What Exactly is the Collateral Source Rule?
The general gist or concept of the collateral source rule is that damages awarded to a plaintiff cannot be reduced by funds from sources independent of the at-fault party. In practical terms, if a plaintiff is injured and has medical bills, the collateral source rule requires the jury to award the plaintiff the full price of hospital bills even if doctors and hospitals discount their fees for purposes of payment by health insurance. An example of how the rule is applied is as follows:
A plaintiff suffers a car wreck and has broken bones. If doctor A charges $80,000 for surgery on the bones, and doctor B does the same exact procedure for $40,000 if the client pays cash, then the jury has to award the higher amount ($80,000) even though the functionally identical care is available for half the price if the plaintiff has no health insurance.
A variation of this rule exists in Virginia which has what is essentially a sliding scale. If a liability insurer is being asked to pay medical bills directly , it pays the lower of what the injurer owes the person requiring medical care, the amount of the medical bills or the amount accepted by the medical provider as full payment for its services.
Generally, the rule is in place in many states and jurisdictions in an attempt to discourage at-fault parties from shifting the responsibility for paying for injuries to the injured party and to make sure that at-fault parties remain liable for all of their damages rather than simply making those responsible for the accident whole for the costs they immediately paid out.
Some states allow for a jury instruction on the collateral source rule, where others do not. But with the collateral source rule the concept is the same: just because the injured party, Plaintiff, actually paid less for her damages, or someone else paid those damages for Plaintiff, even if it was through a legitimately purchased health insurance plan, the at-fault party will still be held responsible for paying the greater, unpaid amount.
How the Collateral Source Rule Works
In Virginia, the collateral source rule is coterminous with the concept of provable damages in personal injury litigation. In keeping with the traditional rule, Virginia follows the general rule that a plaintiff will not be barred from recovering full damages even if those damages have been compensated by a third party. The Virginia Supreme Court adopted the rule in 1854 and has affirmed its application by affirming jury verdicts and judgments not subject to set-off.
However, the Virginia Supreme Court has recently reaffirmed the notion that mitigation of damages is the duty of the plaintiff, charging the appellate court with ensuring that the jury has not included damages which are not recoverable in its verdict. In Snyder v. Potter, the Court concluded that no recovery for past and future medical expenses was properly ordered where, as a result of a family member’s insurance electing to pay expenses as they were incurred to relieve its insured of the obligation to pay them, the estate of the decedent did not have an obligation to reimburse the insurer.
Because plaintiffs often have both health insurance and personal automobile insurance, their actual out-of-pocket medical expenses may be fully covered even if medical bills remain unpaid. For example, there are often uninsured motorist and medical payments coverage in addition to health insurance. However, unreimbursed medical expenses (the difference between the amount paid for the services and the amounts paid by collateral sources) will, in most instances, be recoverable under Virginia law.
Due to the lack of statutory language, there is little guidance beyond these cases, leaving the application of the collateral source rule to practitioners’ sound judgment and the discretion of the jury.
Collateral Source Rule’s Effect On Virginia Personal Injury Cases
This rule has important implications for personal injury cases within the state. In the context of these suits, the collateral source rule helps ensure that compensation awarded to a plaintiff is not diminished by payments received from independent sources. For example, if the injured person has private health insurance, or if they receive Social Security disability payments, no part of their jury award would go to recoup these funds. Furthermore, when insurance coverage applied to an injured person’s medical bills, any recovery against the defendant would be reduced by the amount of the lien taken by the insurance company. The effect of this is that the full amount of bills can be collected without offsetting those expenses against other payments received by the plaintiff. Assuming the Virginia statute maintains its present form, the collateral source rule will continue to apply to cases where the underlying injury took place, or the injured person was residing within Virginia at the time of the accident.
Exceptions and Limitations To The Rule
There are a number of exceptions and limitations to the collateral source rule, which can apply in certain contexts or under specific circumstances. For one, Virginia does not allow compensation from multiple collateral sources to be stacked on top of one another. This means for example, that if an injured plaintiff is compensated by two different health insurance policies for the same medical expenses, resulting in a double recovery, the court can be guided by the jury instruction in Virginia Model Jury Instruction No. 40:4, which provides:
It is the duty of the jury to award [name of plaintiff] the full amount of her damages. The defendant may introduce evidence that [name of plaintiff] was compensated or will be compensated by . . . (the sources of collateral sources of compensation). In such a case, you may award to [name of plaintiff] the compensatory damages sustained because of the . . . (the injury inflicting the plaintiff) without adding the sum of the collateral sources.
More importantly, Virginia has held that the collateral source rule does not apply in wrongful death cases. That is because damages in wrongful death cases are primarily intended to benefit the survivors or estate of the victim rather than the victim himself. Federal Ins. Co. v. Smith, 230 Va. 28, 31 (1985). A party seeking to introduce evidence of collaterally compensated amounts can ask the trial judge to admit evidence that the deceased did not incur the medical expenses as a matter of law. Brown v. Ney, 215 Va. 113, 114-15 (1964).
Similarly, the collateral source rule did not apply in Bormann v. White to evidence of legally mandated wage continuation coverage provided by the employer. 42 Va. Cir. 536, 540-41 (Va. Cir. Ct. 1996). Thus, that evidence is admissible at trial.
Case Law Updates and Further Considerations
Virginia courts have continued to apply and clarify the collateral source rule throughout recent years. In Orthopaedics Virginia, P.C. v. Smith, 62 Va. App. 141 (Va. Ct. App. 2013), the Virginia Court of Appeals upheld the application of the collateral source rule in a case where the plaintiff’s employer had paid most of her medical bills. Although the parties disputed whether the plaintiff was entitled to recover the full amount of the medical bills or only the discounted bills that her employer actually paid, the court held that even though the employer paid the medical bills , the plaintiff could still recover the full bills as damages.
Similarly, in Educ. Credit. Restoration Servicing Corp. v. Dinwiddie Gen. Hosp., 279 Va. 611 (Va. 2010), the Virginia Supreme Court reaffirmed that "the collateral source doctrine holds that when an insured person suffers personal injuries" and is "covered by insurance that provides benefits for the payment of medical expenses, the wrongdoer may not take advantage of the insurance coverage" by reducing the liability of the wrongdoer. The Supreme Court upheld the trial court’s jury instructions on the collateral source rule over the defendant’s challenge.
Tips to Make the Most of The Rule
For attorneys and claimants alike, an understanding of the collateral source rule is essential for effective litigation strategy. Here are some practical tips: Clarify your intent from the outset: Make it clear to your opponent that you intend to present evidence of collateral sources. Oftentimes, defendants are unaware of their options in this regard. While other courts across the United States allow a defendant to preemptively plead a collateral-source reduction, Virginia does not allow this practice. However, early warning that you intend to plead a collateral-source reduction will help avoid against a surprise violation of a settlement.
Know the exceptions: A good defense attorney will eagerly caveat your complaint or otherwise make clear to the court that they will make a collateral-source reduction, but they will often forget to mention the exceptions to the rule. The most frequently omitted exception is the testimony of employers and insurance companies. All employers are legally required to obtain coverage for their employees, and if coverage of the claimant’s wage loss was not obtained, the employer should be able to testify to this fact or even should be put onto the witness list.
Avoid playing to the jury’s sympathy: Jurors tend to look unfavorably upon any plaintiff who is perceived as trying to get money they do not deserve. If evidence of collateral sources is misused and presented as being for the purpose of getting extra money when it is not warranted, the result can be undoubtedly disasterous. Be sure that your presentation of the removal of collateral sources is relevant to the issue of damages, and avoid overloading the evidence with information which is not relevant to damages.
Make your proof easy: Part of the reason for which the collateral source rule was enacted is to make it easy for the judge to determine issues of damages. Take the judge’s busy schedule into account when proving up collateral sources. Submitting straight forward, readable medical bills and medical records will not only allow the judge to address the collateral-source issue more quickly, but will also improve the overall quality of your trial. At the same time, it makes it easier for the judge to spot procedural mistakes made by the defense.
The Future of the Collateral Source Rule In Virginia
The fate of the collateral source rule in Virginia is likely to be a balancing act between legislative reform and judicial precedent. In recent years, various bills have been introduced in the General Assembly aimed at amending current collateral source laws. While these efforts have not succeeded thus far, mounting pressure from the business community coupled with a perception that juries are being swayed by excessive damages awards continue to keep this issue alive in legislative corridors.
Notably, in early 2023, an updated version of the Mandatory Insurance Disclosure Act (also referred to as SB 811 or the "Mediocre New Law" bill, sponsored by a Republican senator) fell short of becoming law, while a proposed amendment to the Virginia Law that would prohibit plaintiffs from recovering damages for medical expenses that have been paid or will be paid through any public or private insurer has not yet seen any legislative action. Thus, the future of the collateral source rule in Virginia remains uncertain .
Compounding the judicial struggle to define and limit future collateral source recoveries are the failure of the General Assembly to pass measures that would weaken the rule. The relevant bills have either been watered down or their proponents are simply waiting for the right legislature to pass such restrictions.
In the absence of legislative change, the trend in the judicial process since the 2015 decision in Hodge v. Copeland suggests that the court will continue to rely on language from prior decisions. Virginia Courts may, therefore, narrow this issue on a case-by-case basis until there is sufficient consensus with respect to the relevant collateral source issues that they can act according to the precedent offered by its prior holdings, or until legislative action requires a specific approach to this legal issue.
Ultimately a collaborative approach between all stakeholders may provide the best avenue to resolve the future of the rule, the current understanding of which leaves significant uncertainty.