Collateral Source Rule

There’s more than one way to skin a cat, as the old saying goes.

If you are injured due to negligence or the actions of someone else, the collateral source rule says that you're allowed to receive compensation from more than one party. This could be from your insurance company, workers’ compensation, and/or the person who caused your injury. In other words, if you sue Henry for injuring you in a car accident, he can’t deduct the money your insurance company also gave you from the amount he owes.

Angie’s house catches on fire and she receives $30,000 from her insurance company to make the repairs, which will cost $40,000. She asks the fire department to conduct an investigation as to the cause of the fire, and they determine it was the kid next door playing with matches. So Angie sues the parents for $40,000 for not keeping an eye on the little devil. The parents feel they should only owe Angie $10,000, since she already collected $30,000 from her insurance company, but under the collateral source rule the judge orders the parents to pay the entire $40,000. Evidence that Angie received the $30,000 from her insurance cannot even be brought up in court.

However, there is a clause in Angie’s home insurance policy that says her insurance company can collect some of that reward from the negligent parents, equal to the amount of what the insurance paid out. Perhaps Angie should sue the parents for more than $40,000 so she has something left over after the repairs are made.

Many have criticized the collateral source rule, believing that an injured party does not need to collect money twice. Others believe that, if states ended this rule, it might encourage people to act irresponsibly, which, uh...they will probably do anyway.