Statement that plaintiff received tax-free benefits is inadmissible

Law Reporter, Oct 2002

Cox v. Superior Ct. of Los Angeles County, 120 Cal. Rptr. 2d 45 (Ct. App. 2002).

A California appellate court held that evidence of the taxfree status of a plaintiff's disability payments was not admissible.

Here, a patient sued a surgeon for negligence. Plaintiff brought an in limine motion seeking to bar any references suggesting that disability payments he had been receiving were not taxable as income. The trial court denied the motion, and plaintiff petitioned for a writ of mandate.

Granting the petition, the appellate court acknowledged ed that a state "tort reform" act sets out an exception to the collateral source rule, allowing defendants in personal injury actions against health care providers to introduce evidence of any benefits to the plaintiff under any state or federal income disability or worker's compensation act or an accident insurance policy. But the legislature's enactment of this particular exception does not necessarily indicate its intent to create a separate exception to the rule against the consideration of tax consequences of awards by fact finders, the court said.

The introduction of evidence of future tax consequences to affect the amount of an award in personal injury actions would open the door to intense and complex speculation about the future on the part of the jury, the court explained. The court rejected defendant's argument that there would be greater juror speculation if this evidence were excluded than if it were admitted, since the jury could speculate both that the judgment is taxable and that the disability benefits are taxable. The court said it is extremely difficult for anyone to predict what portion of a damages award will actually be paid, what the prevailing tax rate will be at the time of receipt, and how a damages award will be taxed under the continuously changing federal tax code.

Admitting evidence of taxability would invite the jury to attempt to predict the effect of that tax status on the plaintiffs fixture income, the court said, while evidence that the benefits are not subject to income tax also would open the door to additional speculative evidence, such as the tax deductible expenses plaintiff might have if still able to work, and the impact of those deductions on the net income plaintiff would have received from working.

Therefore, the court concluded that information about the amount of tax that will be due on an amount payable to a plaintiff, whether it is the amount paid in damages or the amount paid in insurance benefits, is inadmissible.

Plaintiff's Counsel

*Barry Novack, Beverly Hills, Cal.