COLLATERAL SOURCE RULE – LAW 101

Hello, I’m attorney Kyle Bachus. The legal world is full of overly complicated jargon and terminology that can be intimidating if you don’t know what it means. In my law 101 video series, I’m breaking down some commonly used legal terms so you can be informed and confident should you ever need to take legal action.

In this episode of law 101, we’re going to break down the phrase in a legal context, the phrase collateral source rule.

What does this mean? And how does it impact a civil case involving negligence? Collateral source rule, the word collateral just means somebody other than the person who caused the injury. So this is a rule about what happens if you receive money or benefits from some source other than the person who actually caused the injury. And can you recover that same expense again from the person who caused the injury? So let’s put this into some context.

Let’s say that you have health insurance, let’s say you were injured by somebody else, all right. And you want to bring a claim against the person who caused the injury. But let’s say your health insurance paid for your medical treatment, so they are a collateral source. The collateral source rule says that if you receive money or benefits from somebody other than the person who caused the injury, that does not absolve the person who caused the injury from being obligated under the law to pay you your full measure of damages.

Some people look at the collateral source rule and say, well, aren’t you double recovering your losses? Well, the legal principle behind this rests with the idea that the person who caused the injury is primarily responsible, and should not be let off the hook because you happen to be smart enough to go out and buy your Aflac insurance or buy your health insurance.

You paid a premium for those benefits, and if somebody should get a windfall, it should be the person who was injured and was smart enough to cover themselves separately, rather than the person who caused the injury. If you have questions in your situation and what your rights are, we’re happy to talk to you about that personally at Bachus & Schanker. To learn more about other law topics that can help you feel informed and confident about the law, make sure to check out more videos in this series.

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Collateral Source Rule FAQs

What does collateral source mean in law?

In law, the collateral source means someone other than the defendant who pays the victim’s damages. A common example is a car accident victim whose medical bills are paid by health insurance.

What is the purpose of collateral source rule?

A collateral source rule determines if the defendant can reduce the amount of their legal liability because another party is paying damages. Collateral source rules vary by state. Some states allow defendants to introduce evidence of third-party payments to reduce damages. Other states prohibit the practice. Even among states implementing a collateral source rule, the exact way the rule works may vary considerably.

Does Colorado have a collateral source rule?

Yes. Colorado’s collateral source rule can be found in C.R.S. § 13-21-111.6. This collateral source rule states the court must reduce the verdict by amounts compensated through a collateral source. Except, there is no reduction for payments made because of a contract entered into by the victim or for the victim.

What are examples of collateral sources?

Examples of contracts entered into by the victim or for the victim are:

  • Health insurance
  • Employment benefits
  • Workers’ compensation benefits
  • State and federal disability payments
  • Police, fire, and other pensions

When these policies and benefits exist, they benefit the victim. The defendant isn’t excused from their obligation to pay damages just because the plaintiff is fortunate to have these things in place.

The Colorado Supreme Court recently published two companion cases addressing third-party tortfeasor settlement in workers’ compensation claims. The court ruled that a third-party tortfeasor settlement with the employer’s workers’ compensation insurer extinguishes the plaintiff’s third-party claim for medical expenses when worker’s compensation benefits cover those same expenses. 

These rulings may significantly impact the victim’s compensation in similar lawsuits. Delta Air Lines, Inc. v. Scholle, 484 P.3d 695 (Colo. 2021), Gill v. Waltz, 484 P.3d 691 (Colo. 2021).

What is an example of how the collateral source rule works in Colorado?

The plaintiff and defendant are in a car accident. The defendant is at fault. The plaintiff has a total of $100,000 in damages. Of those damages, $40,000 are medical bills. The victim’s health insurance pays for $35,000 of their medical bills.

In this case, the collateral source rule does not apply. Under Colorado law, the defendant may not reduce the amount they have to pay even though the plaintiff’s health insurance paid a significant amount of their medical bills. The plaintiff may still recover the full amount.

How does the collateral source rule affect injury cases?

The Collateral Source Rule states that compensation received from sources other than the defendant can’t be deducted from a final award. This includes payment from medical insurance, social security disability, car accident insurance, or other third-party sources.

What is a collateral source benefit?

A Collateral Source Benefit is any amount paid in the past or to be paid in the future to the plaintiff as a result of a service, product, or benefit. This can include payments from health insurance, car insurance, or any other group that provides compensation to a victim for healthcare services.

Can the defendant introduce evidence of the plaintiff’s health insurance in a Colorado injury claim?

No. Health insurance may not be introduced as evidence to reduce damages in a Colorado personal injury claim. Even proof that the plaintiff paid a reduced rate negotiated by an insurance company may not be introduced to limit damages.

Doesn’t the collateral source rule create a windfall for the plaintiff?

It’s possible for the collateral source rule, as applied in Colorado law, to result in a windfall for the plaintiff. Lawmakers have decided that this is a better policy than to let defendants “off the hook” for the consequences of their actions.

Colorado has a collateral source rule – but it can be complicated. Contact us for a personalized review of how it may impact your claim from our personal injury lawyers.

If you need help understanding how collateral source rule affects your case, we can help. Our experienced attorneys can help assess everything from medical malpractice to punitive damage claims and help you get the settlement you deserve. Contact us today.

Sources:

C.R.S. § 13-21-111.6.

Delta Air Lines, Inc. v. Scholle, 484 P.3d 695 (Colo. 2021)

Gill v. Waltz, 484 P.3d 691 (Colo. 2021).

AllLaw. Collateral source rule in personal injury law.

Cornell Law School. 42 U.S. Code § 247d–6d – Targeted liability protections for pandemic and epidemic products and security countermeasures.