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Smith v. Farmers Insurance Exchange9/11/2000
Certiorari to the Colorado Court of Appeals
EN BANC JUDGMENT REVERSED
Facts and Procedural History
On March 11, 1992, Thomas Smith, the Petitioner, was involved in an automobile accident in which he was injured. At the time of the accident, Smith possessed no-fault automobile insurance issued by Farmers Insurance Exchange and Mid-Century Insurance Company, the Respondents (hereinafter Farmers). In November 1992, Smith underwent surgery on his neck due to the injuries sustained in the accident. Farmers paid for costs related to this first surgery.
According to Smith's treating physician, the surgery was unsuccessful. The physician recommended that Smith see a specialist in Arizona for a second surgery on his neck. Smith, through his attorney, informed Farmers that he needed a second surgery and sought pre-approval. According to Smith, Farmers approved the surgery at that time but later advised him immediately before the surgery that he would have to wait for independent review from another physician. Smith proceeded with the surgery in August 1993, and received follow-up care.
Following the second surgery, Farmers informed Smith that it would not pay for his second surgery and related costs because his medical expense benefits were exhausted and the
rehabilitation expense portion of his insurance policy did not cover his treatment. When Farmers refused to pay the medical bills associated with the second surgery, Medicare paid a portion of the bills pursuant to 42 U.S.C. ยง 1395y (1993), the Medicare Secondary Payer (MSP) provisions of the Social Security Act. Smith received collection notices for the remainder of the bills unpaid by Medicare.
Smith filed suit, alleging that his medical expenses were covered under the no-fault statutory provisions of section 10-4-706, 3 C.R.S. (1993), or, alternatively, under the language of the insurance policy. Smith also alleged that Farmers acted in bad faith in denying payment. After trial, the jury found in favor of Farmers on the No-Fault Act claim, but found that Farmers had breached the insurance contract and the breach was in bad faith. The jury returned a verdict for Smith for $33,300.89 on the breach of contract claim and for $1,700 on the bad faith claim. The amount of actual damages equaled the entire cost of Smith's surgery and related costs, including the Medicare payment, the unpaid bills from medical providers, and any deductibles and copayments.
Farmers filed a motion for a new trial. The trial court did not rule on the motion within sixty days and it was deemed denied pursuant to C.R.C.P. 59(j).
Farmers appealed to the Colorado Court of Appeals, which reduced the damages award to $14,772, the amount of the conditional payment by Medicare, plus the amount of any co-payments and deductibles. The court of appeals ruled that the health care providers were precluded by federal law from pursuing Smith for the balance of their bills above the Medicare payment, but that they could recover the difference from the insurers. Consequently, the court of appeals stated that Smith was only entitled to the amount necessary to repay Medicare plus compensation for his co-payments and deductibles.
This court granted certiorari on the issue whether the court of appeals erred in reducing the trial court's damage award to the amount of the conditional payment by Medicare plus the amount of any co-payments and deductibles, based on the court's ruling that applicable federal statutes prevented the medical providers from seeking to recover their full charges from Smith. We hold that the court of appeals erred in limiting damages to the amount of the Medi
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