Collateral Source Rule

The collateral source rule generally prevents a plaintiff from getting compensation in a personal injury case for medical bills already paid by a third party. For example, suppose an insurance policy or disability benefit paid for a plaintiff’s medical bills. In that case, the court may not award costs for treating those same injuries. A defendant’s attorney can provide evidence to the court, after trial, of insurance payment for medical care so that the plaintiff does not collect twice.

States vary with their use and application of the collateral source rule. So it is best to consult a personal injury lawyer in your state to get advice about your specific situation. This article will provide a broad overview of the rule and give several state examples.

When Can the Collateral Source Rule Apply?

The collateral source rule can apply in all personal injury cases, including claims resulting from physical injuries due to assault or battery, claims related to medical malpractice, wrongful death, or property damage.

The collateral source rule is applied to economic damages, including the cost of medical bills, rehabilitation, wages and employment benefits lost, and other monetary expenses paid by the plaintiff.

What Counts as a Collateral Source?

Typical examples of collateral sources include health insurance and Medicaid benefits, workers’ compensation, pension and Social Security benefits, state or federal assistance programs, employer-provided benefits, and other private insurance benefits.

However, collateral sources do not include life insurance, voluntary charitable donations, and reimbursement via statute or law.

What Is the Collateral Source Rule, and How Does it Work?

If a judge determines someone’s personal injury claim has already been at least partially paid, the collateral source rule allows for a reduction in damages. The amount paid is subtracted from the amount awarded to reach a lower damages award.

The collateral source rule applies after the trial court rules in favor of the injured party. At this point, the defendant found responsible for the injury can request a hearing to provide evidence of collateral source payments. Relevant evidence includes payment records from health insurance companies for medical expenses. Defendants can also provide evidence that the injured party will be paid in the future. For example, they may point to insurance coverage and employment benefits.

Once the court determines that a collateral source already paid the plaintiff for a portion of the damages, the amount paid is subtracted from the damages award that the defendant will pay.

The collateral source rule originally was intended to protect injured parties. It prevented the defendant’s attorneys from providing evidence during the trial that the plaintiff had received payment from a collateral source. If the jury knew that the plaintiff had already been compensated by insurance, they might be tempted to go easy on the defendant. But in tort and personal injury cases, the degree to which the other party is at fault for an injury has nothing to do with whether the injured person will be compensated by insurance or not. So the original collateral source rule protects plaintiffs from unfair prejudice during trial.

California

The collateral source rule in California has changed in the last few decades as part of the tort-reform movement. Initially, defendants could not introduce evidence of collateral payments, meaning plaintiffs could collect windfall damages. Now, the defendant can introduce evidence of collateral source payments after the trial and reduce the damages accordingly. This way, the plaintiff does not get reimbursed twice for the same injuries or double recovery for lost wages. The plaintiff is still not prejudiced by evidence of collateral payments during the trial since the evidence is only provided once the trial has concluded.

Illinois

The collateral source rule in Illinois cannot be used in tort cases involving pure economic loss. These are cases where the plaintiff has suffered no physical injury. This could be because they did not need medical treatment, or the wrongdoer did not cause them actual harm. This means that in a personal injury action, the physical injury must be established independently.

Virginia

The collateral source rule is not only relevant to personal injury claims. It applies even to breach of contract awards in Virginia. If a loss resulting from a breach of contract is paid by insurance, the fault party cannot bring up this payment at trial for the contract claim in Virginia. This is because the defendant should be responsible for the full extent of the damage they caused, even if the plaintiff gets a windfall.

Ohio

Insurance carriers in Ohio can introduce evidence of “write-offs” at trial to help a jury determine the reasonableness of a plaintiff’s medical expenses. “Write-offs” refers to the amount of money actually accepted by a health care provider, which may be less than they initially charge. This breaches some of the protection of the collateral source rule because the Ohio jury can infer the plaintiff has insurance. The plaintiff’s attorney can motion to keep this evidence out by arguing its value to the jury is less than its potential for bias.

Arizona

The collateral source rule does not apply to medical malpractice cases in Arizona. Collateral compensation from medical insurance or other sources is considered relevant in a trial for medical malpractice. Juries in Arizona can consider evidence of such compensation when calculating damages. The plaintiff can introduce evidence offsetting the compensation, like insurance premiums paid. For personal injury claims more generally, though, collateral source evidence still cannot be admitted at trial.