What Is The Collateral Source Rule?

Suppose you are injured in an accident when an 18-wheeler plows into you. Your medical bills end up totaling $50,000. Your wealthy uncle, worried about your health and financial well-being, pays off your medical bills.

You then to decide to sue the driver of the truck and his company for your injuries.

During the lawsuit, the trucker and the company urge the judge to dismiss your case because you sustained $50,000 worth of damage, which was paid off by someone other than you.

The defendants claim you have been made whole because you did not have to spend any of your own money and that an award of $50,000 would only be a profit to you.

The Collateral Source Rule Explained

In this situation, you would invoke what is known as the “collateral source rule.”

The collateral source rule says that when you are injured and receive a benefit from a “collateral source,” i.e. someone other than you or the defendant, that does not relieve the defendant from responsibility or reduce the amount he or she owes you.

Put simply, your uncle deciding to cover your medical bills does not relieve the trucking company or the trucker from responsibility for your injuries or your $50,000 bill.

The rule was implemented to prevent a benefit you received from an unrelated third party from excusing the defendant from responsibility.


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Examples of the Collateral Source Rule

Common examples of the collateral source rule applying would be:

  1. Worker’s Compensation benefits;
  2. Your own insurance company covering you;
  3. Life insurance or
  4. Disability benefits.

Receiving benefits from any of these sources would not reduce or affect the amount a defendant is ultimately responsible for.

Keep in mind that when it comes to insurance, this only applies if your own insurance company covers you; if the defendant’s insurance company pays you, this would affect or reduce the amount the defendant owes you.

Exceptions to the Collateral Source Rule

In limited situations, the collateral source rule may not apply.

For example, if a third party covers your injury but you do not seek medical treatment for your injury or continue working after recovering from your injury, the rule may not apply.

Another instance in which the rule might not apply is if there are damage restrictions, often referred to as “caps,” on the amount of money you can ultimately recover for a claim.