Arasely Soto was injured during a routine medical procedure and had to retire from her job as a public school teacher. She sued her medical providers for medical malpractice and also sought disability retirement benefits from the California State Teachers’ Retirement System (CalSTRS).
The Sotos attended a CalSTRS benefits planning session in January 2018. CalSTRS gave them information and documents about applying for disability benefits. The documents explained CalSTRS’s “[r]ight of subrogation” as follows: “[I]f you pursue a claim against a third party for the same impairment that entitles you to a disability benefit from CalSTRS, you must notify us. This is true even if the claim has not yet resulted in a court action. [¶] CalSTRS has the right to participate in the claim by filing our own action against the responsible party, intervening in your claim, or filing a lien against any judgment you may recover. [¶] If you don’t notify CalSTRS and you recover – or have already recovered – a monetary sum from the third party, you may be required to reimburse CalSTRS for part of the costs of your disability benefit.”
One day after the Sotos’ benefits planning session with CalSTRS, they released their claims against Dr. Borna in exchange for a six-figure settlement. Ten days later, Arasely filled out an application for disability benefits. Her application stated that her injuries were caused by employees of the hospital, including Dr. Borna.CalSTRS acknowledged receipt of Arasely’s application for disability benefits in February 2018. That same day, the court in the malpractice action granted the Sotos’ request to dismiss Dr. Borna from the lawsuit.
In May 2018, the Sotos released their claims against the hospital in exchange for a seven-figure settlement. Eight days later, the Sotos dismissed the malpractice action with prejudice.
CalSTRS brought suit against the Sotos, seeking to enforce its right to subrogation or reimbursement. The complaint alleges that CalSTRS is entitled to be reimbursed for Arasely’s disability benefits from her settlement with the malpractice defendants.
CalSTRS moved for summary adjudication on its declaratory relief cause of action, and the Sotos moved for summary judgment. In connection with both motions, the Sotos argued that Civil Code section 3333.1 bars any subrogation claim that CalSTRS would have asserted against the malpractice defendants.
Subdivision (a) of section 3333.1 authorizes a defendant in a medical malpractice action to introduce evidence of a variety of ‘collateral source’ benefits – including health insurance, disability insurance or worker’s compensation benefits.” Subdivision (b) of the statute provides, in turn, that ‘[n]o source of collateral benefits introduced pursuant to subdivision (a) shall recover any amount against the plaintiff nor shall it be subrogated to the rights of a plaintiff against a defendant.”
In opposition, CalSTRS argues that (1) CalSTRS was not a source of collateral benefits for purposes of section 3333.1; (2) Arasely’s disability retirement benefits were never introduced as evidence in the malpractice action; and (3) the statutes governing CalSTRS’s right of subrogation were enacted after section 3333.1, and the later-enacted statutes prevailed.
The trial court ruled in favor of Cal/STERS. The Court of Appeal affirmed the trial court in the published case of Soto v. Super. Ct. -E081902 (May 2024). It expressed no opinion on the parties’ legal arguments concerning the applicability of section 3333.1 in general.
The Legislature enacted section 3333.1 in 1975 as part of the Medical Injury Compensation Reform Act (MICRA), a wide-ranging statutory scheme designed to reduce the cost of medical malpractice insurance ‘by limiting the amount and timing of recovery in cases of professional negligence. MICRA addressed the problem in numerous ways, including by revising certain legal rules applicable to medical malpractice litigation. (
Education Code section 24500 grants CalSTRS “a right of subrogation” for the amounts CalSTRS “paid and became obligated to pay as disability retirement allowances, disability allowances, family allowances, or survivor benefit allowances.” (Ed. Code, § 24500; see Ed. Code, § 22174.)
The Legislature enacted the statutes giving CalSTRS a right of subrogation in 1988. (Ed. Code, former §§ 23300-23305, added by Stats. 1988, ch. 380, § 1, pp. 1699-1700, repealed and reenacted as Ed. Code, §§ 24500-24505 by Stats. 1993, ch. 893, §§ 1-2, pp. 4867, 4973-4974.) According to the legislative history, the CalSTRS subrogation provisions were “patterned” on the subrogation provisions governing the California Public Employees’ Retirement System (CalPERS).
“The CalPERS provisions also incorporate the workers’ compensation statutes, and the pertinent language of the CalSTRS and CalPERS subrogation provisions is nearly identical.”
The workers’ compensation subrogation provisions bar double recovery by an employee who claims workers’ compensation benefits “and also seek[s] damages for the employee’s injury or death from negligent third parties.”
Section 3333.1, subdivision (a), does not specify how jurors should use the collateral source evidence, but “the Legislature apparently assumed that in most cases the jury would set plaintiff’s damages at a lower level because of its awareness of plaintiff’s ‘net’ collateral source benefits.
But the employer’s consent is not required if the settlement includes only the employee’s claim for damages that will not be paid by workers’ compensation benefits. (Lab. Code, § 3859, subd. (b); Marrujo, at p. 978.) That is, the employee may segregate their claim from that of the employer and settle it without the employer’s consent. (Board of Administration v. Glover (1983) 34 Cal.3d 906, 913 (Glover); Marrujo, at p. 978.)
If the employee segregates and settles their claim in that manner, then the settlement is not subject to the employer’s claim for reimbursement of workers’ compensation benefits, while the employer retains its subrogation right “against the alleged tortfeasor to recover payments it had made to its employee.” (Glover, at p. 914; Marrujo, at p. 978; Lab. Code, § 3860, subd. (b).) But if the employee settles an unsegregated claim (i.e., a claim that includes both the employer’s claim for reimbursement of benefits and the employee’s claim for damages not compensated by benefits), then the employer may seek reimbursement out of the settlement proceeds.
The Sotos did not offer any evidence that the malpractice defendants sought to introduce evidence of Arasely’s disability retirement benefits in the underlying action, so section 3333.1 was never triggered. In addition, if the Sotos had offered such evidence, then section 3333.1 would be irrelevant. The same evidence would tend to show that CalSTRS has no reimbursement claim against the Sotos for reasons independent of section 3333.1.