What Is the Collateral Source Rule?
What is the collateral source rule? Well the answer is fairly simple. The rule provides that where an injured party seeks to recover damages in a personal injury action, evidence of compensation from collateral sources is generally inadmissible for the purpose of reducing the amount of damages that the injured party is otherwise entitled to recover. Simply put, the source of the money doesn’t matter and if your client has been injured and is making the claim through insurance (such as med pay), then the defendant cannot argue that the plaintiff has insurance and thus, is not really injured by that argument.
The origins of the rule are more difficult to explain. At least as far back as 1924, Judge Benjamin Cardozo explained the equitable roots of this doctrine in his decision in the leading case on the topic , Russell v. New York R. Co.:
The underlying principle is simple enough. It is a formula of justice rather than a formula of logic. A wrongdoer should not benefit by his wrong. The claim of double recovery is too remote to excite sympathy. This plaintiff has been hit by a negligent act. He may not double-dip. He may not thereby gain a windfall. against the wrongdoer; but the misfortune he would have suffered, had the plaintiff acted lawfully and prudently, is exactly the misfortune on which the law compels him to bear. Restatement, Torts, §§ 920, 921. He must account for the insurance that has redressed his injury, if redress there be; but he may not blog his own fingers with it when he comes to collect his judgment for the pain and the suffering conceded to have been his. (Russell v. New York R. Co., 85 N.E. 802 (1924)).
To bring it all back home, since Louisiana does have a collateral source rule the insurance coverage or payments should be dealt with at trial. Juge should be able to exclude evidence of your insurance coverage.
How Does the Rule Work in Louisiana?
The collateral source rule is well-recognized in Louisiana jurisprudence, but its specific application is narrower and may lead to results that differ from other jurisdictions. In Louisiana, the collateral source rule has been recognized since at least 1973, when the Louisiana Supreme Court described it as "the universal rule prohibiting the deduction from damages of a payment made to an injured person by a source independent of the wrongdoer." Anderson v. Hixson Bros., Inc., 294 So. 2d 599, 601 (La. 1973). In that case, the court stated that "as a general principle, an injured party is entitled to full compensation for his loss, and any amount he receives from a collateral source does not diminish or reduce the loss." Id. at 601.
Subsequent Louisiana Supreme Court jurisprudence has consistently affirmed the general applicability of the collateral source rule. See May v. United States Fidelity & Guaranty Co., 183 So. 2d 244, 249 (La. 1966) ("It is the well settled rule in this state that the plaintiff in a tort suit cannot be penalized for obtaining insurance to cover therein and that sums received from such collateral sources are not to be credited against defendant’s liability to the plaintiff."); Rousselo v. W.J. McCauley & Assocs., 550 So. 2d 610, 615 (La. Ct. App. 1989) ("Under the collateral source rule, benefits received by a plaintiff from sources which are wholly independent from the tortfeasor that caused his damages are not to be taken into account by the trial court in determining the amount of the damages.").
Despite its long-standing recognition, the collateral source rule applies only to certain benefits received and not all. Louisiana courts have held that "[t]he collateral source rule is limited to benefits which do not arise out of the negligence of the defendant or the fault of another joint tortfeasor." McCullough v. Colorado River Contractors, Inc., 80 So. 3d 584, 589 (La. Ct. App. 2012) (citing Rousselo, 550 So. 2d at 615). Thus, "the collateral source rule does not apply to payments made to an insured resulting from the negligence of an uninsured co-driver who was also injured in the accident." Kirtland v. Ingram, 262 La. 1, 9, 262 So. 2d 321, 324 (La. 1970); see also Parker v. Senterfit, 482 So. 2d 963, 964 (La. App. 4 Cir. 1986).
Louisiana courts have also refused to apply the collateral source rule to specific benefits actually paid when the payment is provided pursuant to contract provisions and the payment is intended to fully compensate the plaintiff for his loss. For instance, in Rousselo, the plaintiff was injured on the job, and his workers’ compensation insurer paid his medical bills and claimed subrogation. When the plaintiff settled his tort claim with the defendants, the trial court held that recovery from the defendants should be reduced by the amount paid by the workers’ compensation insurer. The court of appeals reversed, and held that the workers’ compensation insurer was entitled to a lien only to the extent that the amounts paid by the employer exceeded the amounts covered by the settlement. Rousselo, 550 So. 2d at 617.
Applying Louisiana law, the Fifth Circuit predicted that the Louisiana Supreme Court would not apply the collateral source rule to allow a plaintiff to double-recover against his uninsured motorist insurer. See Magri v. Rourke, 569 F.2d 846, 847 (5th Cir. 1978) ("For the same reasons given by the Louisiana Court of Appeal in its previous decisions, we predict that the Supreme Court of Louisiana would not extend the collateral source rule to plaintiff’s claim against the UM carrier."). This decision was the impetus for Louisiana legislation now codified at La. Rev. Stat. Ann. § 22:686. Louisiana courts have found that the statute applies retroactively because it is merely procedural and clarifying of existing law. Fischer v. Rauscher, 775 So.2d 906, 911 (La. 2000); Jackson v. State Farm Mut. Auto. Ins. Co., 857 So. 2d 1023, 1027 (La. App. 2 Cir. 2003).
The Mississippi Supreme Court applied Louisiana law to such a situation recently, holding that reimbursement to a workers’ compensation carrier by an uninsured motorist carrier would be inappropriate as Louisiana law would not allow a double recovery. Haring v. Parker, 951 So. 2d 530, 532 (Miss. 2006).
The Rule’s Effect on Personal Injury Cases
In cases of personal injury, the collateral source rule has a direct impact. Broadly, a plaintiff’s medical bills fall into three categories: bills that the Plaintiff paid, bills that the Plaintiff owes to someone else, and bills that the Plaintiff has not paid but that someone else will pay. The collateral source rule states that a defendant is responsible for all damages that fall within the first two categories, but the defendant may not reduce the amount of those damages by what a third party (such as insurance) has paid on the plaintiff’s behalf.
Let us illustrate this concept with an example. Under Louisiana law, a hospital bill is not admissible at trial unless and until the plaintiff has paid it or is obligated to pay it. Thus, if the plaintiff goes to Fairytale Hospital and his bill is $100, then Fairytale Hospital would have to wait to be paid until after the plaintiff had received damages. However, had Fairytale actually written off 25% of the bill, its Director would testify in court that the bill was $75, and the plaintiff would not be able to recover any excess damages for that amount. This is so because Fairytale has waived its right to collect that amount from the plaintiff, which falls under the category of bills the plaintiff has not yet paid.
Another example: If Fairytale is not a contracted provider, and Fairytale and its patient agree to a 25% contract discount, the discount is not taken into consideration for purposes of determining the amount of medical expenses to award at trial.
Exceptions to the Rule
Although the collateral source rule is a strong rule of law in Louisiana, there are several exceptions to the rule that apply. They are as follows:
6.1 Only Special Damages are Permitted; No Pain and Suffering or Loss of Enjoyment of Life
Under Louisiana law, the collateral source rule applies only to an award of special damages. Intangible damages, such as pain and suffering, are not limited by amounts actually paid by a third-party source.
In other words, a defendant may not introduce evidence at trial of payments made to the plaintiff by a third party in compensation for the plaintiff’s pain and suffering or loss of enjoyment of life. For example, if the injured plaintiff has received pain and suffering damages of $10,000 and has recovered $3,000 from his health insurance carrier for medical expenses, the defendant cannot introduce evidence of the medical expense payments to the jury to reduce the award for pain and suffering damages. See Martin v. GoAuto., 2014-0660 (La. App. 1 Cir. 2015), 168 So. 3d 508, 515.
However, the medical payments are a form of special damages that can be used to reduce any award for special damages. See Dean v. Hercules Gas Pipeline, 93-778 (La.App. 3 Cir. 2/2/94), 631 So.2d 724, 733.
6.2 Insured and Res Judicata
The collateral source rule applies only to those persons who have purchased insurance that affords them a benefit. Collateral source rule, therefore, applies, even when a plaintiff is covered by a policy of insurance that provides no rights of subrogation to the insurer. See Ellison v. Leal, 99-1609 (La.App. 4 Cir. 5/17/00), 762 So.2d 227, 231.
6.3 Medical Expense Benefits
Offsetting the rules favoring the two-strike approach, Louisiana applies a one strike approach and allows an award of medical expenses only once. See Rottman v. Banners Mart, 34,200 (La. App. 2 Cir. 12/06/01), 804 So. 2d 880. Plaintiffs, who sue the other driver for pain and suffering damages and medical expenses, do not have the right to demand medical expenses, which was paid for under the policy of the uninsured driver. This approach limits the plaintiff to suing the uninsured driver only once. Id.
6.4 Seatbelt Defense
Where the plaintiff was treated for a head injury shortly after the accident and two hours after the accident, the plaintiff reported to the emergency room with a lacerated tongue. Id. at 885. Plaintiff alleged that he hit his lacerated tongue on the steering wheel when he was thrown forward upon impact because he was not wearing a seatbelt. Id. Defendant sought to admit evidence that if Mr. Rottman had been wearing a seatbelt he would not have bitten his tongue. The trial court ruled that the seatbelt defense was not relevant to his claim for pain and suffering. The appellate panel held that the trial court correctly excluded the seatbelt evidence because the plaintiff’s failure to wear a seatbelt was not a superseding cause of his injury. Id. at 886. The medical expense claim was separately addressed under the collateral source rule. Id.
Recent Court Findings
Recent case law in Louisiana has continued to apply the collateral source rule in various contexts. In Wyeth v. L & A Contracting Co., 898 So. 2d 1058 (La. App. 3 Cir. 2005), the court addressed the scope of subrogation within the confines of the collateral source rule. In Wyeth, the plaintiff’s health insurance company sent a notice of subrogation to the defendants and included a letter restoring subrogation rights on the various medical expenses advanced by the carrier and paid by the plaintiff. The plaintiff’s parents sought to intervene in order to nullify the execution of the Letter of Subrogation. The trial court determined that the Letter of Subrogation was valid under La. C.C. art. 1823 and that the defendants were not entitled to the benefit of the collateral source rule because they had failed to prove by a preponderance of the evidence that a letter of subrogation was executed pursuant to La. C.C. art. 1823.
The 3rd Circuit rejected the argument that an alleged waiver of subrogation should void the collateral source rule. It agreed with the reasoning of the trial court and held that "under this record a letter of subrogation validly executed under Civil Code article 1823 will preclude the application of the collateral source rule . " Id., at 1070. Although the Second Circuit in Louisiana reversed a decision that denied the defendants the benefit of the collateral rule in Kraus v. Holiday Inns, Inc., 438 So.2d 637 (La. App. 2d Cir. 1983), the 3d Circuit rejected Kraus’ rationale and followed the 5th Circuit’s decision in Darce v. Cottrell, Inc., 417 So.2d 1237 (La. App. 5th Circ. 1982) and specifically declined to adopt Kraus as the "law of the state," when the collateral source doctrine was applied to insurance proceeds.
Further, in Thompson v. Ortiz, 908 So. 2d 762 (La. App. 1st Cir. 2005), the First Circuit addressed whether collateral source benefits other than health insurance should be excluded from being presented to the jury in a general liability business auto negligence action. The court held that benefits afforded under a homeowner’s policy such as loss of wages, temporary repairs, personal property damage and others, should be excluded from evidence. This decision was relevant in making the jury consider only the $25,000 PIP in allowing the plaintiff to present evidence of damages from his personal resources and insurance coverage.
Tips for Plaintiffs and Defendants
In handling the collateral source rule in litigation, plaintiffs and defendants have to have a strategic approach. The issue is not just about what evidence can come in – but how the issue of collateral source payments will be addressed in negotiations over settlement or in front of a jury in the courtroom.
From the Plaintiff’s perspective, one mistake that I think plaintiffs make is trying to keep all mention of the collateral sources payments out of the case, and I think the better route is to put the evidence the collateral source payments into evidence in the case before trial, because if it is being presented first to the jury at trial, then the collateral source rule may really confuse them as to the meaning of your medical specials. A plaintiff who puts their medical specials in as evidence with no explanation of how those figures relate to payments made by collateral sources is going to have a problem. That being said, your attorney should be strategic in how and when the issue is addressed in the litigation process. In Louisiana, they do have a "satisfaction of judgment" statute that offsets the collateral source amounts paid against the general damage award. In practical terms, this means that on the verdict form in front of a jury, the question concerning the past medical expenses amount is specifically framed as "the total amount of past medical expenses less the amounts paid or incurred by collateral sources." So you are really left with no choice but to try and explain collateral sources to the jury before it gets to the point of framing the medical specials amounts. Your damages attorney should work with the medical professional paralegal in your firm to make sure that evidence of the collateral sources is presented prior to the actual jury instructions on the damages numbers.
Keep in mind that the collateral source rule is state-specific rule, and other states may have additional requirements. Good examples of plaintiff firms using the rule in their favor can be seen in cases like Billeaud v. Colleagues, 2013 WL 3257688 (La. App. 3 Cir., 2013), 2013-0494.
Questions & Answers
What is the collateral source rule in Louisiana?
The collateral source rule in Louisiana law states that when an injured party is compensated for their injuries by a source independent of the wrongdoer, such compensation cannot be used to reduce the amount of damages awarded to the injured party. The principle behind this rule is that negligent persons should be held accountable for all the damages they cause, and not be relieved from responsibility by compensation payments from other sources .
Who does the collateral source rule apply to in Louisiana?
The collateral source rule applies to all personal injury cases and wrongful death cases in Louisiana where compensation for medical expenses or lost wages, or other damages is made by the injured person or their family members’ health insurance or other insurance.
What exceptions are there to the collateral source rule in Louisiana?
Judicially created exceptions to the collateral source rule in Louisiana permit defendants to introduce evidence of a plaintiff’s collateral source payments through subrogation, reimbursement, and subordination claims.