What is the 'Collateral Source Rule'

The collateral source rule prevents the reduction of damages awarded to a plaintiff for injury, illness or disability covered by a third party. The rule mandates that damages awarded to a plaintiff in court cannot be reduced by any amount paid by other sources to cover the damages suffered by the victim, including from health insurance and workers compensation.

BREAKING DOWN 'Collateral Source Rule'

The collateral source rule has been modified in several states but typically prevents evidence from even being admitted in court that proves the plaintiff (or victim) is receiving compensation for injuries from other sources, such as insurance. This doctrine has been contested in court in recent years by those who feel that victims should not be able to sue tortfeasors again for damages that were already paid from another source.

Depending on state insurance laws, an insurer may also have the right to pursue subrogation to obtain reimbursement for claims paid to a policyholder. For example, if a health insurance policyholder is injured in an accident and the insurer pays $20,000 to cover the medical bills, that same health insurance company may be allowed to collect $20,000 from the at-fault party or their insurer to cover the payment and the policyholder's deductible.

Basis For and Criticism of Collateral Source Rule

A basis of the collateral source rule is the notion that a defendant should not benefit from the fact that damages caused were covered by the plaintiff's relationship with an insurer or eligibility for government benefits. Absent the collateral source rule, parties may be more likely to act irresponsibly or even illegally, such as by conspiring to defraud via injury claims. Critics of the rule argue that plaintiffs should not receive double recovery, and several states have acted to modify the scope of the collateral source rule.

  1. Covenant Not To Execute

    A covenant not to execute is a lawsuit agreement in which the ...
  2. Civil Damages

    Civil damages are monetary awards granted when a person suffers ...
  3. Third-Party Insurance

    Third-party insurance is a policy designed to protect against ...
  4. Treble Damages

    Treble damages are damages awarded by a court to a prevailing ...
  5. Insurance Claim

    An insurance claim is a request for compensation for a covered ...
  6. Secured Creditor

    A secured creditor is any creditor or lender associated with ...
Related Articles
  1. Insurance

    How to Protect Your Income No Matter What

    What does it mean to insure your income? Here are a variety of ways to do it and some insights into when it might make sense to invest in income insurance.
  2. Insurance

    Insurance Coverage: A Business Necessity

    Don't go to work without this policy in place - especially if your work is in your home.
  3. Insurance

    Critical Illness Insurance: Get Paid If You Get Sick

    This coverage will allow you to focus your attention on getting well, rather than getting by.
  4. Financial Advisor

    Mutual Vs. Publically Traded Insurance Companies

    Should you buy your insurance policy from a mutual or publically traded insurance company?
  5. Financial Advisor

    How Trump Could Let the Fiduciary Rule Die on the Vine

    If Donald Trump keeps his promise to repeal the fiduciary rule his administration could do so by not defending it against pending lawsuits.
  6. Insurance

    The Importance Of Property Insurance

    Property insurance is important, but there's a lot you need to learn in order to get the proper coverage.
  7. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  8. Insurance

    Insurance for Millennials

    Four insurance must-haves – and one maybe – for Generation Y
  9. Insurance

    4 Frequently Asked Auto Insurance Questions

    Answers to four common questions about what and who is covered by an auto insurance policy.
  1. How does the 80% rule for home insurance work, and how do capital improvements affect ...

    Learn what the 80% rule in homeowner's insurance is and what homeowners need to do so their insurance company covers the ... Read Answer >>
  2. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
  3. How does the insurance sector work?

    Learn more about the insurance sector, a historically safe place for equity investors and the home of some of the largest ... Read Answer >>
  4. Why do insurance policies have deductibles?

    Learn the basic concept of an insurance deductible and why they mitigate moral hazards and provide financial viability to ... Read Answer >>
  5. Suppose my garage collapsed on my car. Are damages covered by my home insurance or ...

    Generally, damage to an automobile will be covered by comprehensive car insurance, which is in addition to collision coverage. Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center