The Basics of the Collateral Source Rule
Personal injury law has purpose as it affects rights and remedies for harms caused by the tort of another. There are a variety of rules and legal principles that govern how the rights of an injured party interact with the rights of the person or entity responsible for the injury. One of those rules is the collateral source rule. The collateral source rule is a principle of law which prohibits a defendant from introducing evidence that an injured party has received compensation from sources other than the defendant. For example, if an injured party has health insurance and obtains a benefit (even if there is a health insurance subrogation claim) from that health insurance, the defendant is prohibited from introducing this evidence to the judge or the jury. Even if there is a co-insurance provision, meaning the defendant can reduce the obligation by the percentage of the medical benefit paid , the defendant is not permitted to mention this to the judge or jury.
The definition of the collateral source doctrine explains what is prohibited:
A doctrine of common law, originally formulated in courts of equity, under which a tort victim who has been compensated for his/her injuries by a source (usually private) unrelated to the alleged tortfeasor is not liable to the alleged tortfeasor for expecting, or receiving, such compensation.
So, if you are hurt in New York and have health insurance or disability insurance or other provisions of recovery, these amounts will not be deducted from any compensation you receive from the person or entity otherwise responsible for your injuries, even if the person that hurt you might have health insurance. This means the amount you recover is more likely to be significant in the courts of New York and some insurance defense attorneys will try to discourage clients from pursuing their full rights.
The Collateral Source Rule in New York Explained
In New York, the courts have long recognized that the purpose of the collateral source rule is to "to prevent a defendant from profiting from his wrongful conduct." Sykes v. Guaraco, 224 A.D.2d 878, 879 (1996), citing Government Employees Ins. Co. v. Gagnon, 516 N.Y.S.2d 63, 65 (1987).
Although the New York courts have recognized exceptions to the collateral source doctrine, they have refused to minimize its application in most situations. The courts have consistently recognized that payments from collateral sources do not reduce the damages recoverable under the culpable party’s liability. See, e.g., Rizzo v. Cruciani, 222 A.D.2d 779 (1995); Waronicki v. Condry, 219 A.D.2d 585, 588 (1995); and, White v. Long Is. Jewish Med. Ctr., 199 A.D.2d 244 (2d Dept. 1993).
The "made whole" doctrine, which has been invoked in some jurisdictions, has not been recognized in New York. In Matter of Morateck, 80 N.Y.2d 56 (1992), the Court of Appeals stated that "the collateral source rule’s purpose in preventing a tortfeasor from reducing his liability through payment by a third-party source does not hinge on whether the plaintiff has been made wholly whole… ." Id. at 62. The court elaborated that "a party may be made whole even if another tortfeasor remains responsible in part for the same loss." Id. at 63. Thus, if a part of the plaintiff’s damages is covered by an insurance company, the plaintiff will be compensated to the extent of the loss, regardless of whether the insurance company is the sole source of recovery. See Ousmane v. Sultenfuss, 270 A.D.2d 222, 730 N.Y.S.2d 499 (2000).
New York formulated its own clearly defined public policy regarding limitations of liability by statute in CPLR 4545. CPLR 4545 was enacted in response to Rising v. New York City Health & Hosps. Corp., 96 N.Y.2d 273 (2001). CPLR 4545 places a limit on the number and types of collateral sources of compensation which may be deducted from an injured party’s recovery. The section applies to all actions involving personal injury or wrongful death, regardless of the source of those actions. CPLR 4545 excludes all policy limits from being deducted from a plaintiff’s damage award. See McConocha v. City Supports, Inc., 2013 NY Slip Op 33369(U)(Sup. Ct., 11/27/13).
Personal Injury Cases and the Collateral Source Rule
In personal injury cases, the collateral source rule can significantly impact the outcome of a case. In New York, this rule generally prevents defendants from introducing evidence of payments made by third parties to the injured party, or that the injured party has paid for the medical treatment through insurance. This ensures that the injured party is not unfairly penalized for the fact that he or she has insurance or has received other sources of compensation.
However, there are some exceptions to the collateral source rule. For instance, in some cases, evidence of collateral source payments may be admitted to rebut fraudulent claims made by the plaintiff. In other cases, a court may reduce a plaintiff’s recovery if the plaintiff has received payment for medical expenses from a government program. These exceptions are rare, but they can limit the application of the rule.
One example of the impact of the collateral source rule can be seen in the 2016 case of Monachino v. Papanicolao et al., in which a plaintiff was denied workers’ compensation benefits after he filed a claim for injuries he sustained in a car accident. The plaintiff had received workers’ compensation payments prior to filing his personal injury lawsuit, and the defendants tried to use the workers’ compensation payments as evidence against the plaintiff. However, the court held that the defendants could not rely on the plaintiff’s receipt of workers’ compensation benefits to support their arguments, since the plaintiff was denying those benefits and was seeking them from the workers’ compensation board.
In another case, the 2011 case of Sweeney v. Brooklyn Union Gas Co., the court ruled that a plaintiff who was injured in a motor vehicle accident could not recover damages for lost wages, since the plaintiff was receiving 100 percent of his salary from his employer. The court determined that the plaintiff’s union would negotiate to obtain a settlement from the defendants to cover his medical bills.
The collateral source rule can have a substantial impact on the recoveries that a plaintiff receives in a personal injury lawsuit, affecting both economic and non-economic damages. An experienced personal injury attorney in New York can help to ensure that the collateral source rule does not diminish any recovery you may be entitled to in a personal injury lawsuit.
The Exceptions to the Rule in New York
The following are several exceptions to the rule. In other words, the collateral source rule does not bar the reduction of damages when there is a benefit provided to an injured plaintiff that is attributable to the fault of the defendant itself, or where the benefit is in lieu of payments to be made by the defendant. In the first situation, if an insurance company and the insured have a relationship in which the insurer uses its economic leverage over the insured to obtain a waiver from imposing premiums, the parties’ arrangement is effectively a contingency fee agreement and the insurer should not be allowed to collect on a windfall profit at the expense of the tortfeasor . In the second situation, if a plaintiff elects to receive a settlement from a collateral source, the source satisfies their obligation to pay to the insured and any excess left over after the insured is made whole should reduce the damages award. In the third situation, any payment under a subrogation action or cross-claim for contribution or indemnification triggers the set-off provision of Civil Practice Law and Rules (CPLR) 1602, which allows the defendant to negate the collateral source award by the amount paid to the plaintiff. Lastly, where an injured plaintiff receives compensation "as a substitute for the right of action and damages" from "the tort-feasor or anyone acting for him if by virtue of contract, covenant, statute or otherwise the right of action and damages is so transferred," courts may subtract the received payment from the collateral source award.
Recent Developments in the Law
As discussed in the article above, the New York State Legislature passed two bills that would have directly affected the collateral source rule. In August 2007, the then-governor vetoed the bills citing separation of powers. The Senate already has indicated it will revisit this issue during the 2008 session. Until then, the collateral source rule will remain unchanged in New York state courts. That said, several noteworthy developments have taken place in New York recently with respect to the collateral source rule. The 2006 New York State Supreme Court, Appellate Division, Second Department case of Hubert v. Johnson, 34 A.D.3d 615 (2d Dept. 2006) altered the issue of collaterally sourced fringe benefits. In Hubert, the Court held that "[p]roperly formulated jury instructions should allow the jury to apportion damages according to culpability before any offset for collateral sources is applied." 34 A.D.3d 615 at 617-18. Accordingly, the Second Department held, "jury instructions must specify to the jury the proportionate degree of fault attributable to each party," and the judge should recalculate the damages award after the jury apportions the damages. Id. at 618. While this holding may appear to be helpful to defendants in tort actions alleging personal injury, Hubert is actually quite fair to plaintiffs and defendants alike. Hubert clarifies that the judge, not the jury, will determine whether the jury apportioned the damages properly. Recently, the New York State Assembly and Senate passed another bill which, if signed into law, will have a direct effect on the collateral source rule in New York. On June 17, 2008 the New York Senate voted to override the Governor’s veto despite being pushed back by the Governor. With regard to the pre-2002 amendment ballooning charges, most defense experts agree that the 2007 amendments only affect those injuries incurred on or after January 1, 2002. Therefore, the ballooning procedures are barred under the new law to the extent they address injuries incurred after December 31, 2001. However, there is some dispute whether the new law applies to those injuries incurred prior to and including December 31, 2001. Some defense experts believe that the statute does not apply to any injury occurring prior to January 1, 2002. There is no question that the 2007 amendment does not affect future injuries. However, the new amendments must be read in conjunction with the 1996 reform amendments, which extended the statute of repose for future injuries to 10 years. This allows defense attorneys another argument for limiting the dollar amount of a plaintiff’s recovery. Defense attorneys moving for summary judgment based on § 4545 argue that under the 1996 amendments, ballooning charges that occur within three years after treatment may be recouped up to three times the amount of the plaintiff’s proof. Because ballooning charges incurred in 2005 and 2006 would still fall under the six-year requirement of the prior law, the defense is trying to force the courts to apply the 2007 amendments prospectively to all injuries occurring on or after 2002. The appellate courts will have to resolve the different opinions on the scope of the 2007 amendment to the collateral source rule and to what extent the 1996 statute of repose applies.
Things to Keep in Mind for Claimants
Claimants and their counsel may face challenges in defending claims that an award is being unjustly enriched by the presence of health insurance or public benefits. The injured party should consider maintaining a record summarizing the relevant information they receive related to the benefits they have received. This record should include the date of the benefits provided, the insurance company or entity providing the benefit (e.g., name of the insurance company or governmental agency providing public benefits), the category of benefit (e.g., hospital care, physician services), the dollar amount of the benefit provided , and any other information that may be relevant to the calculation of subrogation rights. It may also be important to note why a medical service was provided even if the service may never be provided as a separate line item on a bill. Generally, a health insurance carrier will not segregate payments for services that are billed together. In the absence of such itemized billing, a claimant may be required to provide evidence of what portion of the bill is attributable to a specific category of medical services or treatment (e.g., physical therapy compared to physician services) to the extent possible.