Collateral Source Rule – Definition

Cite this article as:"Collateral Source Rule – Definition," in The Business Professor, updated December 4, 2019, last accessed October 21, 2020, https://thebusinessprofessor.com/lesson/collateral-source-rule-definition/.

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Collateral Source Doctrine Definition

The collateral source rule is a clause that appears in insurance coverage or used for insurance-related cases. This rule states that when the court awards damages to a plaintiff, the damages cannot be reduced regardless of whether an amount has been paid to cover the damages by other sources.

The collateral source rule prohibits the reduction of damages awarded to a plaintiff who has suffered a damager, injury or disability form a third party. According to this rule, the collection of compensation for damages by the plaintiff from other sources does not serve as evidence for the reduction of damages awarded to him by a court.

A Little More on What is the Collateral Source Rule

The collateral source rule is a legal principle that is used in a personal injury case. This rule disregards any evidence that a plaintiff has been covered by other sources different from the defendant. This rule mandates a plaintiff to receive due compensation from the insurance company (that serves as the source) and not from other parties involved in the case. Hence, if an amount has been paid by another party to the litigation, this cannot be deducted from the damages awarded tithe plaintiff by the court.

‘Other sources’ as contained in the collateral source rule includes health insurance and workers’ compensation paid to the plaintiff. The collateral source rule mandates a defendant to pay the damages awarded to a plaintiff for disability, damages or injuries in full, this is without deducting the amount received from other people.

Basis For and Criticism of Collateral Source Rule

The rationale behind the collateral source rule is to allow plaintiffs to recover damages from insurance companies responsible for the damages, regardless of other insurance coverage that the plaintiff has. Hence, with the collateral source rule, a plaintiff can receive coverage from multiples sources and this does not forfeit the damages that will be paid by the insurance company involved. For instance, if a Plaintiff who suffered injury or disability after an accident received coverage from health insurance or worker’s compensation, this cannot be used as evidence to reduce the damages awarded to the plaintiff by a court.

There are some criticism against the collateral source rule, most critics of this rule argue that it aids double recovery for plaintiffs and it is unfair for plaintiffs to receive a double recovery.

References for Collateral Source Doctrine 

https://www.investopedia.com/terms/c/collateral-source-rule.asp

http://www.businessdictionary.com/definition/collateral-source-doctrine.html

https://en.wikipedia.org/wiki/Collateral_source_rule

http://www.duhaime.org/LegalDictionary/C/CollateralSourceRule.aspx

Academic Research on Collateral Source Doctrine 

The Collateral Source Rule in the American Law of Damages, Maxwell, R. C. (1961). The Collateral Source Rule in the American Law of Damages. Minn. L. Rev., 46, 669.

The collateral source rule and loss allocation in tort law, Fleming, J. G. (1966). The collateral source rule and loss allocation in tort law. Cal. L. Rev., 54, 1478.

The CollateralSource Rule, Schwartz, W. (1961). The Collateral-Source Rule. BUL Rev., 41, 348.

The Collateral Source Doctrine: An Increasing Problem, Norris, W. F. (1959). The Collateral Source Doctrine: An Increasing Problem. Ins. LJ, 488.

The Collateral Source Rule, Averbach, A. (1960). The Collateral Source Rule. Ohio St. LJ, 21, 231.

The Collateral Source Rule in Alabama: A Practical Approach to Future Application of the Statutes Abrogating the Doctrine, Daigle, D. A. (2001). The Collateral Source Rule in Alabama: A Practical Approach to Future Application of the Statutes Abrogating the Doctrine. Ala. L. Rev., 53, 1249.

The Case for the Collateral Source Rule, Lambert Jr, T. F. (1966). The Case for the Collateral Source Rule. Ins. LJ, 531.

The collateral source rule and contract damages, Fleming, J. G. (1983). The collateral source rule and contract damages. Cal. L. Rev., 71, 56.

The Collateral Source Rule and Its Abolition: An Economic Perspective, Marshall, K. S., & Fitzgerald, P. W. (2005). The Collateral Source Rule and Its Abolition: An Economic Perspective. Kan. JL & Pub. Pol’y, 15, 57.

The Collateral Source Rule Sans Subrogation: A Plaintiff’s Windfall, West, L. R. (1963). The Collateral Source Rule Sans Subrogation: A Plaintiff’s Windfall. Okla. L. Rev., 16, 395.

The Collateral Source Rule and the Role of the Jury, Jacobsen, J. K. (1991). The Collateral Source Rule and the Role of the Jury. Or. L. Rev., 70, 523.

A Review of State Law Modifying the Collateral Source Rule: Seeking Greater Fairness in Economic Damages Awards, Benjet, B. (2009). A Review of State Law Modifying the Collateral Source Rule: Seeking Greater Fairness in Economic Damages Awards. Def. Counsel J., 76, 210.

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