Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_17-cv-00861/USCOURTS-caed-1_17-cv-00861-7/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

SAN JOAQUIN VALLEY INSURANCE 

AUTHORITY,

Plaintiff,

v.

GALLAGHER BENEFIT SERVICES, 

INC.

Defendant.

Case No. 1:17-cv-00861-EPG

ORDER GRANTING PLAINTIFF’S MOTION 

FOR RECONSIDERATION RE THE 

COURT’S RULING: (1) DENYING 

PLAINTIFF’S MOTION IN LIMINE NO. 2 

TO EXCLUDE ARGUMENT OR EVIDENCE 

OF COLLATERAL SOURCE PAYMENTS; 

AND (2) GRANTING DEFENDANT’S 

MOTION IN LIMINE NO. 1 THAT 

EVIDENCE OF PREMIUM SJVIA HAS 

CHARGED TO MAKE UP FOR ITS DEFICIT 

POSITION IS RELEVANT AND 

ADMISSIBLE

(ECF NO. 117)

Plaintiff San Joaquin Valley Insurance Authority (“the SJVIA”), a joint powers entity, 

brings this suit against its former benefits consultant Defendant Gallagher Benefit Services 

(“GBS”) for Professional Negligence and Malpractice, Negligent Misrepresentation, and Breach 

of Contract. SJVIA alleges that “[t]hroughout GBS’s tenure as consultant for SJVIA, GBS 

provided grossly negligent consulting and actuarial services to SJVIA, which significantly 

damaged SJVIA and created a funding deficit of more than $20 million. GBS made critical errors 

in its monitoring, reporting, projections, and strategy recommendations.” (ECF No. 1-1, at p. 18).

GBS seeks to introduce evidence that any damages caused by GBS have been recouped by 

SJVIA because SJVIA raised premiums on continuing participants of SJVIA to recover from the 

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shortfall. The parties previously filed cross motions in limine on whether evidence of the alleged 

increased premiums is admissible to reduce SJVIA’s damages. SJVIA claims that California’s 

collateral source rule bars such evidence; GBS contends that the collateral source rule does not 

apply to these facts and that precluding such evidence would result in an impermissible double 

recovery for SJVIA.

On January 30, 2020, the Court issued a ruling in which it granted GBS’s motion on the 

issue and ruled that evidence of the SJVIA’s current recovery of the alleged shortfall of premiums 

is admissible while simultaneously denying the SJVIA’s motion in limine to “exclude Argument 

or Evidence of Collateral Source Payments.” (ECF No. 114, p. 29.) (“the order”). The Court 

rested its holding in large part on its legal conclusion that “SJVIA’s collection of additional 

premiums after 2016 does not fit within any of the categories described by the California Supreme 

Court as qualifying for the collateral source rule.” (ECF No. 114, at p. 19).

On January 31, 2020, the SJVIA filed a motion for reconsideration of the order. (ECF No. 

117.) GBS filed an opposition. (ECF No. 119.) 

For the following reasons, the Court GRANTS the SJVIA’s motion for reconsideration 

and reverses its rulings on the parties’ cross-motions in limine regarding the collateral source rule.

Accordingly, SJVIA’s motion in limine No. 2 (ECF No. 88) is GRANTED and GBS’ motion in 

limine No. 1 (ECF No. 84) is DENIED.

I. LEGAL STANDARDS FOR MOTION FOR RECONSIDERATION AND 

CHOICE OF LAW

“[A] motion for reconsideration should not be granted, absent highly unusual 

circumstances, unless the district court is presented with newly discovered evidence, committed 

clear error, or if there is an intervening change in the controlling law.” Orange St. Partners v. 

Arnold, 179 F.3d 656, 665 (9th Cir. 1999). Further, the Court notes that it is bound to apply state 

substantive law in this matter, as it sits in diversity. Hanna v. Plumer, 380 U.S. 460, 465 (1965). 

A federal court is bound by the decisions of a state’s highest court when interpreting state law. 

Arizona Elec. Power Coop., Inc. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995). However, “[i]n the 

absence of such a decision, a federal court must predict how the highest state court would decide 

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the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, 

treatises, and restatements as guidance.” Id.

II. COURT’S PREVIOUS ORDER, SUBJECT TO RECONSIDERATION

In its previous order, the Court found the collateral source rule inapplicable to SJVIA’s 

ability to make up a premium shortfall allegedly caused by GBSs conduct. In so doing, the Court 

relied heavily upon Helfend v. S. Cal. Rapid Transit Dist., 465 P.2d 61. 63 (Cal. 1970), in which 

the California Supreme Court examined the origins and purposes of the collateral source rule. The 

Court relied particularly on Helfend’s description of the collateral source rule as available in “tort 

cases in which the plaintiff has been compensated by an independent source—such as insurance, 

pension, continued wages, or disability payments—for which he had actually or 

constructively...paid or in cases in which the collateral source rule would be recompensated from 

the tort recovery through subrogation, refund of benefits, or some other arrangement.” Id. at 69. 

Relying on that description as a limitation of the collateral source rule’s application in 

California, the Court found the rule inapplicable to the SJVIA’s ability to recoup underfunding 

through increased premiums on remaining members and participating entities after the 

termination of the relationship with the SJVIA:

As an initial matter, this is not a case involving an insurance payment, as in 

Helfend. It also does not involve any entity that SJVIA actually or constructively 

paid in order to recover in the event of a tort. The Court has also considered 

whether the “collateral source would be recompensated from the tort recovery 

through subrogation, refund of benefits or some other arrangement.” There is no 

evidence of any explicit agreement to subrogate or refund benefits.

(ECF No. 114, p. 19.)

The Court further noted that neither party had presented any California authority applying 

or refusing to apply the collateral source rule in a similar case. 

The Court then discussed the Milliman Inc. v. Maryland State Retirement and Pension 

System, 25 A.3d 988, 421 Md. 130 (Md. 2011) case at length in which the Maryland High Court

found reimbursement under similar circumstances as those at issue here to be from a collateral 

source, including the following:

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[T]he Board rejected Milliman's argument that the System was not damaged insofar as 

the taxpayers would fund any deficiency, because that “perspective subvert[ed] the 

entire function and purpose of actuarial analysis”: An additional one of Milliman's 

alternative arguments against the award of any damages in the face of a determination 

of breach and liability is that MSRPS is not harmed, because, notwithstanding 22 

years of Milliman's actuarial errors, it is undisputed that ultimately the retirement and 

pension systems will be fully funded in accordance with law. . . . 

However, this perspective subverts the entire function and purpose of actuarial 

analysis, which is to determine how much to contribute and when. If the Board were 

to accept this argument, an actuary could satisfy its contractual obligations to a client 

by training a monkey to punch random keys on a calculator. MSRPS, the Governor, 

and Legislature could agree to appropriate the amount thus randomly determined to be 

allocated toward pension funding, with the understanding that some group of State 

taxpayers sometime in the future would make up the difference in the event of a 

deficit or reap the rewards in the event of a surplus, and the actuary would always be 

held harmless for any calculation error, no matter its basis or magnitude. 

Certainly, this is not an acceptable standard of professionalism for actuaries, nor is it 

the one in force, nor would its adoption benefit any actuarial firm, nor does such a lax 

standard characterize the usual excellent work of the competent, impressive, highly 

trained, skilled, and careful actuarial experts engaged by Milliman. Instead, the 

approval of such an argument would render actuarial calculations pointless. 

Adopting this position would also undermine the extremely important statutory 

objectives of leveling contributions, protecting inter-generational equity, and prefunding defined benefits. That the losses incurred by MSRPS have now been 

amortized and already partially restored is irrelevant to Milliman's responsibility 

because the reimbursement made to date is from a collateral source, namely budgets 

adopted in years subsequent to the years and in different amounts than the 

appropriations that should have been made and would have been made but for 

Milliman's error. 

Milliman, Inc. v. Maryland State Retirement and Pension System, 421 Md. 130, 146–147 (2011)

(emphasis added).

The Court noted that it found this reasoning persuasive as a matter of policy perspective, 

and explained in its prior order:

This reasoning in Millman gives the Court significant pause. As in Millman, GBS 

argues, at least for purposes of this motion, that no matter how faulty or negligent its 

advice to SJVIA, it is not liable for damages so long as SJVIA eventually recovers its 

shortfall from renewing members. Like in Millman, this recovery will likely come 

from taxpayers as the members are public entities. Indeed, GBS has taken the position, 

described above in connection with the expert report of Mr. Toole, that damages must 

always be $0 because there is always an opportunity to seek additional premiums in 

the future. The Court is indeed concerned that allowing GBS to rely on such later 

payments to reduce or eliminate damages “subverts the entire function and purpose of 

actuarial analysis, which is to determine how much to contribute and when.” From a 

policy perspective, the Court understands why the Millman court excluded such tax 

payer funded reimbursement from damages.

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(ECF No. 114, at p. 21). However, the Court ultimately determined that, as a matter of California 

law, the payments at issue in this case and in Milliman fell outside the scope of the collateral 

source rule as defined by the California Supreme Court in Helfend. 

III. SJVIA’S MOTION FOR RECONSIDERATION

On January 31, 2020, SJVIA filed its motion for reconsideration of the Court’s order. 

(ECF No. 117). SJVIA argues:

California courts have extended the collateral source rule beyond the two general

categories of compensation used for illustrative purposes in Helfend v. S. Cal. 

Rapid Transit Dist., 465 P.2d 61 (Cal. 1970). The Court clearly erred because its 

entire analysis of the collateral source rule is based on an incorrect legal premise: 

that under California law, the collateral source rule only applies to certain 

categories when the plaintiff has been: (1) compensated by an independent source 

for which he actually or constructively paid (such as insurance, pension,

continued wages, or disability payments); or (2) the source of the collateral 

payment will be recompensed from the tort recovery through subrogation, refund 

of benefits, or some other arrangement.

Contrary to the Court’s reasoning in its order, California courts have recognized 

the application of the collateral source rule well beyond these narrow categories, 

including instances where, as here, the tort victim attempts to recover its losses by 

raising the price it charges to third parties. Because the Court misapprehended the 

controlling law, it should reverse its prior decision . . . .

(ECF No. 117, at p. 5). 

The SJVIA relies primarily on Phillip Chang & Sons Assocs. v. La Casa Novato, 222 Cal. 

Rptr. 800 (Cal. App. 1986) (“Chang”). In Chang, the plaintiff, a building purchaser, brought an 

action for damages for intentional and negligent misrepresentation against the defendant seller for 

misrepresentations that the roofs on the building were sound and subject to warranty. The 

buildings that the plaintiff purchased were built with Federal Housing Administration (“FHA”)

financing and subject to an FHA mortgage. The trial court found in favor of plaintiff on liability.

As for damages, the defendant attempted to introduce evidence that “the FHA regulations 

authorized, upon approval of application thereof, an increase in rentals to recoup expenses 

incurred by [the plaintiff] and that [the plaintiff] made such an application which had been 

approved by the FHA.” Id. at 803. The trial court excluded the evidence. 

The California appellate court affirmed and found that the collateral source rule applied to 

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bar evidence of payments the plaintiff obtained pursuant to FHA-approved rent increases. 

Specifically, the Court found application of the collateral source rule appropriate even though

“insurance, pension, continued wages, or disability payments for which the plaintiff actively or 

constructively paid” were not at issue and even though the collateral source would not be

“recompensed from the tort recovery through subrogation, refund of benefits, or some other 

arrangement,” explaining:

Appellant contends evidence of respondent’s right to FHA-authorized rental 

increases is not made inadmissible by the collateral source rule. Appellant argues 

the application of the collateral source rule to the facts of the instant case would 

make no sense inasmuch as respondent showed no foresight nor did it make any 

contribution toward its future security, two factors traditionally relied upon in 

support of application of the collateral source rule. Appellant further argues that 

the second condition where the collateral source rule is traditionally applied—the 

third party providing benefits is entitled to recover from the tortfeasor by virtue of 

a right of subrogation—is similarly lacking and thus, application of the collateral 

source rule is inappropriate. Arguing that the collateral source rule, when properly 

applied, prevents plaintiffs from receiving a windfall, appellant contends “...a 

gratuitous windfall—neither bargained for nor paid for, and devoid of 

subrogation—is precisely what [respondent] sought in the case at bench. 

Application of the collateral source rule to [respondent’s] recovery would subvert 

the rule, nor further it.”

Respondent contends the FHA-authorized rental increases constitute “sources’

‘wholly independent’ of the appellant and therefore [are] properly excluded under 

the collateral source rule.” Respondent further argues the collateral source rule is 

equally premised on basic notions of justice and that it would be unfair to permit a 

defrauding party to escape liability for damages by showing that the victim’s 

tenants are paying increased rent. Finally, respondent suggests the restrictive FHA 

regulations imposed on an FHA borrower constitutes the “‘quid pro quo’ which 

the FHA landlord pays for the favorable loan.’” 

The record in the instant case does not reveal any evidence of any right of 

subrogation, refund of benefits or any other arrangement which might reasonably 

be construed to fall within the general realm of subrogation. In Helfend, of course, 

the Supreme Court justified application of the rule in a case where the plaintiff had 

been compensated by an “independent collateral source” (2 Cal.3d at p. 13, 84 

Ca.Rptr. 173, 465 P.2d 61), citing insurance, pension benefits, continued wages, 

and disability payments as illustrative, but not exclusive examples of collateral 

source.

...

Most jurisdictions, including California, have balanced the conflicting principles 

of tort law brought to a focus by the collateral source rule—that of compensating 

the plaintiff only for those losses actually sustained versus avoiding a “windfall” to 

the defendant by granting to him a credit for the reasonable value of collateral 

benefits received by the plaintiff—in favor of excluding evidence of “benefits” 

received by the plaintiff from a source wholly independent of and collateral to the 

tortfeasor. (See Yarrington v. Thornburg (Del. 1964) 8 Storey 152, 205 A.2d 1; 

City of Marion v. Flanary (Ky.App.1959) 803S Thomas v. Paper Haulers, Inc. 

(La. App. 1964) 165 So.2d 61; Royer v. Eskovitz (1960) 358 Mich. 279, 100 

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N.W.2d 306; Dahlin v. Kron (1950) 232 Minn., 312, 45 N.W.2d 833; Pritt v. 

Terminal R.R. Ass’n. of St. Louis (Mo. 1952) 251 S.W.2d 622; Rigney v. 

Cincinnati Street Railway Co. (1954) 99 Ohio App. 105, 131 N.E.2d 413; Patusco 

v. Prince Macaroni, Inc. (1967) 50 N.J.365, 235 A.2d 465; Powers v. Temple

(1967) 250 S.C. 149, 156 S.E.2d 759; Stone v. City of Seattle (1964) 64 Wash.2d 

166, 391 P.2d 179.) The principle has also been applied to refuse the admission of 

evidence of indirect benefits received by the plaintiff, including income tax 

savings or the fact plaintiff’s expenses were decreased during hospitalization. (22 

Am.Jur.2d (1965) Damages, § 206, p.287.)

Appellant contends the absence of a right of subrogation or refund in the instant 

case will operate to confer upon respondent a windfall and defeat the basic 

compensatory purpose of tort damages. However, the real issue is not whether a 

windfall is to be conferred upon either party, but rather which party shall receive 

the benefits of a windfall which presumably already exists. As between the insured 

plaintiff and the tortfeasor, it would seem that justice compels the conclusion the 

former’s claim is the better. (See Helfend v. So. Cal. Rapid Transit Dist., supra 2 

Cal.3d at pp. 11-12, 84 Cal.Rptr. 173, 465 P.2d 61.) In any event, it is clear the 

possibility of double recovery in favor of respondent will not impose a double 

burden on appellant; appellant, as tortfeasor, bears responsibility only for the 

single burden of his wrong.

...

With respect to projects subject to federal mortgage insurance and intended to 

provide low and moderate-income housing, rental increases unrelated to normal 

economic and market conditions would frustrate the goals of Congress as 

embodied in the foregoing legislation. In other words, to allow a fraudulent 

tortfeasor, as in the instant case, to benefit from the fact the victim may be able to 

receive FHA approval to increase rentals is contrary to the policy of providing as 

affordable housing as possible to deprived Americans. As between a tortfeasor and 

innocent tenants of insured mortgage housing, the latter certainly possess the 

superior equities. To permit the tortfeasor to bring in evidence of the victim’s 

capacity to apply for rental increases in order to mitigate damages will help ensure 

the innocent tenant will ultimately bear the burden of higher housing costs, rather 

than encouraging recovery of costs in the form of a civil judgment against the 

tortfeasor.

Id. at 804-809.

GBS opposed the motion for reconsideration. (ECF No. 119). As an initial matter, GBS 

argues “and at this point, it is time for the parties to simply get on with it. SJVIA’s motion for 

reconsideration is a distraction from the heavy work facing the Court and the parties.” Id. at 2. 

GBS also argues that SJVIA fails to meet the standards for reconsideration. Id. GBS claims that 

SJVIA could have cited to Chang earlier, yet failed to do so. It also distinguishes the Chang case 

on its facts. 

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IV. ANALYSIS

A. Whether California Law Limits the Collateral Source Rule to the 

Situations Described in Helfend

The Court now turns to whether it committed “clear error” in its prior order by resting on 

a faulty understanding of California law on the collateral source rule. After significant 

consideration, it holds that it did so.

As described above, the Court’s prior order rested in large part on its interpretation that 

California law limited the collateral course rule to specific categories set forth in Helfend, i.e., 

“tort cases in which the plaintiff has been compensated by an independent source—such as 

insurance, pension, continued wages, or disability payments—for which he had actually or 

constructively...paid or in cases in which the collateral source rule would be recompensated from 

the tort recovery through subrogation, refund of benefits, or some other arrangement.”

Defendants in the Chang case made a similar legal argument, but it was rejected by the 

California trial and appellate courts. Chang, 117 Cal.App.3d at 167 (stating that the California 

Supreme Court in Helfend listed certain categories as “illustrative, but not exclusive, examples of 

a collateral source”). Rather, the Chang court explained that California’s collateral source 

doctrine “provides that if an injured party received some compensation for his injuries from a 

source wholly independent of the tortfeasor, such payment should not be deducted from the 

damages which the plaintiff would otherwise collect from the tortfeasor.” Id., at 166 (internal 

citations and quotations omitted). 

The facts in the present case meet the contours of the collateral source doctrine as set forth 

in Chang. Here, GBS seeks to introduce evidence of elevated premiums collected by SJVIA after 

GBS stopped consulting for SJVIA, in order to make up for the shortfall allegedly caused by 

GBS’s tortious acts. Such elevated premiums constitute “compensation” for SJVIA’s injuries 

from a “source wholly independent of the tortfeasor, i.e., GBS.

The Chang Court also discussed the competing policies of preventing a windfall to the 

Plaintiff through double recovery and avoiding a windfall to defendant by giving it the credit of 

benefit given by collateral sources. The Chang Court explained that California resolves such 

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competing interests in favor of excluding evidence of benefits received by the plaintiff from a 

source wholly independent of and collateral to the tortfeasor, explaining:

Most jurisdictions, including California, have balanced the conflicting principles 

of tort law brought to a focus by the collateral source rule-that of compensating the 

plaintiff only for those losses actually sustained versus avoiding a “windfall” to the 

defendant by granting to him a credit for the reasonable value of collateral benefits 

received by the plaintiff-in favor of excluding evidence of “benefits” received by 

the plaintiff from a source wholly independent of and collateral to the tortfeasor. 

(See Yarrington v. Thornburg (1964) 58 Del. 152 [205 A.2d 1, 11 A.L.R.3d 

1110]; City of Marion v. Flanary (Ky.App. 1959) 324 S.W.2d 803; Thomas v.

Paper Haulers, Inc. (La.App. 1964) 165 So.2d 61; Royer v. Eskovitz (1960) 358 

Mich. 279 [100 N.W.2d 306, 2 A.L.R.3d 286]; Dahlin v. Kron (1950) 232 Minn. 

312 [45 N.W.2d 833]; Pritt v. Terminal R. R. Ass'n. of St. Louis (Mo. 1952) 251 

S.W.2d 622; Rigney v. Cincinnati Street Railway Co. (1954) 99 Ohio App. 105 [58 

Ohio Ops. 202, 131 N.E.2d 413, 52 A.L.R.2d 1443]; Patusco v. Prince Macaroni,

Inc. (1967) 50 N.J. 365 [235 A.2d 465]; Powers v. Temple (1967) 250 S.C. 149 

[156 S.E.2d 759]; Stone v. City of Seattle (1964) 64 Wn.2d 166 [391 P.2d 179].) 

The principle has also been applied to refuse the admission of evidence of indirect 

benefits received by the plaintiff, including income tax savings or the fact 

plaintiff's expenses were decreased during hospitalization. (22 Am.Jur.2d (1965) 

Damages, § 206, p. 287.)

Id. at 169-170. Applying this principle to the present facts would favor applying the collateral

source rule. While it may result in SJVIA receiving benefits from both the collateral source and

GBS, it would avoid a windfall to GBS that would result from granting GBS the value of the

benefit received from the collateral source. 

This stated principle lines up much more closely to the case in Millman discussed

extensively above, insofar as allowing evidence of premiums raised after the shortfall “subverts 

the entire function and purpose of actuarial analysis, which is to determine how much to contribute 

and when.” Milliman, 421 Md. at 146–147. 

GBS argues that the Chang ruling rested on the fact that innocent tenants of FHA housing

were bearing the cost of recovery, whereas, GBS argues, here it is the same counties who 

underpaid premiums earlier. SJVIA counters that the burden of additional premiums is being 

borne by innocent individual employees who use SJVIA as insurance. Moreover, SJVIA claims 

they are not the same individuals who paid lower premiums earlier because many cities who 

underpaid left SJVIA when it suffered financial problems, and that underpayment is now being 

borne by only those municipalities and their employees that remain. 

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The Court does not have any reliable factual record to compare the individual 

municipalities, not to mention employees, who underpaid earlier versus overpaid later. But this 

does not appear to be the relevant inquiry according to Chang and other California cases. Those 

cases only compare the collateral source with the tortfeasor. Here, it is undisputed that the 

collateral source—entities/employees who paid elevated premiums—are distinct from the alleged 

tortfeasor—GBS. The collateral source rule as defined by Chang thus applies.

The Court also looks to the case of Arambula v. Wells, 85 Cal.Rptr.2d 854 (Cal. App. 

1999), in which the California appellate court considered whether gratuitous benefits to a tort 

victim in the form of a weekly salary for employment with a family-owned business was a 

collateral source payment. There, the defendant sought to stymie the plaintiff’s lost wage claim 

by introducing evidence that the plaintiff had continued to receive a gratuitous salary. The 

defendant—citing Helfend—argued that the collateral source rule was inapplicable because 

Helfend limited the collateral source rule to instances where “plaintiffs incurred an expense, 

obligation, or liability in obtaining the services for which they seek compensation.” Id. at 586. 

The California appellate court disagreed and found that gratuitous payments could come within 

the scope of the collateral source rule; as for Helfend in particular, the court noted that it did not 

limit the scope of the collateral source rule to situations where the plaintiff incurred some expense 

for the collateral payment or otherwise had a right of subrogation or reimbursement: “Helfend

itself did not see it that way. To the contrary, the court cautioned, ‘We expressly do not consider 

or determine the appropriateness of the rule’s application in the myriad of possible situations 

which we have not discussed or which are not presented by the facts of this case.’” Id. at 587

(quoting Helfend, 465 P.2d at 63, n. 3). Given California precedent and public policy in favor of 

encouraging gratuitous payments, the Arambula court held that the collateral source rule applied

to certain gratuitous payments. 

Cases like Chang and Arambula demonstrate that California appellate courts do not 

consider the collateral source rule limited to those situations expressly set forth in Helfend. Sitting 

in diversity, these cases are persuasive authority. See Kwan v. SanMedica International, 854 F.3d 

1088, 1093 (9th Cir. 2017) (noting that state appellate courts sitting in diversity are not to be 

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ignored in determining an issue of state law that the state supreme court has not addressed). 

Therefore, instead of cabining its analysis to those payments and situations Helfend

explicitly endorsed as within the scope of the collateral source rule, the Court asks whether this 

case involves receipt of funds to compensate tort injury that are received from a source wholly 

independent from the tortfeasor. McLean v. Runyan, 222 F.3d 1150, 1155-56 (9th Cir. 2000) 

(noting that under the collateral source rule, “benefits received by the plaintiff from a source 

collateral to the defendant may not be used to reduce that defendant’s liability for damages”) 

(citations omitted).

The Court finds that it does: the participating entities and members of the SJVIA, through 

whom payments are purportedly being made to offset damage for GBS’s alleged misconduct, are 

wholly independent and collateral from GBS. Thus, any attempt to introduce evidence of such 

payments is prohibited by the collateral source rule under California law.

This result squares with the result reached by the only other appellate court to have 

specifically addressed a similar issue: Milliman, Inc. v. Maryland State Retirement and Pension 

Sys., 421 Md. 130, 157-161 (2011). Again, the Milliman court found similar payments from 

taxpayers to refund a plan that had been decimated due to actuarial negligence be collateral 

source payments. The Court finds that such a ruling here, as it did in Milliman, furthers important 

policy objectives, namely, ensuring that actuaries are not effectively immune from liability under 

the argument that any damage caused may be made up through increased premiums or other 

payments. See (ECF No. 114, p. 19-20) (quoting and discussing Milliman, Inc., 421 Md. At 146-

47). 

Accordingly, for these reasons, the Court erred in previously holding that the collateral 

source rule as applied by California courts does not apply to the facts of this case. The Court now 

holds that elevated premiums collected by the SJVIA from remaining members and participating 

entities to negate underfunding allegedly caused by GBS’s allegedly faulty advice and 

recommendations come within the scope of California’s collateral source rule. The Court 

previously committed “clear error” in holding otherwise.

///

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B. Whether this Case is Predominantly Grounded in Breach of Contract, 

Thus Precluding Application of the Collateral Source Rule

The Court now examines GBS’s alternate argument that the collateral source rule does not 

apply because this is a contract case, and not a tort case. The Court did not address this argument 

in its prior order in light of its holding that the collateral source rule would not apply to these facts 

in any event. Given the Court’s revised analysis above, it turns now to this alternate argument.

Specifically, GBS argues that “[w]hile allegations of ‘professional negligence’ are made, 

the gravamen of the case is not tort, but breach of commercial contract.” (ECF No. 84, p. 11). 

GBS cites Plut v. Fireman’s Fund Ins. Co., 85 Cal. App. 4th 98, 106-09 (2000) for the 

proposition that the collateral source rule does not apply to breach of contract claims under 

California law. 

GBS is correct that Plut—which dealt with a bad faith breach of an insurance contract 

case—held that the California collateral source rule is generally inapplicable to breach of contract 

actions. Notably, however, Plut did not involve allegations of the negligent breach of a 

professional services contract, like those at issue here. Indeed, the defendant’s actions in Plut 

were not described as tortious at all but treated as purely sounding in breach of contract. See, id.

at 103-104 (“Because the trial court evidently offset the award for breach of contract by these 

settlement funds and payments, the key issues concern whether the trial court properly adjusted 

the award for breach of contract in this manner.”) (emphasis added).

Here, in contrast, SJVIA’s claims clearly include tort claims in addition to breach of 

contract. SJVIA’s first cause of action is “Professional Negligence and Malpractice,” and second 

cause of action is “Negligent Misrepresentation.” (ECF No. 1-1, at p. 20-21).

Moreover, courts have found the negligent breach of a professional services contract like 

the SJVIA alleges here sound in both breach of contract and tort. See, e.g, City and County of San 

Francisco v. Cambridge integrated Servs. Group, Inc. No. C 04-1523 VRW, 2007 WL 1970092 at 

*3 (N.D. Cal. 2007) (noting that although California Supreme Court decisions have not addressed 

“the issue of professional services contracts as opposed to mere services contracts,” California 

Court of Appeals cases “continue to apply a rule that negligent failure to exercise reasonable care 

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in undertaking to perform a professional services contract is a tort as well as a breach of 

contract”); see also Moreno v. Sanchez, 106 Cal. App. 4th 1415, 1435 (Cal. App. 2003) (“Under 

the common law the established rule is the negligent failure to exercise reasonable care and skill 

in undertaking to perform a service contract of this type is a tort, as well as a breach of contract”). 

Federal courts in this circuit applying California law have similarly found that a breach of a 

professional service contract gives rise to a cognizable tort claim. See Land O’Lakes Inc. v. 

Dairyamerica, Inc., 2017 WL 495644 at *3 (E.D. Cal. Feb. 6, 2017) (collecting cases). 

Indeed, GBS itself argued in connection with a motion seeking partial exclusion of 

SJVIA’s damages expert that SJVIA’s damages were limited to actual losses by citing to law 

regarding professional negligence claims, as well as the parties’ contract. (ECF No. 80, at p. 6) 

(“Both California law on professional negligence and the parties’ contracts restrict

SJVIA’s recovery to actual damages. Loube v. Loube, 64 Cal. App. 4th 421, 426 (1998) 

(professional negligence damages may not “exceed[] actual loss[es]”)”). 

Thus, this case does not merely involve a claim of breach of contract. Instead, it alleges a 

tortious breach of contract. Although the Court can find no California Supreme Court case on 

point, California appellate courts have long noted that the collateral source rule has been applied 

to breach of contract actions with a “tortious or willful flavor.” Patent Scaffolding Co. v. William 

Simpson Const. Co., 64 Cal.Rptr. 187, 191 (Cal. App. 1967) (“The collateral source rule, 

however, has not been generally applied in cases founded upon a breach of contract, unless the 

‘breach has a tortious or willful flavor.’”) (quoting City of Salinas v. Souza & McCue Constr. Co., 

Inc., 424 P.2d 921, 926 (Cal. 1967) (en banc) overruled in part on other grounds by Helfend v. 

Southern Cal. Rapid Transit Dist., 465 P.2d 61(Cal. 1970)); see also El Escorial Owners’ Ass’n 

v. DLC Plastering, Inc., 65 Cal.Rptr.3d 524, 542 (Cal. App. 2007) (noting that the collateral 

source rule applies “where the plaintiff sues for breach of contract and the underlying conduct 

involves a tort”). 

Here, the SJVIA alleges a breach of the professional services contract, largely because 

GBS failed to “exercise due care in performing the services set forth in the Consulting 

Agreements” and “fail[ed] to perform the services set forth in the Consulting Agreements in the 

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manner of a recognized specialist in those services.” (ECF No. 1-1.) The Court finds these 

allegations to set forth a negligent breach of professional services theory which, as discussed 

above sounds in both tort and breach of contract. And because the collateral source rule applies to 

a tortious breach of contract—that is, the breach of contact which violates a duty independent of 

the contract arising from principles of tort law—it may be applied to this case. 

Accordingly, the Court finds the collateral source rule should apply in this case to prevent 

evidence of premiums or payments from members or participating entities after December 31, 

2016 to reduce or eliminate plan underfunding that GBS allegedly caused. 

III. CONCLUSION

For the reasons set forth herein, IT IS ORDERED that:

1. The SJVIA’s Motion for Reconsideration (ECF No. 117.) is GRANTED; 

2. The SJVIA’s Motion in Limine No. 2 to Exclude Argument or Evidence of Collateral 

Source Payments is GRANTED (ECF No. 88); and 

3. GBS’ Motion in Limine No. 1 (ECF No. 84) seeking an affirmative ruling that 

evidence of premium the SJVIA has charged to make up for its deficit funding 

position is relevant and admissible is DENIED. 

IT IS SO ORDERED.

Dated: February 5, 2020 /s/

UNITED STATES MAGISTRATE JUDGE

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