Collateral Source Rule: A Practical Trial Experience

        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

“Where is Task Force Thirty-Four? The world wonders” was a radio message sent by Admiral Nimitz to Admiral ‘Bull’ Halsey during the Battle of Leyte Gulf in World War II.