October 2, 2023

Collateral Source Rule

According to the collateral source rule, if an injured party receives compensation for injuries from a source independent of the tortfeasor, payment should not be deducted from which the plaintiff would otherwise collect from the tortfeasor.

The policy behind this rule is that a person who has paid insurance premiums to assure his medical care should receive the benefit of his investments. To encourage the purchase of insurance, the tortfeasor should not benefit from the victim’s investments. If the tortfeasor is permitted to mitigate damages with payments from a plaintiff’s insurance, the plaintiff would be in an inferior position to that of one who had not bought any insurance.

There is persuasive case law that the collateral source rule applies to insurance payments made in tort cases and other benefits which a plaintiff has paid for. Insurance is defined as a pooling of resources by individuals to provide a fund to pay losses due to certain risks.

A plaintiff’s attorney may analogize worker’s compensation to insurance payments in that worker’s compensation was deducted from the plaintiff’s paychecks. The plaintiff has paid for worker’s compensation benefits from deductions from paychecks. The paychecks would have been higher if the plaintiff did not have to pay for worker’s compensation. Further, worker’s compensation benefits are an independent source of a tortfeasor in that it is not paid by a party who is liable for the plaintiff’s injuries.

An argument of double recovery by a defendant is rebutted with the policy that the collateral source rule serves partially to compensate for attorneys’ contingent fees. Plaintiffs seldom receive the full compensations computed by juries.

Accident victims should not be naïve when a defendant’s money concerns override humanity. A plaintiff needs to be careful not to let a defendant know too early how much the plaintiff’s own insurance providers paid towards medical expenses and damages. With the information, the defendant might try to bargain down the settlement amount or damages award. Damages recoverable from a wrong are not diminished by the fact that the party injured has been wholly or partly indemnified for a loss by insurance effected by the injured party, and to the procurement of which the wrongdoer did not contribute.

The collateral source rule encourages citizens to purchase and maintain insurance for personal injuries. The tortfeaser should not garner the benefits of his victim’s providence. An injured party’s compensation from a source wholly independent of the defendant should not be deducted from damages otherwise collectible from the defendant.

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