The Collateral Source Rule, a cornerstone of fairness in tort cases, is a common law principle that prohibits reducing a plaintiff’s damages award by compensation from sources independent of the tortfeasor (wrongdoer). These independent sources, known as collateral, typically include insurance payments, workers’ compensation benefits, or charitable contributions.
The rule serves several purposes:
1. It prevents the wrongdoer from benefiting from the plaintiff’s foresight in obtaining insurance or other benefits.
2. It upholds the compensatory function of tort law by ensuring the defendant pays the total cost of their wrongdoing.
3. It recognizes that the plaintiff may have paid for these benefits (e.g., through insurance premiums) and should not be penalized.
The rule’s application varies by jurisdiction. Some states apply it strictly, while others have modified or abolished it through tort reform legislation. Modifications may include allowing evidence of collateral source payments at trial or requiring post-verdict reductions of awards.
Critics argue that the rule can lead to double recovery for plaintiffs and potentially increased insurance costs. At the same time, proponents contend it appropriately burdens wrongdoers and maintains the deterrent effect of tort law.
In practice, the rule often interacts with principles of subrogation, where insurers may seek reimbursement from the plaintiff’s award for benefits paid. This can mitigate double recovery concerns while holding the defendant fully accountable.
Courts must carefully balance these competing interests when applying the Collateral Source Rule, considering both fairness to the parties and broader public policy implications.