App. LEXIS 386 (Tenn. Ct. App., 2016). In it, the Court of Appeals recited the age-old maxim that a plaintiff in a personal injury action is entitled to recover the reasonable value of the medical care necessitated by the tortfeasor. From there, the Court held that the list and discounted prices were not necessarily reasonable or unreasonable, but rather, that the amount to be awarded is a question that needs to be answered by a jury. Thus, the Dedmon Court held that both the discounted and list prices can be admitted at trial as proof of what is a reasonable charge, with the caveat that attorneys must avoid mentioning the existence of insurance, so as to maintain the integrity of the collateral source rule’s ban on defendants profiting from a plaintiff’s decision to be insured.

The Dedmon decision is a common sense way of dealing with the divergence between list prices and the actual amounts paid for services. While it remains to be seen if Dedmon will be appealed to the Tennessee Supreme Court, should it remain in place, Dedmon is a boon to defendants. They can now explicitly argue to the jury that the discounted amounts actually accepted by a health care provider as payment in full equals the reasonable value of the services provided. To put this in perspective, this means that when a plaintiff has a hospital bill of $100,000 which is then satisfied for $10,000 (this is common), defendants can assert that the lower number is the real value of the care—and can even point out that anything in excess of the lower number is pure profit to the plaintiff.

It will be interesting to see whether the Tennessee Supreme Court takes Dedmon up on appeal. Given the Court’s current composition, there is a good chance that if Dedmon is taken up, it will be either to affirm it, or to hold that list prices are per se unreasonable as West previously indicated. This would be in keeping with developments of other states. Indeed, even the plaintiff friendly bastion of California has recognized that there is nothing reasonable about a plaintiff recovering medical expenses that were billed but then satisfied at a reduced amount. It should be no surprise if Tennessee’s Supreme Court ultimately declares the same—but, in the interim, defendants must make that argument themselves to juries per Dedmon.

 

Tennessee Supreme Court Vacates Trial Court Decision Ruling Non-Economic Damage Caps Unconstitutional

On October 16, 2015, the Tennessee Supreme Court issued a per curiam order vacating the Hamilton County Circuit Court judgment in Clark v. Cain ruling Tennessee's cap on non-economic damages unconstitutional under the due process, equal protection and  "right to jury trial" provisions of the Tennessee Constitution. The Tennessee Supreme Court held that the trial court acted prematurely in considering the constitutionality of the cap statute in the tort action as the issue was not ripe for consideration in the absence of a plaintiff's verdict exceeding the cap. The court followed the rationale adopted by U.S. District Court Judge Kevin Sharp holding the plaintiff's claim that the caps on non-economic and punitive damages were unconstitutional was not ripe for consideration in the absence of a verdict exceeding one or both of the caps in Gummo v. Ward, 2:12-cv-00060. 

Dan Berexa
Nashville, Tennessee

Clark v. Cain Order

Gummo v. Ward Memorandum Opinion

Related articles

Hamilton Circuit Judge Rules Tennessee's Cap on Non-Economic Damages is Unconstitutional

Hamilton Circuit Judge Rules Tennessee's Cap on Non-Economic Damages is Unconstitutional

A Hamilton County Circuit Court Judge has declared Tennessee's cap on non-economic damages unconstitutional under the due process, equal protection and  "right to jury trial" provisions of the Tennessee Constitution. Download Clark V. Cain The court did not address challenges based on the United States Constitution. The cap applies to personal injury and wrongful death cases and was enacted as part of the Tennessee Civil Justice Act of 2011. The cap on non-economic damages, and cap on punitive damages, which was enacted at the same time, have been the subject of numerous attempted constitutional challenges since their enactment. The punitive damages cap was not addressed in the court's opinion. The Clark opinion is certainly not the last word on the constitutionality of the "tort caps" as the issue will eventually be decided on appeal, if not in Clark, in another case in which the issue is raised.    

Under the cap statute, Tenn. Code Ann. § 29-39-102, non-economic damages are broadly defined to include pain and suffering, physical impairment, mental anguish, emotional distress, loss of enjoyment of life and loss of consortium. The $750,000 cap provision applies per claimant, and is not increased if a claim is brought against multiple defendants. Nor is the cap increased for derivative claims brought by a spouse, or child, for loss of consortium or other noneconomic damages. There are exceptions, which increase the cap to $1,000,000 per plaintiff, in cases where the injured party sustains a catastrophic injury such as paraplegia, multiple amputations, severe burns, or the claim involves the wrongful death of a parent of one or more minor children.

The cap does not apply to economic damages such as medical expenses, lost earning capacity, property damage, loss of business or employment opportunities or other objectively verifiable monetary losses. The cap is also removed when the injury is intentional; where the defendant intentionally conceals or destroys evidence; for injuries resulting from the defendant’s intoxication or if the defendant is convicted of a felony for the actions which caused the injury.

Dan Berexa
Nashville, Tennessee

Are Punitive Damages Recoverable in a Breach of Contract Case?

     Are punitive damages available in an action for breach of contract? The answer: rarely, according to a recent decision from the Tennessee Court of Appeals in Dog House Investments, LLC v. Teal Properties, Inc., No. M2013-00597-COA-R3-CV (Feb. 7, 2014).

    In Dog House, it was agreed that the tenant, Dog House, would advance the cost of repairs caused by the 2010 flood disaster. The landlord, Teal Properties, would then file a flood insurance claim and reimburse the tenant. Dog House filed suit alleging unjust enrichment, promissory fraud, breach of contract and sought to  pierce the corporate veil, contending that Teal concealed the fact that it received the insurance proceeds and spent the money on the owner's personal expenses.

    While the Court of Appeals held that the facts supporting Dog House’s claim for breach of contract did not rise “to the level of egregiousness” necessary to sustain an award of punitive damages, it went on to affirm the lower court’s award of punitive damages based on promissory fraud. (The key distinction between fraud and promissory fraud is that the promissory fraud relates to a promise of future action, without an intent to perform, and fraud is based on a misrepresentation that relates to past or existing facts).

    The bottom line is that without fraud, punitive damages are not typically available in a breach of contract case. Just because a party breaches a contract, even intentionally, does not subject them to liability for damages beyond what is recoverable under contract law. 

Dan Berexa
Nashville, Tennessee

 

U.S. District Court Declines Constitutional Challenges to Tennessee Caps on Punitive and Noneconomic Damages

        In a recent decision, (Download Memorandum opinion) the United States District Court for the Middle District of Tennessee denied the plaintiffs’ motion to declare, as unconstitutional, the tort caps enacted as part of the Tennessee Civil Justice Act of 2011. In Gummo v. Ward, 2:12-cv-00060, the plaintiffs filed a personal injury action and contended that the caps limiting non-economic damages and punitive damages, which are contained in Tenn. Code Ann. § 29-39-102 and Tenn. Code Ann. § 29-39-104, violated Article I, Section 6 and Article XI, Section 16 of the Tennessee Constitution. Alternatively, the plaintiffs asked that the district court certify the question of the constitutionality of the cap statutes to the Tennessee Supreme Court. Under the certification procedure, a federal court can ask the Tennessee Supreme Court to decide a question of state law when it appears there is no controlling precedent, and the issue is determinative in the federal case.

        District Court Judge Kevin Sharp denied the plaintiffs’ request on grounds that a determination of the constitutionality of the caps was not “ripe” for consideration “unless, and until, plaintiffs obtain a verdict in excess of one or more of those caps.” The court noted that the principle of judicial restraint requires the courts to avoid deciding the constitutional issue in advance of the necessity to do so. Relying on the same logic, the District Court denied the plaintiffs’ request to certify the question of the constitutionality of the statutory caps to the Tennessee Supreme Court. Currently, there are numerous pending cases where the plaintiffs have challenged the constitutionality of the tort reform caps. The Gummo decision appears to be the first to address a challenge. If other courts follow Judge Sharp’s decision in Gummo, constitutional challenges to the caps will not be entertained until the challenging party first obtains a verdict that exceeds the limits set forth in one or both of the caps statutes.

Dan Berexa
Nashville, Tennessee

Tennessee Supreme Court Reinstates $39.5 Million Non-economic Damage Award in Personal Injury Case

On August 30, 2013, in a pre-tort cap case, the Tennessee Supreme Court unanimously reinstated a $43.8 million compensatory damage verdict in a personal injury case that had been remitted to $12.9 million by the Court of Appeals. The opinion is important, not only for the discussion of the procedural aspects and standard of review for a remittitur, but more importantly because of the fact that the court approved and reinstated a $39.5 million non-economic damage award in a personal injury case.

In Meals v. Ford Motor Company, the jury returned a general compensatory damage verdict for a six year old child who sustained permanent paralysis and other serious injuries as a result of a motor vehicle accident caused by a driver under the influence. The jury found Ford 15% at fault based on product liability claims relating to the seat belt system in the vehicle in which the child was an occupant. The remaining fault was assigned to the non-party at-fault driver, and the child's father, who improperly belted the child, using only the lap portion of the three point seat belt. Ford's share of the jury verdict was close to $6.6 million.

Following the trial, the trial judge approved the verdict in her role as thirteenth juror, denying Ford's motion for new trial, in which it contended that the verdict was excessive. On appeal, the Tennessee Court of Appeals sua sponte suggested a remittitur, reducing the entire verdict to $12.9 million, based on its conclusion that the amount of the jury's non-economic damage award demonstrated sympathy. The Court of Appeals reduced the non-economic award from $39.5 million, to $8.6 million, which was approximately twice the proven economic damages of $4.3 million.

In connection with reinstating the verdict, the primary issue considered by the Tennessee Supreme Court was whether the award of $39.5 million in non-economic damages was within the range of reasonableness, taking the "strongest legitimate view of all the evidence in favor of the verdict" as an appellate court is required to do if the trial judge approves the verdict in the role as thirteenth juror. Writing for the Court, Justice Sharon G. Lee noted that "the material evidence analysis is very deferential to the award by the jury and the judgment of the trial court when it affirms the verdict as the thirteenth juror." The Court reviewed the evidence regarding the minor plaintiff's catastrophic injuries, noting that "[a] jury has wide latitude in assessing non-economic damages" and that the plaintiff is not required to prove the monetary value of non-economic damages. While the Court noted that other "similar" cases can be examined in connection with examining the reasonableness of a verdict, it acknowledged that the pool of information regarding other verdicts (and settlements) is often limited and that each case must be reviewed on its own merits. Reinstating the jury verdict, the Court held that although the Meals verdict may have been on the high end of the range of reasonableness, it was within that range and was sustainable.

Dan Berexa
Nashville, Tennessee 

 

Part 3 - Review of Two Years of Tort Reform - Limitations on Tennessee Consumer Protection Act Claims

The Tennessee Consumer Protection Act was enacted in 1977. One of the most significant aspects of the act is the potential to recovery attorneys fees and up to treble damages in the event a party is found guilty of an "unfair or deceptive act or practice." The 2011 tort reform legislation implemented several changes to the TCPA, such as eliminating a private right of action for unfair acts or deceptive practices involving the marketing or sale of securities. The TCPA was also amended to specifically prohibit class action lawsuits for alleged TCPA violations and to exempt the insurance industry from TCPA coverage. The Tennessee Supreme Court had previously interpreted the act to apply to the insurance industry.

The most significant change in 2011 was the elimination of the right to bring a private action for a violation of the "catch-all" provision found at Tenn. Code Ann.  § 47-18-104(b)(27). This provision makes it a violation of the TCPA to engage "in any other act or practice which is deceptive to the consumer or to any other person." Prior to the effective date of the amendment, this "catch-all" was often used as the basis to allege a TCPA violation where the actions of the defendant did not violate one of the specifically proscribed unfair or deceptive acts listed in the TCPA. The 2011 amendment provides that the "catch-all" provision is now only enforcable by the Tennessee Attorney General.

While the 2011 amendments to the TCPA generated little media attention, they are significant and any party litigating a TCPA claim should take a close look at the amended act and keep in mind that pre-amendment caselaw interpreting the amended provisions may no longer control.

Dan Berexa
Nashville, Tennessee