What is the “Collateral Source Rule” and How Does it Affect My Personal Injury Case?

In New York personal injury and medical malpractice litigation, injured victims are entitled to ask a jury to award various items of damages (i.e., compensation), including, but not limited to, pain and suffering, lost wages and employment benefits, and medical expenses.  A jury may award compensation for “past” and “future” losses; the “past” losses are calculated from the date of the injury through the date of the jury’s verdict, and “future” losses are calculated from the date of the jury’s verdict through a date in the future selected by the jury based upon the evidence presented at trial as to how long the injured plaintiff (a “plaintiff” is the person who has been injured and who brings the lawsuit) is likely to continue experiencing the loss.  With respect to lost wages, lost employment benefits and medical expenses, however, “collateral sources” such as health insurance and disability insurance are often available to an injured plaintiff to pay for things like medical expenses or to replace lost wages incurred as a result of a disability from working.  In many cases, the injured plaintiff would be entitled to receive these benefits in the event of a serious disability whether or not he or she ever brought a lawsuit.

In New York personal injury lawsuits in which an injured plaintiff is awarded compensation for medical expenses or lost earnings (e.g., wages and social security benefits) or lost employee benefits (e.g., entitlement to medical insurance, pension benefits), the “collateral source rule”, codified in N.Y. C.P.L.R. Section 4545, may reduce the amount of compensation that can actually be collected from a judgment where a defendant can prove that the plaintiff’s losses are almost certain to be replaced by “collateral source” payments, and that the plaintiff will not experience any true “out of pocket” loss.  Though, in practice, the application of this rule is very complex (often involving additional hearings after the conclusion of the trial), the purpose of this article is to give injured accident victims a very basic, lay-person-level understanding of how this important rule may apply to their New York personal injury or medical malpractice case.

The “collateral source” rule is generally applied after a trial has completed (at a hearing before the judge after the jury has been discharged), and a jury has awarded damages for medical expenses and lost wages and employee benefits.  The rule requires that, within a short period of time after the verdict, a defendant make a request to the trial court for a hearing, at which time the defendant must prove, with “reasonable certainty” (a fairly high standard of proof), that there exist “collateral sources” (i.e., alternative sources of payment or reimbursement) which will pay the costs associated with particular categories of damages, and that thus the jury’s award should be reduced as to each applicable category of damages.

Though the actual application of this rule is exceedingly complex, and contains various exceptions (e.g., for Medicare and life insurance benefits), the general rule is this: Each category of damages (e.g., medical expenses) will be reduced from the amount awarded by the jury down to the sum of the amount of insurance premiums actually paid by the plaintiff for the two years preceding the verdict plus the projected future cost of maintaining the insurance benefits which offset the plaintiff’s damages (e.g., the cost of maintaining health insurance that will pay all of the plaintiff’s future medical bills).  However, in order to obtain any reduction for future damages, a defendant must prove, again with “reasonable certainty”, that the plaintiff will be “legally entitled” to continue to receive the “collateral source” benefit pursuant to a contract or enforceable agreement so long as he or she continues to pay an insurance premium or similar financial obligation to maintain the future benefit.

To learn more about how the “collateral source” rule may affect your New York personal injury lawsuit, contact Jesse Minc today at (718) 354-8000, or by email through the “Contact” section on this website.