Collateral source rule

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The Collateral source rule, or collateral source doctrine, is a common law rule of evidence that prohibits the admission at trial evidence that a victim's damages were or will be compensated from some source of compensation other than the damages awarded against the Defendant. For example, in a personal injury action, evidence that the Plaintiff's medical bills were paid by medical insurance, or by Workers' Compensation, is not generally admissible.

The collateral source doctrine has come under attack by "tort reform" advocates. They argue that if the Plaintiff's injuries and damages have already been compensated it is unfair and duplicative to allow an award of damages against the tortfeasor. As a result numerous states have altered or partially abrogated the rule by statute.^[1]

However, the collateral source doctrine dates back to 1854, and is intended to promote justice and assess remedies for fault to the tortfeasor, rather than allowing him to avoid responsibility for setting the losses in motion. In addition many insurance or other payment sources that do pay for damages gain a lien or subrogation interest in the ultimate recovery. This means that the injured person must pay back his health insurer before he collects anything. If evidence of the collateral source is admitted and the fact-finder reduces the award to compensate for the already paid damages, this can result in a terrible undercompensation for the injury, as the lien-holder will generally attempt to recover the full value of his lien thus leaving the Plaintiff uncompensated for lost earnings, pain, anguish or other non-economic damages.