Collateral-Source Rule Does Not Apply to Cure Expenses Attorney’s Fee Claim Reversed

It is well established under the General Maritime Law that a seaman who becomes injured or ill while in the service of the vessel is entitled to receive maintenance and cure benefits until he reaches maximum medical improvement.  Cure is the right to receive reasonable, bona fide and necessary medical services, casually related to the injury or illness.  As a result, it has been a common practice with Jones Act employers and/or their underwriters to have cure expenses audited and, where appropriate, reduced to a “reasonable and necessary” amount.

In Manderson v. Chet Morrison Contractors, Inc. (“CMC”), which was decided by the United States Fifth Circuit Court of Appeals in January 2012, Manderson, who worked for the defendant as an engineer aboard a dive vessel, left the vessel abruptly and was hospitalized for ulcerative colitis, diabetes and a liver condition.  He never returned to work.

Following his illness, Manderson received extensive medical treatment and submitted his bills to his health insurer. However, he ultimately filed a lawsuit against his employer under the Jones Act and the General Maritime Law.  His lawsuit sought, among other things, the full amount of the medical bills that he had incurred, which totaled approximately $170,000.00.  His health insurer, based upon either audits or fee agreements in place with medical providers, had paid about $70,000.00 in medical expenses, which had been accepted by the medical providers as full payment.

This case was tried to a judge in the United States District Court for the Western District of Louisiana and the judge awarded the full amount of the medical expenses in damages, along with attorney’s fees of $110,950.00 for the alleged arbitrary and capricious failure to pay maintenance and cure.

In awarding the full amount of cure expenses, the district court applied the collateral-source rule, which bars a tortfeasor from reducing the amount of damages owed to a plaintiff by the amount of recovery the plaintiff receives from other sources of compensation that are independent of or collateral to the tortfeasor.  Most states, including Louisiana, apply the collateral-source rule.

On appeal, holding that this appeared to be an issue of first impression, the Fifth Circuit reversed and held that the seaman was only to recover the discounted amount paid by his health insurer and not the full amount of his medical bills.  In doing so, the court recognized that a seaman’s entitlement to maintenance and cure was an implied term of his employment contract and was not predicated on any fault or negligence of the employer.  As such, the Fifth Circuit concluded that the collateral-source rule should not be strictly applied and reduced the cure award by about $100,000.00.

In reversing the award for attorney’s fees for the alleged arbitrary and capricious failure to pay maintenance and cure benefits, the Fifth Circuit recognized that the district court had awarded attorney’s fees without any underlying findings.  At trial, CMC presented evidence that Manderson had experienced similar flare-ups of his colitis before working for CMC; that he had applied for short term and long term disability and claimed that his colitis was not work related, before filing a suit for maintenance and cure; that Manderson had failed to reveal some of his pre-existing history; and that he never filed any injury report in connection with the incident.  Furthermore, once a formal demand for maintenance and cure was made, CMC promptly referred the matter to its underwriters to investigate the claims and the underwriter did so.  Under the circumstances, the Fifth Circuit reversed the award for attorney’s fees, finding that the evidentiary basis for such an award had not been met.

This decision should further support the employer’s right to have cure expenses audited and paid at a reduced rate.  Furthermore, if the seaman wants to use a physician who will not agree to a reduced rate when other competent medical providers are available who will accept the reduced rate, we believe the employer has an extremely strong argument that it only owes those reasonable and related charges at the reduced rate.


Georges M. Legrand