Can a Non-Party’s Bankruptcy Put the Brakes On Your Personal Injury Lawsuit?

Stop me if you’ve heard this one before: A personal injury client is injured in a car accident. The at-fault driver was in the course and scope of employment in a corporate car (yay, deep pockets!). Settlement negotiations have gone nowhere and you decide to file suit against the driver and their employer. In the meantime, the employer’s entire business model has been destroyed by a recent technology that makes the company practically obsolete. So the corporation files for bankruptcy. What happens to your case?

I had a nearly identical issue come up in one of my personal injury cases. My client was injured after being rear-ended by an employee of a large corporation. The employee was driving a company vehicle at the time. Shortly before we filed suit, the corporation filed for a Chapter 11 business bankruptcy (mostly because it failed to adapt to the revolutionary business model of the insurgent new - at the time - company, Netflix.). I won’t name names but let’s just call this corporation “Cropduster.”

So Cropduster filed for bankruptcy and at that point, I knew that if I sued Cropduster as well as the driver our case would be put on indefinite hold (possibly for years) while Cropduster’s reorganization dragged along in the system.  I also knew after all that time my client’s claim against Cropduster would most likely be discharged in the bankruptcy anyway.

Armed with this knowledge, we made a strategic decision and filed suit only against the driver.  Our adversaries, adeptly understanding the ramifications of our choice, tried to halt our lawsuit by claiming that the defendant was protected by the automatic stay in Cropduster’s bankruptcy case.  Our contention was that the defendant, as an agent of Cropduster, was separately liable for her own torts and therefore was independently liable for the car accident.

After much back-and-forth, a motion was filed by the defendant to stay our case while Cropduster’s bankruptcy played out.  We knew that if we lost this motion, the case was ostensibly finished.  Luckily, the law in this area was fairly developed and there was a lot of good precedent for us.

In the Ninth Circuit, two cases specifically discuss these issues in some detail:  In re Chugach Forest Products, Inc. and Matter of Lockard.  But I had to convince the court that these cases applied to our situation even though, factually, they were not 100% on point.  Fortunately, the court in Chugach and Lockard outlined the law substantially enough, allowing us to assert our position with confidence.

The law spelled out in the cases is more or less straightforward:  The automatic stay in bankruptcy protects only the debtor and not third-parties who are independently liable to plaintiff.  The courts have created a very narrow exception to this rule in “unusual circumstances” where there is a very close connection in the financial interests of the debtor and the third-party, where it would cause irreparable harm to the bankruptcy debtor to allow the third-party to be sued.  The third-party’s mere right to indemnification from the debtor, however, is not an unusual circumstance that warrants applying the automatic stay.

As a result, I saw this as a simple issue:  Defendant, as Cropduster’s agent, was independently liable for the rear-end collision and my client’s injuries.  As a result, we were free to bring a personal injury action against only the agent and not Cropduster.  Because Cropduster was not a party to this lawsuit, its bankruptcy should not have any effect on our litigation unless Cropduster could show some irreparable harm to its reorganization efforts as a result.  But Cropduster couldn’t do this because a mere employer-employee connection didn’t put the parties in an interlaced financial relationship where transactions affecting one automatically affected the other.  Furthermore, the employee’s right to indemnification simply wasn’t enough of an “unusual circumstance” under the law to justify putting a stop to our lawsuit.

In the end, the court agreed with our reasoning and declined to suspend our lawsuit because of Cropduster’s bankruptcy.  After being allowed to continue the case was ultimately settled resulting in a very happy and grateful client. The lesson, as always, is if you’re hurt in a car accident (or know someone who is) hire (or refer them to) a personal injury attorney that’s knowledgeable in all the different nuances of law because that can be the difference between recovering money for your injuries or walking away with nothing.

How a Personal Injury Attorney Helps You Pay Your Medical Bills After an Accident

After an accident, the victims are in need of medical attention. Medical aid though, like everything else in today’s world, costs money. Fortunately for victims, the costs of medical bills are recoverable when making a personal injury claim. Converting medical bills into damage awards is a tricky enterprise though, because of the wide range of rules involved in calculating such damage awards. A good personal injury lawyer will know how to navigate these rules to get the best possible recovery for their client.

One such rule is the Collateral Source Rule (CSR). The CSR states that victims can have third parties pay for medical bills without having the amount paid deducted from their damage awards. “Third parties” primarily refers to insurance companies, although the term can include anyone who pays for the bills but is not directly involved in the accident. The CSR applies to both the giving of the awards as well as presentation of evidence to determine what the award should be.

The CSR has a limitation though. In Howell v. Hamilton Meats, the California Supreme Court ruled that the CSR only applies to contracted prices of medical aid, not the actual prices. Suppose, for instance, that the reasonable price for a surgery is $250,000. The victim’s insurance company negotiates the price down to $50,000.  Under the CSR, the victim is only entitled to $50,000 because $50,000 is the victim’s medical bill.  The actual market value of the surgery, $250,000, is not recoverable by the victim because neither the victim nor the victim’s insurance company paid the $250,000. Essentially, victims cannot recover more than what they paid or what third parties paid on their behalf for their medical bills.

An exception to this can be found in the recent case Pebley v. Santa Clara Organics. There, an injured person who had medical insurance decided to treat outside his plan because of the seriousness of the surgery involved. The court ruled that an insured plaintiff who treats outside of their insurance plan on a lien is to be considered an uninsured plaintiff for the purposes of determining reasonable and customary value and that evidence of insurance and/or insurance rates are completely irrelevant. This makes sense because the person who treats outside his plan is responsible for his full medical bills since insurance will not be paying for it. As a result the injured person may recover the full cost of the surgery,regardless of what their insurance company ‘would have’ paid under the plan.

The court went on to discuss the reasons why a person would choose to treat outside their plan:

“There are many reasons why an injured plaintiff may elect to treat outside his or her insurance plan. As [plaintiff] points out, plaintiffs generally make their health insurance choices before they are injured. These choices may be based on the plaintiffs’ willingness to bear the risk posed by a health maintenance organization (HMO) rationing system because the plaintiff is healthy and requires little care. This decision may appear much different after a serious accident, when the plaintiff suddenly needs complex, extensive care that an HMO is not structured to provide… The plaintiff also may wish to choose a physician or surgeon who specializes in treating the specific type of injury involved, but who does not accept the plaintiff’s insurance or any other type of insurance. In addition, health care providers that bill through insurance, rather than on a lien basis, may be less willing to participate in the litigation process.”

Another exception to the Howell rule is if the contracted price is a gift. In personal injury cases, “gifts” cannot be given “for commercial reasons and as a result of negotiations.” The CSR does not apply to discounts, a product of market bargaining. Gifts, on the other hand, come from a “donor’s desire to aid the injured,” and can thus be factored into a victim’s damage award. The gift exception exists because it is a policy which encourages charitable action, which the courts view as being in the public interest. (Howell v. Hamilton).

The Howell limitation to the CSR is a far reaching limitation. Howell applies to insurance provided by employers for on the job injuries, like in Sanchez v. Brooke, where the employee suffered burns and smoke inhalation when the building burned down. It also applies to victims covered by Medicare, like in Luttrell v. Island Pacific Supermarkets, where the elderly plaintiff suffered a hip injury after having an automated door hit him four times. Given Luttrell, there does not appear to be a distinction between private and government insurance, at least when calculating damage awards under the CSR.

Howell applies to presentation of evidence of past and future medical services. Calculating what a medical service is worth can be difficult, especially if the service is done in sessions rather than all at once. The patient may decline to finish the sessions or an unforeseen event may prevent the patient from finishing treatment.

In order to calculate treatment payment which has not been finished yet, courts can use evidence of previous medical services used by the victim to determine how much present treatment might be worth. Similarly, courts can call in medical experts to determine what a future medical service might be worth. A personal injury attorney who’s dealt with accident victims can provide the best advice about how to present such evidence.

Being injured in an accident is a traumatic event for most people. Recovering the money lost from such an accident can be very difficult though, especially after the California Supreme Court’s ruling on tort recovery. However, getting a free consultation from a personal injury lawyer after an accident is always a good idea because that’s your best bet for helping to pay your medical bills.