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Collateral Source Rule Should Not Be Changed
Some of you may not have thought about the Collateral Source Rule since the bar exam. Others of you give it consideration on a regular basis as part of your practice. The December edition of this publication brought it to everyone’s attention with the thought-provoking cover story, “Time to Examine Tennessee's Collateral Source Rule?”
I appreciate when one of our members takes the time out of his or her busy schedule to reasearch and write for the Journal. Bill Walton’s article prompted several of you to call or write. I also appreciated the feedback from our members that reaffirmed my opinions about what good, vocal advocates we are for our clients and why the Collateral Source Rule does not need to be changed.
The Tennessee Bar Journal editorial policy states, “Statements or opinions expressed herein are those of the authors and do not necessarily reflect those of the Tennessee Bar Association, its officers, board or staff.” In this case, the views expressed did not reflect those of the TBA.
So to clarify any doubt or confusion caused by the December cover story, the Tennessee Bar Association opposes abolition of the Collateral Source Rule and is consistently, firmly and clearly committed to support the rule, which comes into play in tort actions. The rule excludes from consideration benefits (such as medical payments) from a source independent of the tortfeasor, know as a “collateral source,” when determining damages. The TBA has defended the Collateral Source Rule from legislative attack since the first wave of “tort reform” in the 1980s. During the 2011 legislative session when a proposal was advanced to abolish the Collateral Source Rule, the TBA, along with other bar organizations such at the Tennessee Association for Justice, vigorously and successfully advocated that Tennessee should maintain the Collateral Source Rule.
Bill Walton’s scholarly article looks at this issue strictly from a legal standpoint. The theory underlying the Collateral Source Rule is that a tortfeasor should be responsible for “all harm that he [or she] causes.” Restatement (Second) of Torts (1977) Section 920A. However, the public policy reasons promoted by the Collateral Source Rule are the principal reasons advanced for continuation of the doctrine. Personal responsibility is chief among these reasons. Under the rule, the fact that the injured party receives, for example, gratuitous medical care, continued salary or wage payments, or proceeds from insurance policies, will not be taken into account in computing damages. In essence, the Collateral Source Rule is meant to encourage citizens to insure themselves against damages and to encourage others to offer charity or gifts. This is not a view that begins from the idea that every citizen is going to be a plaintiff or defendant, but one that helps to order society in a more responsible way.
These public policy considerations can best be illustrated by a couple of examples, both involving the same injuries and damages. In the first hypothetical lawsuit, Plaintiff A is injured by a negligent defendant. Plaintiff A has a health insurance policy with Blue Cross which Plaintiff A either purchased dently or a received as a benefit of his employment. While the amount charged for Plaintiff A’s medical treatment is $50,000, because he is treated by medical providers who are in the Blue Cross network, the money paid by Blue Cross to satisfy the $50,000 medical bill is only $20,000. If the Collateral Source Rule was not applicable, Plaintiff A would be is compensated for medical expenses in his personal injury case for only the $20,000 paid by Blue Cross, and he would not receive credit or any benefit for the monthly premiums he or his employer paid to procure the health insurance. As a result of Plaintiff A (or his employer) being responsible and making a financial sacrifice to procure health insurance, the negligent defendant only pays $20,000, which Plaintiff A will in turn most likely have to pay over to Blue Cross because of a contractual subrogation or reimbursement provision in the policy insuring Plaintiff A. In resolving his lawsuit, Plaintiff A would be allowed to use only the $20,000 actually paid in medical bills as an element of his damages, and that figure would also be used in determining the extent of his injuries in calculating non-economic damages. It is a matter of simple economics to conclude that the discounted amounts paid by health insurance companies (the most common “collateral source”) do not fairly reflect the actual value of the medical treatment. Providers are motivated to accept less than the billed amount in order to enjoy prompt payment, assured collectability, avoidance of collection costs, increased administrative efficiency, and access and marketing to a larger pool of potential insureds/patients.
In another hypothetical lawsuit, Plaintiff B is injured by a negligent defendant. Plaintiff B does not have health insurance. Plaintiff B is charged the full “sticker price” of $50,000 for his medical treatment, for which the medical provider will in most cases have some sort of lien against Plaintiff B’s recovery. In Plaintiff B’s case, because he did not have health insurance, when resolving his case, he gets to use the full $50,000 incurred in medical bills as an element of his damages, and that figure is used in determining the extent of his injuries in calculating non-economic damages, even if Plaintiff B has never paid a penny toward his medical bill.
Therefore, if the Collateral Source Rule is abolished, Plaintiff A’s monthly payments of health insurance premiums ultimately do not benefit him, rather, they benefit the person who injured him by reducing the amount of damages, including those for medical expenses, Plaintiff A can potentially recover from the negligent defendant. However, Plaintiff B, who had no health insurance, can recover the full amount of his medical expenses and will likely be more highly compensated for his injury because of the greater amount of damages he will be able to prove when resolving his case. Indeed, the jury may not even consider the substantial cost Plaintiff A has incurred for health insurance which ultimately protects the negligent defendant. As between the two plaintiffs, Plaintiff B comes out ahead financially as a result of not having health insurance! This not a public policy that should be promoted and it would be if the Collateral Source Rule is abolished. The Collateral Source Rule prevents such an unfair situation from occurring.
Make Pro Bono Your Resolution
A January issue of a publication would not be complete without some mention of New Year’s resolutions. I hope you made some and have so far been successful at keeping them. This issue of the Journal is devoted to pro bono work. We all know that good feeling we get from helping someone as only a lawyer can on a pro bono basis. I hope we have all resolved to do more pro bono work in the coming year. Thanks to the TBA’s Access to Justice committee and other partners, there are new ways to do pro bono work such as by participating in OnLineTNJustice.org and answering questions online that are submitted by those who do not have the means to hire a lawyer. Perhaps you have resolved to learn a new area of the law. If so, many pro bono programs across the state, especially those operating in conjunction with a Legal Services funded program, offer some free training and hand holding to those willing to take a few pro bono cases. In fact, years ago that is how I took my first divorce case, and I will forever be grateful to Jean Crowe, who was a longtime domestic relations attorney at the Legal Aid Society of Middle Tennessee and the Cumberlands, for holding my hand through more than one pro bono representation. Jean is much deserving of the recognition she receives elsewhere in this publication.
Perhaps you have also resolved to eat “healthier” in the new year, or be more frugal financially, if so, this recipe will help you keep those resolutions.
TBA President JACKIE DIXON is a partner with Weatherly McNally & Dixon PLC in Nashville.