An unexpected accident can be overwhelming. You may suffer severe physical and emotional injuries. The financial costs of your accident can make things much more difficult. Since someone else caused your accident, you have the right to demand compensation. That person should be held responsible for the injuries and harm you’ve suffered.
When you file your claim, the defendant tries to argue that they shouldn’t have to pay you anything because your medical bills have already been covered by your insurance company. Thanks to the collateral source rule, this type of argument typically can’t be successful.
The Collateral Source Rule Protects Your Rights
Private insurance is incredibly popular across the United States. In some situations, you’re even required to purchase coverage to protect yourself and others.
Car insurance is a prime example. California law requires you to carry minimum amounts of insurance if you register and operate a vehicle in the state. Your insurance policy can be used to cover the cost of property damage, physical injuries, and/or death if you’re involved in an accident. It’s typically the first source of compensation after an accident.
While you’re covered by insurance, you also have the right to file a personal injury lawsuit against the person who is responsible for your injuries. The collateral source rule protects this fundamental right. Under this legal doctrine, a defendant in a lawsuit cannot point out that you’ve already received compensation for your injuries from an insurance company or another third party.
The fact that an insurance company has covered your medical bills doesn’t let the defendant off the hook for their actions. Personal injury lawsuits are as much about holding another person accountable for their negligent actions as they are about money.
Understanding the Collateral Source Rule
The collateral source rule has two primary functions. The first involves evidence, while the second involves the value of your case.
Evidence of Third Party Compensation
The primary function of the collateral source rule is evidentiary. Simply put, the collateral source rule prohibits a defendant in a lawsuit from presenting evidence to show that you’ve received payment from a third party after an accident.
Example: Let’s say that Adam slipped and fell inside of a Los Angeles restaurant. He hit his head and suffered a severe brain injury. His insurance company steps in and covers his medical bills. Once he’s back on his feet, he files a lawsuit against the restaurant for damages. The restaurant will be prohibited from submitting evidence to show that Adam’s medical bill shave already been paid. The fact that his insurer covered (some of) his accident-related costs is irrelevant. The restaurant was negligent and can be held accountable for the harm they’ve caused.
Safeguarding the Value of a Personal Injury Case
You have the right to be made whole again and recover compensation for any injuries you sustain in an accident. This includes compensation for current expenses (e.g., medical bills, lost wages) and future expenses (e.g., reduced earning capacity, disability, emotional distress). The person (or people) responsible for causing your injury must be held fully responsible for their actions.
Under the collateral source rule, a defendant may not attempt to reduce your compensation by pointing out that you’ve received money from a third party. In other words, the value of your case cannot be reduced simply because an insurer or third party has stepped in to help with your costs.
Example: Let’s say that Sid is injured in a workplace accident. Sid qualifies for workers’ compensation benefits and waives the right to file a lawsuit against his employer. The workers’ compensation benefits cover medical bills and his lost wages during recovery. He learns that the machine that caused his injury was defective. He decides to file a lawsuit against the product’s manufacturer. The manufacturer would love to minimize their costs by pointing out that Sid has already received money to cover his medical bills and income. However, the collateral source rule prevents the manufacturer from trying to reduce the value of Sid’s case in this way.
Are There Exceptions to the Collateral Source Rule?
Limited exceptions to the collateral source rule have evolved in recent years. These exceptions are only applicable to personal injury lawsuits involving medical malpractice. Hospitals, doctors, and other healthcare providers can present evidence of third-party compensation in a medical malpractice lawsuit if:
- You have benefitted from reduced medical fees, or
- An insurance company has covered billed medical expenses.
The collateral source rule is intended to protect your right to recover compensation from the person who caused you harm. Unfortunately, these exceptions to the rule limit your rights and, instead, protect negligent medical professionals and healthcare providers. As a result, it can be more difficult to recover the money you need and deserve after your accident.
The Collateral Source Rule and Subrogation
Insurance companies are increasingly inserting subrogation clauses into policy contracts. A subrogation clause can be used to help an insurer recoup the costs of the benefits it paid to you after an accident. It works by either allowing the insurer to:
- Step into your shoes and seek compensation from the person responsible for your accident; or
- Demand repayment from you after you’re awarded compensation from a negligent third party.
In other words, a subrogation clause allows your insurer to be reimbursed after your accident. These subrogation clauses can significantly limit the value of your personal injury case. Rather than keeping the money you’ve recovered in a lawsuit, it may be rerouted to your insurer because of a subrogation clause.