Offsetting Payments from Collateral Sources

Under the law’s traditional “collateral-source rule,” the fact that an injured plaintiff has received benefits from some independent source—such as an insurance policy— may not be considered in determining whether a defendant should pay damages and, if so, how much. In some cases, the collateral source exercises a lien or right of subrogation and is reimbursed for the overlap between the benefits and the damages. In many cases, however, the effect of the collateral-source rule is to allow victims to receive double compensation for their injuries.

In the past two decades, many states have revised the collateral-source rule in various ways that could serve as models for federal action. Those revisions range from merely allowing collateral payments to be introduced as evidence in certain types of cases to requiring that damages be reduced to offset such payments under all circumstances. If verdict errors never occurred, there would be no clear economic rationale for such changes—efficiency dictates that injurers should face the costs of their actions (or, at least, of their negligent actions) regardless of the other benefits available to victims. However, if judges or juries sometimes wrongly find defendants liable because of conscious or subconscious concern that plaintiffs may lack the resources to deal with their injuries, then such changes may improve efficiency. In either case, it may be more equitable for injurers not to pay victims who receive collateral benefits, at least under some circumstances— which may argue for allowing information about such benefits to be introduced as evidence and considered by juries and judges.

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Last reviewed October 2024