Collateral Source Rule: A Practical Trial Experience

01/28/2025

        I had a trial recently where the issue of ‘the
collateral source rule’ arose at trial. 
Prior to this district court trial, I had believed the collateral source
was universally well understood notwithstanding the occasional ‘gamesmanship’
that can occur between trial lawyers in personal injury lawsuits. 

        In this example case,
the plaintiff alleged to have suffered a physical injury at a business by the
business’ employee.  Prior to trial/during
the litigation, the defendant ‘business’ offered ‘medpay’ to the plaintiff’s
counsel, who accepted it in an amount that virtually equaled plaintiff’s
incurred medical billing, the medpay check/payment accepted by plaintiff’s
counsel was $1.60 short.  Prior to trial, defense counsel
inquired as to plaintiff’s claimed trial damages, plaintiff’s counsel stated
that he intended to board the past (previously paid by medpay) medical billing
arguing that he was allowed based on, you guessed it, the collateral source rule.

        At trial, plaintiff’s counsel requested an award
for non-economic damages as well as a separate award for past medical billing,
essentially, plaintiff’s counsel was attempting to ‘double dip’ in regards to
the previously paid medical billing by this same defendant.  Surprising enough, the trial judge appeared
to be willing to award this ‘double-dipping’ request by plaintiff’s counsel
were it not for defense counsel’s argument at the close of the trial.  

        The Collateral Source defined: A rule of damages stating that benefits
received by a plaintiff from a source wholly independent of and collateral
to the wrongdoer do not diminish the damages the plaintiff can otherwise
recover. Under the collateral source rule, evidence of a plaintiff's
alternative or additional sources of payment for expenses or losses for which
the plaintiff seeks damages in a civil action, such as insurance coverage,
generally is excluded as irrelevant.  The collateral
source rule permits an injured person to recover the full amount
of his or her provable damages, "regardless of the amount of compensation
which the person has received for his injuries from sources unrelated to the tortfeasor." Motor Vehicle Admin. v.
Seidel, 326 Md. 237, 253, 604 A.2d 473, 481 (1992).  Haischer v. CSX Transp., Inc., (Court of Appeals
of Maryland) 381 Md. 119; 848 A.2d 620 (2004).

        The Eastern District of
Virginia, in Karsten, expanded on the use of the collateral source rule
during litigation. See Karsten v Kaiser Foundation Health Plan of the
Mid-Atlantic States, Inc., 808 F. Supp. 1253 (E.D.Va. 1992).   In
Karsten, The Plaintiff Frances Karsten brought a medical malpractice
suit against Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc., in
the Eastern District of Virginia, Federal Court.  Ms. Karsten as a member of Kaiser, her HMO,
sought and received fertility type treatment. 
Pursuant to that treatment, Ms. Karsten underwent a ‘cervical
conization’ procedure, a procedure that should not be performed on a pregnant
woman.  No pregnancy test was performed
by Kaiser prior to the performing of this procedure.  The unfortunate result of this departure from
the medical standard of care was a miscarriage/still-born child.  Ms. Karsten’s medical billing was paid by her
HMO, Kaiser, pursuant to Ms. Karsten’s payment of her membership fees.  At trial, Ms. Karsten submitted her medical
billing and the Defendant Kaiser objected to same on the basis that Kaiser had already
paid these medical bills.  The trial
court ruled in favor of Ms. Karsten and admitted the medical billing under the
collateral source rule. 

         

The Defendant argued on
appeal that “1) the ‘collateral source rule’ would apply where the medical
bills were paid by a source collateral to, or other than, Kaiser; 2) Kaiser
paid these bills; 3) Kaiser is not collateral; 4) the rule does not apply.”  Id at 1256.  Put another way, Kaiser argued that Kaiser
should not have to pay twice and against the Plaintiff ‘double dipping’.  So far, so good.  The Court’s response was that Kaiser’s
argument, while citing the stock language of the collateral source rule, Kaiser
was ignoring the reasoning behind the rule. 
The Court stated “The collateral source rule is concerned with making
sure that the defendant as ‘wrongdoer’ compensates the plaintiff for the wrong
committed.  Balanced against this is a
concern that the plaintiff should only be compensated by the tortfeasor once
for the injury received.  But over-
emphasizing the word “collateral” ignores the reality that it is possible for a
defendant to wear two hats.  The
necessity for multiple payments arises not because the defendant is being
doubly-penalized, but because the defendant-tortfeasor and defendant-insurer
owe the plaintiff multiple legal obligations.” Id.  In short, Kaiser had apparently forgot that
they were Ms. Karsten’s HMO.

        “The first payment of medical bills by
the defendant was in its capacity as plaintiff's insurer, pursuant to
the insurance agreement entered into between the plaintiff and defendant,
for which the plaintiff personally contributed valuable consideration by way of
a deduction taken out of each of her paychecks. The defendant admits
that it was obligated under the contract to pay for the now challenged medical bills.
The defendant is now being asked to pay these same medical
expenses as compensatory damages. Even though the same defendant is
being asked to pay the same damages twice, it is patent that the nature of the
two payments is different. The nature of the first is as a payment from defendant
as insurer to the plaintiff as the insured. The nature of the second
is as a payment from defendant as tortfeasor to the plaintiff as
the party injured by the defendant's negligence. It is axiomatic that
the plaintiff is entitled to receive the benefit of her bargain under the
insurance contract, irrespective of the fact that the carrier servicing that
contract may also be the tortfeasor.” Id at 1257-58. 

         

It has long been the common law rule that a
plaintiff's damages are not reduced on account of payments made for treatment
under hospitalization or medical insurance plan, if the plaintiff, a
member of her family, or even her employer, paid the premiums and the
tortfeasor did not. See The Atlas, 93 U.S. 302, 310-11, 23 L.Ed.863
(1876) ("a wrong-doer . . . cannot claim the benefit of the contract of
insurance if effected by the person . . . he has injured"); Smith v. United States, 587
F.2d 1013, 1015 (3rd Cir. 1978) (under
Pennsylvania law "one can justify a double recovery where the original
source was supplied by the plaintiff, himself, out of resources that would
otherwise have been available to him for other' purposes"); Grayson v. Williams, 256 F.2d
61, 65-66 (10th Cir. 1958) (plaintiff was
entitled to payment by tortfeasor for medical expenses
already covered by plaintiff's employee hospital association where plaintiff
had contributed regularly to the association during employment); Rayfield v. Lawrence, 253 F.2d
209, 212-14 (4th Cir. 1958) (applying Virginia
law); Jeffords v. Florence County, 165 S.C. 15, 162 S.E. 574, 576 (S.C. 1932).  Id at 1258. 

        Undersigned defense counsel’s district court trial argument prevailed and
the claimed medicals were cut down to $1.60 from approximately $6,000.00, based
upon this defendant’s prior payment to this plaintiff via ‘medpay’ for
same.  I naively never imagined to have
to argue for the collateral source rule at trial in the defense capacity.  “The world wonders."

Milton P. Warren, Of Counsel