American Bank and Trust Co. v. Community Hosp. of Los Gatos-Saratoga, Inc.

• Decision Date: 31 March 1983
• Docket Number: S.F. 24171,INC,GATOS-SARATOG
• Citation: 190 Cal.Rptr. 371,660 P.2d 829,33 Cal.3d 674
• Court: California Supreme Court
• Parties: , 660 P.2d 829 AMERICAN BANK AND TRUST COMPANY, as Special Administrator, etc., Plaintiff and Respondent, v. COMMUNITY HOSPITAL OF LOS, Defendant and Appellant.

Page 371

190 Cal.Rptr. 371

33 Cal.3d 674, 660 P.2d 829

AMERICAN BANK AND TRUST COMPANY, as Special Administrator, etc., Plaintiff and Respondent, v. COMMUNITY HOSPITAL OF LOS GATOS-SARATOGA, INC., Defendant and Appellant.

S.F. 24171.

Supreme Court of California.

March 31, 1983.

For Opinion on Rehearing, see 204 Cal. Rptr. 671, 683 P.2d 670.

Opinion, 104 Cal.App.3d 219, 163 Cal.Rptr. 513, vacated.

Thomas R. Fellows, Robinson & Wood, San Jose, for defendant and appellant.

Hassard, Bonnington, Rogers & Huber, David E. Willett, Maureen E. Corcoran, Howard Hassard, Charles Bond, San Francisco, John H. Larson, County Counsel (Los Angeles), Peter R. Krichman, Deputy County Counsel, James E. Ludlam, Musick, Peeler & Garrett, Los Angeles, Ellis J. Horvitz, Marjorie G. Romans, John L. Klein, Kent L. Richland, Horvitz & Greines, Horvitz, Greines & Poster, Encino, Fred J. Hiestand, San Francisco, Donald L. Reidhaar, James E. Holst and John F. Lundberg, Berkeley, as amici curiae on behalf of defendant and appellant.

Popelka, Allard, McCowan & Jones, Bernard J. Allard, Donald D. Howard, Stephen A. Barber, San Jose, and Michael J. Murray, San Francisco, for plaintiff and respondent.

Arne Werchick, San Francisco, Leonard Sacks, Northridge, Glen T. Bashore, North Fork, Ralph Drayton, Sacramento, Richard D. Bridgman, Oakland, Robert E. Cartwright, San Diego, Ian Herzog, Edward I. Pollock, Los Angeles, Harvey R. Levine, San Diego, Stephen I. Zetterberg, Claremont, Wylie Aitken, Santa Ana, Sanford M. Gage, Beverly Hills, J. Nick DeMeo, David M. Harney and Michael F. Dillingham, Los Angeles, as amici curiae on behalf of plaintiff and respondent.

MOSK, Justice.

We consider here a constitutional attack on one provision of the 1975 Medical Injury Compensation Reform Act (MICRA)--namely, the section that permits a judgment for periodic payment of "future damages" to be awarded against a "provider of health care services." (Code Civ.Proc., § 667.7.) We shall conclude that the provision violates state and federal equal protection guarantees insofar as it applies to judgments against hospitals.

Defendant Community Hospital of Los Gatos-Saratoga, Inc. (the hospital), appeals from a judgment entered on a jury verdict for $198,069.88 in favor of plaintiff Mary English. ¹

Late in 1976, after a scan had disclosed a lesion or tumor, plaintiff was admitted to the hospital for brain surgery. On the eve of the scheduled operation she fainted or fell in a shower stall and suffered severe burns to thigh, hip, and groin, as a result of overheated water. After the burns had been treated and dressed by her neurosurgeon, the operation proceeded as scheduled. The tumor, though then in remission, was found to be malignant and of a type which reportedly results in death within one year in 95 percent of all cases. Following release from the hospital plaintiff received radiation and chemotherapy treatments.

Treatment for her burn injuries was undertaken by a plastic surgeon under whose care a gradual but steady healing took place. Because of the burns, however, plaintiff was totally disabled for four months and partially disabled for two more. Intermittent breakdown and blistering of the healed tissues continued to occur.

At the time of trial, some fourteen months after the accident, there was still residual disability caused by recurring blisters, and scarring in three of the four burn areas had resulted in a permanent cosmetic deformity. It was reasonably probable that future surgery would be required, followed by periods of total and partial disability to permit proper healing.

Plaintiff testified that she had not been able to work in 1977, the year following the accident; that she did not anticipate returning to work in 1978 because the condition of her left knee and leg prevented her from driving a car; and that if future surgery were recommended she "would certainly do it."

On March 13, 1978, the jury rendered a general verdict in favor of plaintiff for $198,069.88. The hospital moved for a new trial on all statutory grounds (Code Civ.Proc., § 657), and requested in the alternative an order conditioned on remittitur (Code Civ.Proc., § 662.5, subd. (b)). The motion was denied. The hospital also moved, pursuant to section 667.7 of the Code of Civil Procedure, that the court enter a judgment providing for the periodic payment of all future damages in excess of $50,000. That motion also was denied, on the ground that section 667.7 is violative of state and federal constitutional provisions guaranteeing equal protection and due process of law. A lump-sum judgment was entered in the amount of the verdict.

The hospital's appeal from the judgment is now before us. On November 24, 1978, while the appeal was pending, plaintiff died of an ovarian cancer. On stipulation of the parties it was ordered that American Bank and Trust Company, as special administrator of the estate, be substituted as plaintiff and respondent in the action.

The Statute

On May 16, 1975, responding to what came to be popularly described as "the medical malpractice crisis," the Governor issued a proclamation convening the Legislature in extraordinary session. The proclamation declared that medical malpractice insurance rates had risen to levels which many doctors found intolerable, that the inability of doctors to obtain such insurance at reasonable cost was endangering the health of the people and threatened the closing of many hospitals, and that the long term consequences of such closing could seriously limit the health care provided to hundreds of thousands of Californians. (Governor's Proclamation to Leg. (May 16, 1975) Stats.1975, Second Ex.Sess. 1975-1976, p. 3947.)

The proclamation went on to state that only "sacrifice and fundamental reform" would provide a lasting solution. "It is critical," the Governor concluded, "that the Legislature enact laws which will change the relationship between the people and the medical profession, the legal profession and the insurance industry, and thereby reduce the costs which underlie these high insurance premiums."

The genesis of the crisis was explained by the legislator who was the principal author of MICRA as follows: The medical malpractice insurance industry in California had severe problems for many years because it had failed since 1957 to charge doctors premiums high enough to allow sufficient reserves to be set aside to meet future claims. By 1975, the crisis affected the public health of the state's residents. Because the number of malpractice claims and the dollar amount of judgments had risen sharply since 1968, insurers were paying out $180 for each $100 in premiums collected. As a result, they were either abandoning the malpractice market or raising premiums by several hundred percent.

Nor could the medical profession afford to absorb these increases or to pass them on to their patients. Only 27,000 doctors in California carried independent medical malpractice insurance, and this small number could not absorb the entire increase. ² Moreover, because doctors received a substantial proportion of their fees from the government, they could only pass the increases on to a limited number of patients who paid their own expenses, and these patients were unable to shoulder the entire burden. Some physicians, believing that they could neither absorb the additional premiums nor pass them on to their patients, went on strike, and medical care in certain sections of the state came to a virtual halt. (Keene, California's Medical Malpractice Crisis, A Legislator's Guide to the Medical Malpractice Issue (Georgetown U. and Nat. Conf. of State Legs. 1976) at p. 27.)

The Medical Injury Compensation Reform Act (Stats.1975, Second Ex.Sess. 1975-1976, ch. 1, p. 3949 et seq.) was the Legislature's response. ³ Generally speaking, it addressed the problems by enacting reforms in three basic areas: medical quality assurance, medical malpractice insurance, and medical malpractice litigation. Regarding medical quality assurance MICRA undertook a comprehensive restructuring of existing machinery for the licensing, regulating, educating, and disciplining of physicians and other health care providers. (See Bus. & Prof.Code, §§ 2000 et seq., 2220 et seq., 2320 et seq.) With respect to malpractice insurance MICRA introduced a procedure by which a physician or other health care provider may demand explanation and, in some cases, obtain a public hearing requiring justification by the insurer of substantial rate increases. (Ins.Code, §§ 11587, 11588.)

In the area of medical malpractice litigation MICRA directed its attention to four basic concerns: time limitations, damages, attorney's fees, and arbitration. With respect to limitations of time MICRA set up a special statute of limitations for actions against health care providers (Code Civ.Proc., § 340.5) and established the requirement, enforceable through attorney discipline, of a 90-day notice of intention to file suit (Code Civ.Proc., §§ 364, 365). Regarding damages in such actions, it imposed a ceiling of $250,000 on the amount recoverable for "noneconomic losses" (Civ.Code, § 3333.2), permitted "collateral source" evidence while precluding subrogation (id., § 3333.1), and introduced the system of periodic payment which concerns us here (Code Civ.Proc., § 667.7). Limitations were placed on attorney's contingency fee contracts (Bus. & Prof.Code, § 6146) and language was prescribed for arbitration clauses in contracts for medical services (Code Civ.Proc., § 1295). Section 667.7 of the Code of Civil Procedure, set forth in full in the margin, ⁴ provides that in an action for medical malpractice involving $50,000 or more "future damages" (i.e., "damages for future medical treatment, care or custody, loss of future earnings, loss of bodily function, or future pain and suffering ...") the court shall on request of either party enter a judgment ordering the periodic payment of such...