Collateral Source Rule



Collateral Source Rule

The collateral source rule, or the doctrine of collateral source, is a rule that prevents defendants from entering information into evidence that shows the claimant has received compensation from another source for the same damages that are being considered in the lawsuit in which defendants are named.

In other words, the collateral source rule makes the admission of other compensation received for injuries inadmissible in a personal injury lawsuit. For instance, if the claimant’s medical bills were paid from some other source, like through medical insurance coverage or worker’s compensation, for example, the defendant is barred under the doctrine of collateral source from entering the other damages paid into court records.

While the collateral source rule has been in effect in many jurisdictions since the mid-1800s, some states have made adjustments to the rule, believing it is unfair to compensate a plaintiff twice for the same injuries and that a defendant should not be expected to pay damages which have already been paid by another source.

It is important to note that many insurance companies, including worker’s compensation providers, put a lien against payments made for personal injury medical claims. In this way, the insurance provider actually gains an interest in the recovery of damages through a personal injury lawsuit.

What this means for the injured party is that if damages are awarded in a personal injury claim, the insurance company may be entitled to repayment for claims they previously paid for the injuries. In other words, the injured party must repay the insurance company for the medical expenses out of his or her compensation from the personal injury lawsuit.

In some instances, this lien system may result in a claimant being undercompensated for his or her injuries. This typically occurs if:

  1. the damages awarded in the lawsuit are not enough to repay the liens the insurance providers have against the medical bills paid on behalf of the plaintiff.
  2. the damages awarded only cover the medical bills and leave nothing else for the claimant after the insurance providers have been repaid.