insurance

Collateral Source Rule

A legal principle stating that compensation received by an injured party from sources other than the defendant (like insurance) cannot be used to reduce the defendant's liability. This rule prevents defendants from benefiting when victims have insurance coverage or other sources of compensation.

Example

“When the drunk driver's attorney tried to reduce damages by arguing that the victim's health insurance already paid the medical bills, the judge applied the collateral source rule and maintained the full damage award.”

Memory Tip

Remember 'Collateral Source = Can't Subtract' - defendants can't subtract what victims receive from their own insurance or other sources.

Why It Matters

This rule protects your right to full compensation when you're injured by someone else's negligence, even if you have good insurance coverage. It ensures that your responsible decision to carry insurance doesn't reduce what wrongdoers must pay, maintaining the deterrent effect of personal liability.

Common Misconception

People often think that if their insurance pays for accident-related expenses, the at-fault party owes them less money. The collateral source rule actually protects victims by ensuring they can recover full damages regardless of their insurance coverage, though the insurance company may have subrogation rights.

In Practice

Suppose you're injured in a car accident with $50,000 in medical bills. Your health insurance pays $40,000, leaving you with $10,000 in out-of-pocket costs due to deductibles and co-insurance. Under the collateral source rule, you can still sue the at-fault driver for the full $50,000 in medical damages, plus other losses like lost wages and pain and suffering. The defendant cannot argue for reduced damages just because your insurance covered most of the bills.

Etymology

Developed in English common law and adopted in American jurisprudence, the term 'collateral' refers to something existing alongside the main issue, while 'source' indicates where compensation originates.

Common Misspellings

collateral source rulecolateral source rulecollatteral source rulecollateral sourse rule

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…