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Collateral Sources: How Does It Affect You?

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Collen Clark Published by Collen Clark

Schmidt & Clark, LLP is not currently accepting these types of cases and has posted this content for information purposes only. We encourage you to seek a qualified attorney, if you feel you might have a case.

The collateral source rule comes into play when an individual receives money from two different sources. The rule dictates that if one of the sources pays more than the other, the higher-paying source can only be used to cover damages received from an injury case.

I am a personal injury attorney with years of legal experience, so I will explain this topic thoroughly and provide examples for clarification.

Quick Summary

  • The collateral source rule prevents victims of accidents from being punished for being proactive and buying private insurance.
  • Although victims don't usually have to repay damages, the collateral source rule has a few exceptions.
  • If you have chosen not to seek medical treatment or continue working after being injured, there may be an exception in your particular case.

What Is The Collateral Source Rule?

A lawyer holding a book while reading the collateral source ruleThe collateral source rule is a law that safeguards injury victims from having their final award nullified by compensation they received from sources other than the defendant [1]. In other words, a third party cannot reduce a defendant's liability.

Some examples of collateral sources of information are experts, business organizations, public records, and official documents.

The collateral source rule is often used when an injury victim gets reimbursed for medical bills through their health insurance.

Other types of compensation that commonly use the collateral source rule include workers' compensation, Social Security, and Medicare / Medicaid.

Some examples of places you might receive compensation outside of work include health insurance, property insurance, workers' compensation, Social Security Disability benefits, and life insurance.

The Rationale for The Collateral Source Rule

The collateral source rule prevents defendants from profiting unfairly from a victim's insurance policy. In other words, this rule encourages people to buy their own private insurance so that they can be compensated regardless of whether or not they pursue legal action.

Some people state that the rule giving some plaintiffs double the compensation for an injury is not fair and that it gives reason for false legal claims. 

Those who agree with the collateral source rule argue that a person being sued should have to pay even if the damages were already paid by someone else, like a health insurance company or from government benefits.

An Example of the Collateral Source Rule

Two attorneys talking about the collateral source ruleSuppose someone is poorly hurt in a car crash due to another person's negligence and their medical bills amount to $100,000. In that case, the victim's medical insurance company will agree to pay $100,000 for the costs of medical care. 

In addition, the victim's parents may also present them with a new vehicle as compensation for the damaged one.

The collateral source rule protects victims in personal injury cases by allowing them to collect damages from the negligent party, even if they have already received such compensation from another source. 

In this case, the plaintiff's attorney would be able to pursue damages for the plaintiff's medical bills and property damage, regardless of whether they had health insurance or any other insurance benefits.

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How Does It Work in a Personal Injury Action?

The collateral source rule in a personal injury action works to ensure that damages are not double-paid. If someone has already received partial payment for their personal injury claim, the court determines the amount they award. 

These damages can be punitive damages or compensatory damages, or economic damages. 

The plaintiff can introduce evidence of insurance premiums paid to offset the compensation they request. However, more generally, collateral source evidence cannot be admitted as part of trial proceedings for personal injury claims.

If the court rules against the injured party, that person may request a hearing to present evidence of payments already made by collateral sources. 

This evidence includes payment records from health insurance companies for medical expenses as well as proof that the injured person will receive future payments from other sources like insurance coverage or employment benefits.

How Does the Collateral Source Rule Impact Personal Injury Cases?

A lawyer explaining the collateral source rule to a personThe collateral source rule impacts personal injury cases by protecting victims' right to full compensation.

Without this rule, defendants could reduce the damages they owe by using money the victim received from other sources.

While the collateral source rule typically prevents victims from repaying damages, certain exceptions exist.

Sometimes, a victim may still be required to repay compensation despite the collateral source rule.

See all related personal injury and accident lawsuits our lawyers have covered.

Exceptions to the Collateral Source Rule

According to the Supreme Court in Haygood, medical expenses that a health care provider cannot legally charge for cannot be integrated into damages under the common law collateral source rule.

Therefore, many avoid submitting these medical expenses before settling personal injury cases.

With the exception of an insurance company's subrogation rights, the collateral source rule prevents anyone who paid for the victim's medical bills from suing either the defendant or their own insurance company.

If you have neglected to receive medical care or continued working after being injured, there may be an exception in your case, and you can sue for medical malpractice.

Make sure to speak with a proficient attorney so you do not neglect any coverage under the collateral source rule.

 "The theory behind the collateral source rule is that a wrongdoer should not have the benefit of insurance independently procured by the injured party, and to which the wrongdoer was not privy."
-The Supreme Court of Texas


What Are The 7 Types of Collateral?

The 7 types of collateral are Real Estate Collateral, Business Equipment Collateral, Inventory Collateral, Invoices Collateral, Blanket Lien Collateral, Cash Collateral, and Investments Collateral.

What Is the Most Common Collateral?

The most common collateral for business loans is accounts receivable, inventory, and other tangible assets such as real estate, machinery, and equipment. 

Why is Collateral Important?

Collateral is important to the bank because it reduces their risk- if you can't pay back the loan, they may take ownership of whatever asset you pledged to them in your contract.

Talk to a Personal Injury Attorney Today

You must seek legal representation immediately if you have been injured or suffered a wrongful death due to someone else's negligence or medical malpractice. Don't let the other party take advantage of your rights under the collateral source rule.

The law firm Schmidt & Clark, LLP is committed to helping injured people by investigating your case and sending a team of investigators to gather evidence. We can help you secure full and fair compensation for your damages.