The Collateral Source Rule in Texas

Long part of the common law of Texas and many other jurisdictions, the collateral source rule precludes any reduction in a tortfeasor’s liability because of benefits received by the plaintiff from someone else–a collateral source. See Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011) (medical expenses paid or incurred); see also Maddux v. Reid, 2015 Tex. App. LEXIS 6245 (Tex. App.- Waco, June 18, 2015), citing, See Haygood v. De Escabedo, 356 S.W.3d 390, 394 (Tex. 2011) (reaffirming collateral source rule as it relates to insurance for auto accidents and payment of property damage).  The collateral source rule reflects “the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor.”   See Haygood v. De Escabedo, 356 S.W.3d 390, 395 (Tex. 2011), citing, Restatement (Second) of Torts Section 920A(2). The collateral source rule does have limitations in Texas.

In  Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011) and Daughters of Charity Health Services of Waco v. Linnstaedter, 226 S.W.3d 409, 412 (Tex. 2007), the Supreme Court of Texas clarified the interaction of the collateral source rule and Section 41.0105 of the Texas Civil Practice and Remedies Code that was enacted against a backdrop of healthcare pricing and the collateral source rule. As noted by the Supreme Court of Texas, charges for health care, are now driven by government regulation and negotiations with private insurers. A two tiered structure has evolved: “list” or “full” rates sometimes charged to uninsured patients, but frequently uncollected, and reimbursement rates for patients covered by government and private insurance.  See Haygood v. De Escabedo, 356 S.W.3d 390, 393 (Tex. 2011).  Many healthcare providers bill at the list price and submit evidence under Section 18.001 of the Texas Civil Practice and Remedies Code (an affidavit that an amount charged for a service was reasonable at the time and place that the service was provided) that the charges were reasonable. What is not shown and what was at issue in Haygood was the subsequent adjustments to the insurance bills pursuant to the insurance policy or negotiated rate that the patient would not be responsible for under any circumstance.

Haygood argued that these adjustments were collateral benefits covered by the collateral source rule and did not reduce the liability of the tortfeasor. De Escabedo argued that to allow recovery of the full medical charges billed by the hospital rather than the reduced amount paid by their insurance carrier would be a windfall as the hospital would not have a claim for the full amounts against the patients and as a result, they should not have a claim against the tortfeasor. Noting that there was a split on this issue in other jurisdictions, the Supreme Court of Texas held that the common law collateral source rule does not allow recovery as damages of medical expenses a health care provider is not entitled to charge. Further, Section 41.0105 of the Texas Civil Practice and Remedies Code’s language stating that “In addition to any other limitation under the law, recovery of medical or health care expenses is limited to the amount actually paid or occurred by or on behalf of claimant” means expenses that have been or will be paid, and excludes the difference between such amounts and charges the service provider bills but has no right to be paid.  See Haygood v. De Escabedo, 356 S.W.3d 390, 397 (Tex. 2011).

The collateral source rule is a just policy decision in Texas and prevents the tortfeasor from benefiting from and receiving a windfall because a plaintiff maintains insurance or other collateral source. The opinions in this blog are solely the author’s and any comments, suggestions or replies should be sent to john@jrjoneslaw.com.

Attorney Immunity from Civil Liability to Non-Clients in Texas

After the trial court entered a divorce decree, one of the divorce litigants sued opposing counsel for fraud and other claims concerning the law firm’s preparation of documentation to transfer an airplane. Specifically, the litigant alleged that Cantey Hanger, who represented the opposing party in the litigation, prepared a document that contained misrepresentations and structured the transactions in a manner that shifted certain tax liabilities to the litigant in contravention of what the divorce decree held. Cantey Hanger moved for summary judgment arguing that it was immune from liability to a non-client for conduct within the scope of representation of its client in the divorce proceeding. Id. The trial court granted the summary judgment, but the court of appeals reversed and Cantey Hanger petitioned the Supreme Court of Texas for review. On June 26, 2015, the Supreme Court of Texas answered the question of what is the scope of an attorney’s immunity from civil liability to non-clients. Cantey Hanger, LLP. v. Byrd, ___ S.W.3d ____, 2015 Tex. LEXIS 619  (Tex. 2015).

In reversing the court of appeals and finding that attorney immunity barred the claims, the Supreme Court discussed in great detail the scope of attorney immunity to non-clients in civil matters in Texas. The Supreme Court restated that Texas common law is well settled that an attorney does not owe a professional duty of care to third parties who are damaged by the attorney’s negligent representation of a client. Cantey Hanger, LLP. v. Byrd, ___ S.W.3d ____, 2015 Tex. LEXIS 619  (Tex. 2015), citing, Barcelo v. Elliott, 923 S.W.2d 575, 577 (Tex. 1996). However, the Supreme Court noted that Texas courts have developed a “more comprehensive affirmative defense” that protects attorneys from liability to non-clients arising from the “broad declaration over a century ago that attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed  defense, without making themselves liable for damages.”  Cantey Hanger, LLP. v. Byrd, ___ S.W.3d ____, 2015 Tex. LEXIS 619  (Tex. 2015), citing, Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App.-1910, writ ref’d). This affirmative defense is designed to ensure “loyal, faithful, and aggressive representation by attorneys employed as advocates.”  Cantey Hanger, LLP. v. Byrd, ___ S.W.3d ____, 2015 Tex. LEXIS 619  (Tex. 2015), citing, Mitchell v. Chapman, 10 S.W.3d 810, 812 (Tex. App.-Dallas 2000, pet. denied).

In describing attorney immunity, the Supreme Court held that, as a general rule, attorneys are immune from civil liability to non-clients “for actions taken in connection with representing a client in litigation.”  Cantey Hanger, LLP. v. Byrd, ___ S.W.3d ____, 2015 Tex. LEXIS 619  (Tex. 2015), citing, Alpert v. Cain, Caton & James, P.C., 178 S.W.3d 398, 405 (Tex. App.-Dallas 2003, no pet.).  Even conduct that is wrongful in the context of the underlying suit is not actionable if it is part of the discharge of the lawyer’s duties in representing his or her client.  Cantey Hanger, LLP. v. Byrd, ___ S.W.3d ____, 2015 Tex. LEXIS 619  (Tex. 2015), citing, Alpert, 178 S.w.3d at 406.  However, this does not give the attorney free rein. As the Supreme Court held there are other mechanisms in place to discourage and remedy such conduct such as sanctions, contempt, and attorney disciplinary proceedings.

The Supreme Court further pointed out that attorneys are not protected from non-liability to non-clients for their actions when they do not qualify as the kind of conduct in which an attorney engages when discharging his duties to his client. Examples such as damages caused by participation in a fraudulent business scheme or knowingly assisting a client in evading a judgment through a fraudulent transfer. Acknowledging that there is a dispute as to the scope of the immunity, the Supreme Court took a narrower approach to the so called fraud exception holding that an attorney’s knowing commission of a fraudulent act “outside the scope of his legal representation of his client is actionable.” Cantey Hanger LLC., 2015 Tex. Lexi 619, *10, citing, Dixon Fin. Servs. Ltd. v. Greenberg, Peden, Siegmyer & Oshman P.C., 2008 Tex. App. LEXIS 2064, 2008 WL 76548, at *8.

While the Cantey Hanger opinion attempts to clear up the issue of the scope of attorney immunity to non-clients, it does broaden the immunity to post-litigation matters arising out of the underlying litigation. There was also a very strong dissent by Justice Green that was joined by Chief Justice Hecht and Justices Johnson and Willett which discusses the two closely related legal theories of the judicial or quasi-judicial immunity in a proceeding and litigation immunity.

The Cantey Hanger opinion is a must read if a claim is being brought by a non-client against an attorney. The opinions in this blog are solely the author’s and any comments or suggestions should be sent to John@jrjoneslaw.com.