Holy Gray-Haired Tom Cruise! What in the World is the Collateral Source Rule?

So this one might get a little tricky, folks.  If you haven't read our recent article on Billed-versus-Paid, you'll want to go ahead and do that now.  The Collateral Source Rule interacts pretty closely with Billed-versus-Paid, so a complete understanding of either will require a degree of familiarity with both.

We're going to start today with a nice example.  If you're bored already, don't worry; it involves math!  Let's say you got hurt in an accident for which you bore no fault.  You ultimately end up with $75,000 in medical bills.  Your health insurance, provided through your job, pays most of the bills at a contracted discount of $30,000.  You end up paying a total of $1,000 in co-pays.  So the question becomes, what amounts can you claim in your personal injury action?  More importantly, what amounts can't you claim?

The Collateral Source Rule is "common law" in North Carolina, and it essentially says that a tortfeasor (or typically, the tortfeasor's insurer) doesn't get to write-down the amount of their liability because part or all of that amount has already been paid from another source.  Put another way using the above example, the auto insurance company stays on the hook for the $30,000 that your health insurance paid, even though you never became personally liable for that amount.  

See any problems here?  For instance, doesn't the Collateral Source Rule open the door for a harmed plaintiff to obtain a double-recovery "windfall" by getting their bills paid by health insurance, and then getting that amount again from the auto insurance carrier?  The simplest answer is that yes, double-recovery is a possibility in these instances.  However, it's important that we balance that against the fact that, in a vast percentage of cases, health insurance carriers will have a contractual or statutory right to "subrogate" from the recovery.  That means that they might be entitled to some or all of the recovery proceeds.  Reading our example scenario, you might remember that employer-provided health plans are typically governed by ERISA, which is nearly always able to recover all of the money they've paid for treatment of your injuries.  Despite the fact that North Carolina has a strict anti-subrogation statute, this can be circumvented where the plaintiff's health insurance is provided by entities like Medicare, Medicaid, the State Employees Health Plan, and several others.  

Let's go back to the example for a sec.  Does your demand end up being for the full $75,000, the $30,000 that insurance paid, the $1,000 you paid, or some combination of the three?  Well, keeping Billed-versus-Paid in mind, we can conclusively say that the $75,000 is out; that's the amount that was billed, which we now know is inadmissible against the amount that was actually paid ($30,000).  So Billed-versus-Paid being implicated, you can claim the health insurance contribution of $30,000, plus your personal contribution of $1,000.  Remember that the Collateral Source Rule prevents the auto insurance company from pointing at the $30,000 and denying that amount on the grounds that the plaintiff didn't end up having to pay it.  So to the extent that Billed-versus-Paid is a tool for the auto insurance industry, the Collateral Source Rule is a tool for plaintiffs who have been harmed by the negligence of others.

The Collateral Source Rule also has implications for scenarios where the plaintiff's injuries force him or her to miss work.  If the plaintiff has to use paid sick days during this time, the auto insurance carrier might try to claim that the plaintiff isn't entitled to compensation for lost wages.  The Collateral Source Rule functions in this case to say, "Not so fast, insurance company!"  Just because the plaintiff was "paid" from another source when he or she missed work, the insurance company doesn't get to claim a reason for not paying out.

There's more coming next week on Lost Wages and how you can claim them.  Until then, behave yourself, and give us a call with any questions!