The collateral source rule prevents defendants from deducting compensation paid by third parties from damages awarded to plaintiffs. Some states have reformed or eliminated the rule, allowing consideration of previous damages. Some collateral sources have subrogation clauses, allowing them to collect money from plaintiffs who win lawsuits.
The collateral source rule, also called the collateral source doctrine, is a legal rule relating to compensation made to plaintiffs in a lawsuit by parties other than the defendant, including insurance companies, workers’ compensation, and other agencies. These parts are called collateral sources. The rule provides that the defendant, if held liable, cannot deduct the sums already paid by the guarantors from the amount recognized as compensation for damages to the plaintiff. The doctrine also prohibits the acceptance in the criminal record of any evidence that damages were paid from another source. Established in 1854, the rule was intended to prevent a person who caused damage from benefiting from the plaintiff’s insurance coverage.
Many proponents of tort reform oppose this doctrine, arguing that it allows a plaintiff to achieve double recovery. The plaintiff receives reimbursement of the same expenses twice, collecting both from the source of the guarantee and from the defendant. Some states have changed or even eliminated the collateral source rule. These reforms allow judges to notify the jury of previous damages, reduce the award by the amount already awarded, or prevent the plaintiff from pursuing damages already paid. Opponents of the reform argue that the at fault party should not be able to avoid liability for damages even if other sources have paid the bills.
In 2006, a national investigation revealed that 38 states had changed the source of warranty rule to allow proof of source of warranty payments in medical malpractice cases. Of the 38 states, 20 have allowed a jury or judge to consider any side payments during a trial. 14 other states have mandated that premium reductions be considered after the trial. Six states allowed evidence to be considered after a jury verdict but before a final ruling was issued by the court. Some changes to the source of collateral rule distinguish between private sources of collateral, for which the plaintiff had to pay a premium, and public sources such as Medicare and Medicaid.
Some side sources have subrogation clauses in their consumer contracts, allowing the business to collect some or all of the money the business paid the consumer if that consumer wins a lawsuit. Subrogation means that the insurance company has the right to sue the defendant together with the plaintiff. If the plaintiff wins the case, the insurer can then collect that portion of the damages which offsets what the insurer has already paid. The surrogate company can also sue a plaintiff who receives a cash settlement in order to recover the money contributed on behalf of the insured.
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