Collateral Source Rule | How Does It Work?
Updated January 15, 2018
Collateral sources are payments received by the plaintiff in a personal injury case for compensation or benefits from a party not involved in the case to compensate for the damages the plaintiff suffered in the accident or by medical malpractice. The person or company is liable to the injured victim for his/her injuries, regardless of whether the victim, an HMO, or any other insurer has paid for that medical care. In 2018, the Maryland Court of Special Appeals summarized the rule as "payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable."
The collateral source rule is also an evidentiary rule that bars defendants from introducing evidence to show that a plaintiff has received collateral source benefits or payments. There is also a Maryland Pattern Jury Instruction on point that defines a collateral source payment as a payment from an entity "other than the defendant." This gives you some idea how broad the scope of the collateral source rule is.
Accordingly, in some cases, it essentially permits a plaintiff to recover damages twice for some or all of their economic losses. So in a personal injury case in Maryland, the jury is not told if health insurance or worker's compensation insurance paid all or a portion of the plaintiff’s medical bills.
The collateral source rule is now an embedded part of the law not only in Maryland but nearly every state in the country. When trying a personal injury case to a jury, the fastest path to a mistrial is to breathe a word about insurance.
- Origin of collateral source rule in Maryland
- Justification for rule
- What insurance companies do not want you to know
- Collateral source rule and lost wages in Maryland: you might be entitled to more than you think
- ObamaCare impact of law?
- Key Maryland cases
This Maryland rule of evidence which dates back to 1899. The rule is grounded in the long-standing policy decision that should a windfall arise as a consequence of an outside payment, the party to benefit from that collateral source – that the injured party likely paid for through insurance premiums - is the person who has been injured, not the one whose wrongful acts caused the injury.The justification for the Collateral Source Rule
A plaintiff's PIP, health insurance, or any other collateral source is not introduced to the jury because of the jury may reduce the damages award when it discovers that the plaintiff's damages have been paid by another source. Why is this a bad thing? Well, let's spin it the other way first: why should a wrongdoer get a benefit from a collateral source of damages caused by his wrongful act? If I'm lucky enough that my boss still paid me while I was out of work because I'm a good employee and have a track record of success at my company, why should the person who hurt me get the benefit of that goodwill? Similarly, why should the negligent party benefit because I was smart enough to take out health insurance or PIP insurance? If someone is going to get a "windfall", shouldn't it be the victim as opposed to the wrongdoer?
So the collateral source rule is an evidentiary rule that keeps out otherwise admissible evidence. The Maryland Court of Special Appeals summarized the rule by saying, "In a nutshell, the evidence, though otherwise admissible, is deemed to do more harm than good. On balance, therefore, it is out!" (a rare exclamation point in an appellate opinion).
There is also a law and economics basis for the rule as well. If the negligent party does not bear the full cost of the lost, they are incentivized to take more risks with our safety. Why not roll the dice when you only have to play half of the loss? Said differently, the collateral source rule deters future negligence by placing the full value of the loss on the party that caused the accident.
There has been a slew of recent attacks on the collateral source rule over the past few years. The main impetus behind this attack is an ostensible financial crisis in the insurance industry. (Like Hyman Roth, the insurance companies have been dying of the same disease for 20 years now. Of course, they are still making billions upon billions of dollars.) This has led many state legislatures and courts to carve out exceptions to the rule, including Maryland in malpractice cases. See below.Exceptions to the Collateral Source Rule
Defense lawyers hate the collateral source rule and spend a lot of energy trying to run around it. Thirty-eight states recognize some exceptions to the collateral source rule. There are four exceptions that appear with some frequency (1) the Gladden exception, (2) the lien reduced exception, (3) malingering exception and, (4) the malpractice exception.
The Gladden exception allows defendants to introduce insurance payments if they rebut the plaintiff's claim of his financial condition. The lien reduction exception argues that if the amount that must be paid back is reduced or waived - let's say the hospital waives the medical bill - that fact should be admissible. The malingering exception allows for the admission of collateral sources to show the plaintiff is exaggerating his injuries because he is getting payments to sustain him while not working.
The malpractice exception is where some states exclude malpractice cases from the reach of the collateral source rule. Maryland courts have recognized the Gladden exception and the malingering exceptions. But it is still an uphill battle for defendants to get around the collateral source rule with these exceptions because this argument can usually be made with evidence that is far less prejudicial. (In Maryland malpractice case, the rule is applicable at trial but the judge will revise the verdict consistent with the victim's actual out-of-pocket expenses and lien.What Insurance Companies Don't Want Victims to Know About This Rule
It is counter-intuitive to most personal injury victims that the at-fault insurance company is still obligated to pay for lost wages when the employer continued to pay the victim or for medical bills that have been paid by health insurance or PIP insurance. So the insurance companies try to use this against you in your settlement negotiations. "Okay, I see your bills and lost wages have been paid, so that is no problem. How much do you think your injuries are worth?" This is the kind of garbage you see out of most insurance companies trying to settle cases with victims who do not have a sophisticated lawyer.
Defense lawyers are scheming that ObamaCare makes healthcare coverage an obligation nullifies the logic of the collateral source rule. Don't be surprised to see the some Maryland legislature propose limiting medical expenses to the amount of health insurance coverage. There are lots of reasons why this logic fails -- for one, let's stop pretending everyone will be covered and that there is no cost having insurance. But victims' advocates need to be ready to vigorously fight this issue.
If you have been injured in an accident in Maryland, call us at 800-553-8082 or click here for a free consultation.More Collateral Source Resources
- Opposing view: Cato
- Dealing with Medical Liens (overview of what an assignment and authorization is and how it works)
- Sample Lost Wage Form
- Collateral Source in Minnesota (a rule that differs from Maryland's)
- Collateral Source Rule in Indiana (troubling opinion in Indiana that is not favorable to victims)
- Plank v. Summers: P.G. County car accident case that is probably the most cited Maryland case supporting this rule. In this case, the Maryland high court allowed the victim to recover the value of medical and hospital services that were gratuitously given to the injured party by the Navy.
- Narayen v. Bailey: After a verdict, a doctor filed a Motion for Remittitur requesting a reduction of damages because the plaintiff medical bills had been paid by Blue Cross Blue Shield. Discusses Maryland law exception in medical malpractice post-verdict proceedings by permitting evidence of such benefits. The big key: if there is a reduction, the subrogation rights of the collateral source are eliminated. Under this scenario, the collateral source is estopped from seeking reimbursement.
- MVA v. Seidel: Nice statement of law for your brief: The collateral source rule permits an injured person to recover the full amount of his or her provable damages, "regardless of the amount of compensation which the person has received for his injuries from sources unrelated to the tortfeasor."