Collateral Source Rule

Example

“Due to the collateral source rule, the drunk driver who hit Maria couldn't reduce his $50,000 liability payment even though her health insurance had already covered $30,000 of her medical bills.”

Memory Tip

Remember 'Collateral Source = Can't Subtract' - defendants can't subtract what insurance already paid from what they owe you.

Why It Matters

This rule protects your right to full compensation from those who harm you, ensuring that your responsible decision to buy insurance doesn't reduce what wrongdoers must pay. It prevents a perverse incentive where having insurance would actually hurt your ability to recover damages, encouraging people to maintain proper coverage.

Common Misconception

Many people believe that if their insurance pays for accident-related expenses, the at-fault party owes them less money. In reality, the collateral source rule typically allows you to recover the full amount of damages from the defendant, though your insurance company may later seek reimbursement through subrogation.

In Practice

Tom's car insurance pays $25,000 for his injuries after a crash caused by a negligent driver. Under the collateral source rule, the negligent driver still owes Tom the full $25,000 in damages. However, Tom's insurance company will likely pursue subrogation to recover their $25,000 payment from the at-fault driver's insurance, preventing Tom from receiving double compensation.

Etymology

Derives from 'collateral' meaning 'additional' or 'secondary' and emerged in American tort law during the 19th century to prevent defendants from benefiting when injured parties had obtained independent insurance coverage.

Common Misspellings

Related Terms

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