Collateral Source Rule in Personal Injury Law

The collateral source rule prevents an injured person's damages from being reduced by payments from their own medical insurance, workers compensation, or other third party sources.

The collateral source rule is a long-standing legal principle that applies in personal injury cases. In this article, we'll explain what the rule is, and how it might affect your injury case.

What is the Collateral Source Rule?

Here is a somewhat long-winded version of the rule: In a lawsuit, any compensation that an injured person has received from a source other than the person who is legally responsible for the injuries (the defendant) will not reduce the amount of damages recoverable from the defendant.

In other words, the rule prevents payments from an independent source from reducing the amount that the defendant is "on the hook" for in a lawsuit.

The collateral source rule is most often applied in cases where the injured person’s insurance paid for medical treatment associated with the injuries. Under the collateral source rule, the injured person may receive compensation from the insurance company and the defendant. Other than insurance, collateral sources include worker’s compensation, Social Security or Medicaid, and services performed gratuitously that help the injured person.

There is a second part of the collateral source rule which concerns the admission of evidence in court during a personal injury trial. The rule prohibits jury members from considering any payments other than payments from the wrongdoer -- that includes the plaintiff's insurance coverage.

Rationale for the Collateral Source Rule

Critics of the collateral source rule argue that an injured person should not receive a double recovery. The other side of the argument is that the cost of negligent behavior should be imposed on the defendant as the at-fault party, in order to reinforce the standard of reasonable care that all members of a society should adhere to. And an injured person should not receive reduced compensation for injuries because he or she was prudent enough to purchase insurance prior to the injury.

An Example of the Collateral Source Rule

Suppose Adam trespassed onto Brian’s property and accidently left a lit cigarette on Brian’s wood deck. The cigarette causes a fire that destroys Brian’s house and causes permanent burn-related tissue damage to Brian’s hands.

Brian’s neighbor and friend, Chris, volunteers to rebuild the house as a friendly gesture. Brian also receives health insurance coverage for his injuries. Under the collateral source rule, Brian can sue Adam and recover for the full value of the property and all costs associated with his burn injuries. If the lawsuit goes to trial, the jury will not hear about either Chris’s act of rebuilding the house or Brian's insurance coverage.

State Reform of the Collateral Source Rule

A number of state legislatures have passed laws that reform the collateral source rule. Depending on the state, these reforms may add up to narrow or broad exceptions to the rule.

In California, collateral source evidence is admissible in a case against a health care provider for professional negligence (medical malpractice). The health care provider may introduce evidence of amounts that are payable to the injured person by insurance carriers and other sources. However, where the defendant introduces this kind of evidence, the injured person can also introduce evidence of payments made to secure the right of insurance benefits. The California statute is a rather narrow exception to the Collateral Source Rule, and it is similar to rules in place in other states.

In Florida, the Collateral Source Rule prohibits the introduction of evidence of insurance benefits paid to the injured person. However, Florida has an exception for governmental benefits. A defendant in a personal injury case may inform the jury of Medicare and Medicaid benefits received by the injured person.

Florida also reduces the amount awarded to injured persons for medical expenses or lost wages where an insurance company has a right to reimbursement. This means that only part of an injured person’s medical expenses were covered by the insurance company and the other medical expenses were written off. In that case, the injured person must reimburse the insurance carrier out of the final judgment in the lawsuit.

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