Today a law student wants to know, what is the collateral source rule? Subrogation is an insurance rule that requires you to reimburse your own insurance company for your bills. The part that gets you mad is that you paid for the insurance so why does the insurance company get it all back? To understand why you end up paying back your own insurance company after you pay them a premium for the insurance coverage; and then they pay the doctor (after your accident), you need to appreciate the idea of subrogation. Keep in mind you don't have to like any of this, you just have to understand it.

Question: Does modern tort reform impact the introduction of evidence in any way? Why or why not?

Question Detail: I need help with a school question. My textbook doesn't provide enough details about this. Miller has been the victim of medical malpractice. He sues his physician. At trial, he wants to show evidence of damages for lost wages for three years, when he says he was unable to work due to the result of the malpractice. The Defendant doctor wants to introduce evidence that miller was paid disability benefits during the 3 year period. In a jurisdiction that follows the traditional rule regarding payment by a collateral source, will the doctor be able to introduce the evidence?

Answer: I believe your question should be “Attorney Lombardi, what is the collateral source rule?” Wikipedia has a pretty good explanation, [it is brief and I do like brief] of the collateral source rule in America.

The collateral source rule, or collateral source doctrine, is an American case law evidentiary rule that prohibits the admission of evidence that a victim's damages were or will be compensated from some source other than the damages awarded against the Defendant. For example, in a personal injury action, evidence that the Plaintiff's medical bills were paid by medical insurance, or by Workers' Compensation, is not generally admissible.

The collateral source rules is an evidentiary rule that excludes evidence of the injured person’s insurance payments. It engineers the evidentiary record so the jury doesn’t under-compensate the injured party because they were industrious and frugal through the purchase of health and disability benefits. In other words if the injured guy has paid insurance premiums for health insurance and we allow the at-fault party to not pay his medical bills, then that’s allowing the at-fault party a break while not encouraging the injured guy to buy insurance. It makes little sense for society to say buy health insurance and then punish the guy buying it.

Wage Earners Need To Be Encouraged To Buy Insurance, Not Discouraged for Giving Up the Opportunity Cost Associated With Buying Insurance

Tort reformers are anti-little guy. Tort reformers know the little guy paid a premium and by denying him their rendition of “double recovery” they are really robbing him of the opportunity cost of his premium dollars. Once again the little guy is made to be the bad guy while the insurance industry get’s double recovery.

If you want to know what the insurance industry is really doing just listen to what they accuse the little guy of wanting.

Tort reform advocates argue the injured guy is getting a double recovery because his bills are paid by his own insurance company and then again he recovers from the at-fault person. But that’s not true and fails to take into consideration the opportunity cost of the premium dollars he’s spent on insurance. By eliminating the collateral source rule you’re robbing those who buy insurance the opportunity cost of what they’ve spent on insurance. While there is some inefficiency in the economics it’s a wise policy that encourages people to pay into the insurance pool by buying insurance.

The collateral source doctrine has come under attack by "tort reform" advocates. They argue that if the Plaintiff's injuries and damages have already been compensated, it is unfair and duplicative to allow an award of damages against the tortfeasor. As a result numerous states have altered or partially abrogated the rule by statute.

Okay, enough of Wikipedia let’s get back to your question because frankly I’m pro-little guy and can’t stand listening to tort reform socialists. Test questions often provide the fictitious law so the real law isn't applicable. But let me see if I can offer some direction. The collateral source rule is an evidentiary rule having to do with not giving an at-fault party a break in having to pay for benefits covered by insurance. Tort reformer advocates are really robber barons from the insurance industry wanting to rob the little guy. The little guy gets screwed because he was industrious enough to buy insurance. The at-fault tort reformers want something for nothing and by altering the collateral source rule they get it. You see, all tort reformers are either tobacco industry excutives hiding in the Berkshires or insurance executives in drag. They want the benefit of your industriousness without regard to what you’ve given up to pay for insurance coverage. The argument tort reformers make is really a socialist concept; sort of a communist mentality of everyone in society owes their pain and suffering to the masses (or to those in power that say one thing and do quite another).

The collateral source rule is an American idea, an idea to promote capitalist, it’s an idea that shows we as a society are anti-communist or anti-socialist through adopting this valuable law of evidence that encourages people to buy insurance. As my clients often say, “Why did I buy insurance if all I’m going to get out of this settlement is to watch checks change hands between the insurance companies?” It’s a good question and I wish I had a better answer...

At-Fault Parties Need to Be Discouraged From Acting Recklessly

The collateral source rule makes at-fault parties responsible for their carelessness while rewarding frugal people for buying insurance. Because let’s face it, if I knew you bought insurance I can be more careless around you than the poor people living in a trailer park. “Okay, so I hurt you by running the stop sign, but you have insurance so why should I pay your bills? Hey I love tort reform because I don't have to be responsible! Now that's a free ride.

Tort reformers, like Communists, allow those that cause injury to get away scott free when responsible people have purchased insurance. So if I'm an at-fault party and cause you injury, I will pay less if you were industrious enough to purchase insurance. If you don't have insurance, then in a state with tort reform (that does away with the collateral source rule), I as the at-fault party have to pay more in damages.

This Is All Nonsense And A Race To The Bottom While Lining the Pockets of Some Insurance Company CEO

But most of this isn’t relevant anymore because the insurance industry gets protection either way, either with or without the collateral source rule.

Remember the insurance companies are capitalist machines and they soon figured out that if every insurance policy had a subrogation clause they could all just swap checks when someone was hurt. So today, tort-reform aside, insurance companies have wiped out the communists’ efforts about tort reformer, by simply writing collateral sources back into their policies. In the end insurance executives get to keep your premium dollars and swap checks through subrogation provisions. 

Two insurance executives talking over lunch:

"Hey I see the little got to keep $5 in that car accident." 

"Yeah, sorry your million dollar bonus will be $5 less this year."

In a nutshell here is how it works.

  • Your state passes a tort reform measure.
  • The tort reform eliminates the collateral source rule.
  • You buy an insurance policy.
  • That policy has a subrogation clause in it. [Screech! You should have just heard squealing tires and a crash. If you sue the at-fault guy and he pays your insurance company gets paid back.]
  • You get in an accident and it's not your fault.
  • You get medical care; the medical expenses are paid by your health insurance company.
  • You get better and see a lawyer.
  • The lawyer files a lawsuit suing the at-fault guy.
  • The at-fault guy gets an attorney, hired by his own insurance company. [These guys get paid by the pound.]
  • The defense law firm bills thousands of dollars to tell the insurance company to pay up.
  • The insurance company decides to pay up. [At this point the adjuster makes it sound like he’s doing you a huge favor.]
  • You collect from the at-fault guy's insurance company. [Whoopee! When do I get paid so I can get back to square one with my bill collectors? Ummm you don’t. But not so fast…]
  • The money goes into your lawyers trust account. [When can I get my big fat check?]
  • Your lawyer drafts a disbursement sheet and it includes paying your insurance company 2/3rds or less of what they paid. [Say what! I feel like Charlie Brown trying to kick the football!]
  • The lawyer explains why your check suddenly went from some to none.
  • He says, it’s because you have a contractual duty, to pay back your insurance company for what they paid. After all, how do you think the CEO gets the money for all those bonuses and stock options?
  • You argue with your lawyer saying, “But I paid a premium! I gave up going on a vacation to be insurance poor and have insurance coverage in the event of an accident.”
  • The lawyer explains, “Yeah but the insurance policy said on page 100 in very fine print that they were going to be subrogated and all that all those lobbying dollars really paid off.”
  • You sign the disbursement sheet and the lawyer hands you a $5 bill saying, “You can spend it all on a cup of coffee at Starbucks.”
  • You cry and think of putting sugar in the adjuster’s gas tank.
  • You do what you always do because you’re insurance premium poor, you watch TV.
  • On the TV comes a commercial with a nice jingle to it, “And like a good neighbor, State Fraud is thereeeeeeeeee.”
  • Your loaded 9mm is in the safe and you think next time you will shoot the screen.


Most tort reform laws protect the insurance industry by honoring hidden subrogation clauses deep in the finer print of your insurance policy.

If your insurance has a subrogation clause then the collateral source rule is given effect.

All tort reform measures are really just socialist policies that screw the little guy who is trying to be a capitalist but who big businesses getting corporate welfare spin lies making the little guy feel guilty for asking for what he paid for.

Bottom Line: As for your case I'd say if the collateral source rule applies then the doctor doesn't get the evidence in to show that your client received disability insurance.

Does this help? If not ask me another question.

Steve Lombardi
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Iowa personal injury, workers' compensation, motorcycle, quadriplegic, paraplegic, brain injury, death
Interesting questions, you must be a law student. But answers are the key to practicing law. Just know the subrogation clause is and will be enforced, but how can you save money? That will be the subject of another blog in the future. In the meantime if any potential client has a question they are always free to call and ask me. Thanks for the questiions!
by Steve Lombardi May 7, 2013 at 05:44 PM
So if its buried on page 100 in fine print, and a form contract (i.e. contract of adhesion), wouldn't this amount to an unconscionable term in the contract? Yes you have a duty to read, but would the average person know what the collateral source rule was, and if not would there be a meeting of the minds? What about disparity between the bargaining parties? Is there meaningful choice? If one must carry insurance (as state law requires if for cars and Obama care seems to be mandating healthcare as well) and all insurance carriers require the collateral source rule, it doesn't seem like you would have much of a choice. Would usage of trade come into play at this point? Let's assume that you have the hospital bills, damage to the car, and a brain injury, how do the courts go about deciding what and who should be paid how much? Doesn't the insurance companies argument basically come down to unjust enrichment? Would there be unjust enrichment if you had a party with serious injuries that will require lifelong care? For example a situation where the insurance limits were $250,000 but the cost of managing the injuries was in the millions, who gets what? Don't you become a "creditor" entitled to a majority share based on your 100% contribution in paying for the insurance? Isn't buying the insurance an allocation of risks? Isn't that why you decide the limits on your car insurance? Isn't it their business to allocate risk? Aren't we paying into a big fund to minimize risk, "spreading it out"? If you had to pay them back what they paid in insurance why couldn't you just turn around and sue them for unjust enrichment (what you paid them back - all the insurance premiums you've paid)?
by Nick Lombardi May 7, 2013 at 05:36 PM
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