Glossary · Doctrine
Collateral Source Rule
A common-law doctrine that prevents a defendant from reducing damages by amounts the plaintiff received from independent sources such as health insurance, disability insurance, or government benefits.
Also known as: collateral source doctrine
What it is
The collateral source rule is a common-law doctrine that prevents a defendant from reducing the damages owed to a plaintiff by amounts the plaintiff received from independent ("collateral") sources, such as health insurance, disability insurance, employer-paid sick leave, or government benefits. Under the traditional rule, evidence of these payments is also inadmissible at trial.
Why it exists
The doctrine reflects two policy judgments: (1) a tortfeasor should not benefit from the plaintiff's foresight in obtaining insurance or from public benefits the plaintiff is entitled to receive; and (2) plaintiffs should not be undercompensated by having their recovery offset against payments they earned (through premiums or otherwise) for their own protection.
Tort-reform modifications
Many states have modified or partially abrogated the collateral source rule by statute, particularly in medical malpractice. Common modifications include allowing the defendant to introduce evidence of certain collateral payments, allowing the court to offset the verdict against specified collateral sources, or limiting the rule to certain categories of payment. The pattern varies widely.
How it interacts with subrogation
The collateral source rule does not erase the collateral payor's right to repayment. Health insurers, ERISA plans, Medicare, and Medicaid typically have subrogation or reimbursement rights against the plaintiff's recovery. Settlement negotiations must account for these liens, which can substantially reduce the plaintiff's net recovery even when the verdict or settlement amount is high.
In settlement strategy
The applicable rule and the size of any subrogation liens shape the plaintiff's bottom-line recovery and therefore acceptance posture. Defense counsel should understand the rule's scope in the venue; plaintiff counsel must negotiate liens before structuring the settlement.
See Also
- Damages Cap — A statutory ceiling on the amount a plaintiff can recover for certain categories of damages, most commonly noneconomic damages, in medical malpractice cases.
- Wrongful Death — A statutory civil claim brought by the survivors of a patient who died as a result of medical negligence, governed by state-specific wrongful-death acts that define eligible plaintiffs and recoverable damages.