The Illinois Supreme Court recently solidified the boundaries of the economic loss doctrine and the collateral source rule in a class action case asserting a civil conspiracy claim. “We hold that plaintiffs who do not suffer any economic loss cannot maintain a tort action that is based on a claim that alleges solely an economic injury and no physical injury or property damage.” Lewis et al. v. Lead Industries Association et al., 2020 IL 124107 (May 21, 2020). The Lewis court also rejected the notion that a collateral source payor can stand as a surrogate to satisfy the injury element of the plaintiffs’ claim. Id. at ¶ 45. The Lewis class action has endured almost 20 years of active litigation with multiple trips to the appellate courts ending most recently with an Illinois Supreme Court opinion that confirms some old borders in the legal landscape, while also drawing some new ones.

Three quick takeaways:

• The economic loss doctrine, and the exceptions to it, are alive and well under established Illinois jurisprudence.
• Incurring an obligation to pay medical bills under the Family Expense Act, is not sufficient to satisfy the injury element of the prima facia case for fraud. There must be an actual, not a theoretical or contingent, economic loss. 
• A collateral source payor cannot be a surrogate for satisfying the injury element of plaintiff’s cause of action. In economic tort cases if a plaintiff cannot prove actual economic injury due to a defendant conduct, they have no claim. 

The plaintiffs in Lewis represent the class of parents seeking to recover the costs of screening their children for blood lead pursuant to the Lead Poisoning Prevention Act. The plaintiffs’ second amended class action complaint alleged six counts against the former manufacturer (or alleged successor thereto) of lead pigments. The circuit court dismissed all six counts, and the appellate court affirmed except as to the civil conspiracy count. Upon return to the circuit court, plaintiffs pursued purely economic injuries—the costs incurred for lead screening—in the third amended complaint’s sole remaining claim of civil conspiracy.

The third amended complaint included plaintiffs Lewis and Banks, both Medicaid recipients when their children were tested, and O’Sullivan who was privately insured. The defendants moved for summary judgment on the lone claim in the third amended complaint. The defendants argued that Banks and Lewis could not prove any economic injury because Medicaid paid the full costs of the screenings, neither received any demands for payment from Medicare, and state and federal law prohibited the medical providers or Medicare from seeking reimbursement. In response, the plaintiffs conceded that Lewis and Banks did not pay for the tests but argued that they incurred the expense of the services. Plaintiffs further argued that if they recovered the costs of the testing, then the State could seek reimbursement from the plaintiffs since it paid the medical providers. Plaintiffs argued that, under the collateral source rule, Medicaid’s payment did not negate their economic injury, rather it gave them the right to be reimbursed even though a collateral source (Medicaid) actually paid the costs.

The trial court granted the defendants summary judgment finding that the plaintiffs suffered no injury. As to Lewis and Banks, the court found that neither paid for the tests nor could they incur any obligation or liability to do so under state and federal law. The court further noted that if a Medicaid recipient recovered the costs of medical care in a tort action the State may have a claim to a portion of that recovery, but any such recoupment comes from the judgment against the wrongdoer, and not the plaintiffs. Thus the “plaintiffs have no ‘present, or even prospective obligation or liability to the State with respect to the medical screening.’” 2020 IL 124107 at ¶ 7. The circuit court rejected plaintiffs’ collateral source argument holding that rule applies only to the measurement of damages in bodily injury cases.

O’Sullivan’s claims were dismissed on the ground that she had private health insurance and was unable to present any evidence that either she, or her insurance carrier, paid anything for her children’s lead screening. Plaintiffs’ counsel waived the opportunity to name new class representatives and sought certification pursuant to Illinois Supreme Court Rule 304(a). The certification was allowed as to Lewis and Banks, but denied as to O’Sullivan. The circuit court’s rationale for the split certification was that the summary judgment ruling as to Lewis and Banks rested on a legal analysis applicable to all Medicaid recipients for which immediate appellate review would expedite the ultimate disposition of the entire case, whereas the O’Sullivan ruling was based on fact-based determinations that would not be present for all potential class members. 2020 IL 124107 at ¶ 10.

The appellate court reversed, reasoning that plaintiffs had a legally sufficient claim of injury because they incurred an obligation for the cost of the tests. That neither plaintiff had actually paid anything for the tests, nor actually had an obligation to repay the state for the testing, did not matter because the Family Expense Act (750 ILCS 65/15 (West 2000)) codified the common-law rule making parents liable for the expenses of their minor children. 2020 IL 124107 at ¶ 11. The appellate court went further, holding that the collateral source rule applied to a case involving a purely economic injury. Id.

In the Illinois Supreme Court, the defendants argued that this case involved an intangible economic injury wherein a plaintiff must show that an actual out-of-pocket loss has, or is reasonably certain to occur. Plaintiffs argued that their injury was the cost they incurred to pay for the testing, even though they never actually paid for it. The Illinois Supreme Court confirmed that “the prevalent rule at common law is that a plaintiff cannot sue in tort to recover for solely economic loss without any personal injury or property damage. 2020 IL 124107 at ¶ 24 (citing In re Chicago Flood Litigation, 176 Ill.2d 179, 1980988 (Ill. 1997); Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 84 (Ill. 1982)). While acknowledging the continued viability of the economic loss doctrine, the Lewis Court noted that the claims here, while clearly asserting pure economic losses, fall within the Moorman exception. 2020 IL 124107 at ¶ 27. That exception applies in economic loss cases alleging fraud and intentional misrepresentation, and the surviving conspiracy claim here was grounded on just such a theory. The court noted, however, that an actual injury has long been considered an essential element of fraud (which plaintiff must establish to a high degree of certainty), and such injury is measured by the harm to the plaintiff, not any benefit the defendant received. 2020 IL 124107 at ¶ 30. The Illinois Supreme Court consequently held “that plaintiffs were required to establish actual economic loss as an essential element of their claim of intentional misrepresentation.” Id. at ¶ 31.

The question thus became whether incurring an obligation to pay the medical providers was sufficient to establish a compensable injury. The appellate court reasoned that under the Family Expense Act the parents had the obligation to pay the medical expenses of their minor children, and under the collateral source rule the parent’s right of action is not affected because a third party actually paid those expenses. Id. at ¶ 35. The Illinois Supreme Court disagreed.

The Lewis Court reasoned that the Family Expense Act obligates parents to pay “expenses” owed to “creditors,” but the medical providers who screened the children were not “creditors” within the meaning of the Act because the plaintiffs never became indebted to the providers. The court explained that “Illinois regulations require providers to agree, as a condition of participation in Medicaid, to accept the payment they receive from the Department of Healthcare and Family Services as ‘payment in full’ and not to ‘bill, demand or otherwise seek reimbursement’ from a Medicaid recipient or a relative or representative thereof.” 2020 IL 124107 at ¶ 38 (citing 89 Ill. Adm. Code 140.12(i)(1) (2014)).

The plaintiffs also argued that, even assuming medical expenses are paid by Medicaid, the State retains a right (pursuant to the Illinois Public Aid Code) to proceed against a Medicaid recipient who recovers for expenses paid by the State for which a third party is liable. In other words, plaintiffs claimed that they incurred a recoverable injury because they might recover from a third party, and if they did Medicaid could recover against the plaintiffs. That “liability” may be contingent, plaintiffs argued, but it is a “liability” nonetheless. The Lewis Court was unpersuaded noting that the State’s recoupment rights, whether directly or by way of subrogation, are only exercisable against the wrongdoer, not the plaintiffs. 2020 IL 124107 at ¶ 41 (citing Public Aid Code, 305 ILCS 5/11-22, 11-22a, 11-22b (West 2012)).

Here, it was undisputed that the plaintiffs claimed pure economic injury arising from the costs of their children’s lead screening tests. While the action could proceed in light of the Moorman exception to the economic loss doctrine, plaintiffs still needed to prove that an economic injury actually occurred. Because a cause of action tort does not arise absent an injury, the court held that “the Family Expense Act cannot be extended to create a liability or expense where one never arose and thereby allow a parent to sue an alleged tortfeasor where there was no underlying personal injury claim filed on behalf of the child.” 2020 IL 124107 at ¶ 43.

The Illinois Supreme Court also rebuffed the appellate court’s expansion of the collateral source rule: “[w]e reject the notion that the collateral source rule can be used to satisfy the injury element of plaintiffs’ cause of action.” Id. at ¶ 45. The problem, the Lewis Court held, was that the collateral source rule applies to bar a jury from hearing about collateral sources of payment, and it bars a defendant from reducing a compensatory award by the amount paid by a collateral source, but the rule has nothing to do with whether a plaintiff actually has an injury. Id. In short, the collateral source rule does not create an injury where one otherwise did not exist. “Applying the collateral source rule to pure economic-loss tort cases like the one before us would obscure the very nature of the cause of action,” the court said, adding that to do so “would allow plaintiffs who have themselves suffered no injury, economic loss, or damages to sue anyway.” Id. at ¶ 50.

In Lewis, the Illinois Supreme Court made clear that in economic tort cases dollars are not just damages, they are the very claim itself—and if plaintiffs cannot prove economic injury due to defendants’ conduct, they have no legally cognizable claim. Id. at ¶ 53.
Edward Casmere is a partner at Riley Safer Holmes & Canclia LLP in Chicago.