Legal News

California Court of Appeals Finds Punitive Damages Restrictions Set Out In C.C.P. §425.13 Inapplicable To Health Care Service Plans

On February 15, 2012, the California Court of Appeal for the Second Appellate District held the CCP Section 425.23 requirement that a plaintiff obtain a court order before being permitted to seek punitive damages against a health care provider does not apply to claims for punitive damages against a health care service plan. Kaiser Foundation Health Plan, Inc. et al. v. Superior Court (Rahm) (Feb. 15, 2012) 12 C.D.O.S. 1928. In so holding, the court denied defendant’s writ of mandate and affirmed the trial court’s ruling that the action could proceed with a claim for punitive damages against Kaiser Foundation Health Plan.

The Rahm family’s lawsuit arose out of their claim that Kaiser health care providers denied daughter Anna’s necessary medical care in a timely way because of institutionalized financial incentives to do so. For months, Anna had complained of back pain that was unresponsive to treatment, yet health care providers refused to give her a MRI despite the family’s multiple requests they do so. She was eventually diagnosed with an aggressive, cancerous tumor in her pelvis which resulted in significant injuries. Plaintiff’s contended her injuries and poor prognosis are a direct result of Kaiser health care providers’ delay which plaintiffs attribute to “an insurance compensation scheme that induced Kaiser's physicians to deny costly medical services to plan members.” The complaint alleged four causes of action against each defendant (Kaiser Foundation Hospitals, Southern California Permanente Medical Group, and Kaiser Foundation Health Plan) and sought punitive damages for breach of the implied covenant of good faith and fair dealing and intentional infliction of emotional distress.”

Defendants moved to strike the prayer for punitive damages on the basis that plaintiffs had not obtained an order of the court to do so in compliance with the requirements of CCP Section 425.13. The trial court denied defendants’ motion to strike on the grounds plaintiff’s action was “not merely an action for medical negligence,” but included allegations of insurance bad faith. Defendant’s made a writ to the appellate court, which was summarily denied. Defendants then filed a petition for review, and while that was pending, plaintiff dropped the punitive damages claims as to the two health care provider defendants, Kaiser Hospitals and SCPMG. The only remaining defendant against whom punitive damages were being sought was Kaiser Foundation Health Plan. The Supreme Court granted review and ordered the appellate court to show cause why the writ was not issued. By the time the matter was before the appellate court again, the claim for punitive damages was against the Health Plan only, and not the medical providers Kaiser Foundation Hospital and SCPMG. The appellate court vacated its earlier ruling and took up the matter in the instant decision.

Defendant Health Plan maintained that the scope of CCP section 425.13 was intended to include it because its liability arose out of the provision of medical services by the health care providers. The appellate court disagreed. In a detailed analysis that went into the legislative history of section 425.13 and the case law that has interpreted it (including Central Pathology), the court found that plaintiff’s claims against the Health Plan did not involve the provision of medical care, but rather defendant’s insurance decisions and practices. The court emphasized the central purpose of section 425.13 is to protect health care providers, not health care service plans.

In reaching this conclusion, court made several observations about plaintiff’s allegations and other relevant California law. First, the court noted that health care service plans are not providers. Second, service plans are already immunized from liability for the acts committed by health care providers under Health & Safety Code section 1371.25, so do not need the protections provided by section 425.13. Third, plaintiff’s claims against the Health Plan are not derivative of what the medical care providers did or failed to do. The claims against the Health Plan alleged "a system of withholding benefits from insureds which necessarily results in KAISER unreasonably depriving its insureds the benefits of their contacts with KAISER” and that Kaiser's "physicians are rewarded for adhering to the cost saving system that KAISER has put into place. Specifically, that the physicians receive bonuses which are dependent upon the cost savings realized by KAISER due to the physicians withholding of treatment and or care of the insureds.” Based on the nature of the allegations against the Health Plan, and the language, legislative history and case law interpreting section 425.13 and defining “health care provider,” the court held the trial court did not err by leaving plaintiff’s punitive damages claims in as to the Health Plan.

Review will likely be sought by Kaiser in this case. The ramifications of this decision for punitive damages and MICRA protections could be great. One can imagine plaintiffs’ counsel adding a health plan defendant to cases involving fairly straightforward medical negligence claims—particularly those alleging delay in diagnosis and/or treatment—and alleging a “scheme” to deny patients coverage which would result in more cases including claims for punitive damages with no prior court order.