You’re driving south on Interstate 95 when you are suddenly rear-ended by a drunk driver. Your hospital bills will be high, your new car is totaled and it will be many months before you can return to work. But when you sue the drunk driver for damages, he says he owes you nothing because you had health insurance, which covered your hospital bills, you were prudent enough to have collision insurance on your car and you also had disability insurance to pay you for the time lost from work.
For over two hundred years we have had a legal principle called the “Collateral Source Rule,” which prevented someone like the drunk driver from getting off scot-free just because the injured party was cautious enough to have insurance. But that Rule is under serious threat in Virginia.
The Collateral Source Rule is part of the ancient judge-made Common Law that the earliest colonists brought here from England. The U.S. Supreme Court specifically recognized it at least as early as 1854.
Under the Collateral Source Rule, a wrongdoer, who the law sometimes calls a “tortfeasor,” is responsible for compensating the injured party for all the injuries and property damage he causes. This remains so regardless of whether or not the injured party has insurance for his loss or whether his family, friends or employer help him to recover from the loss he has incurred. All these other sources, insurance, family, friends, an employer, are called “collateral sources” because they are not related to the wrongdoer; and the wrongdoer is not supposed to get any credit for any compensation or other help they may have provided.
The reasoning supporting the Rule is sometimes described like this: the defendant, whose negligence has injured another, owes to such other full compensation for the injuries he has inflicted and the payment for those injuries from a collateral source cannot relieve the defendant of his obligation. The wrongdoer cannot reap the benefit of an insurance policy for which he has not paid.
The Collateral Source Rule thereby serves to protect a fundamental principle in the law, which is that one who commits a wrongful act is responsible for all the damage caused by that act. That principle is essential to assure that the injured party is made whole financially for the loss caused by the wrongful act. It also protects society by discouraging wrongful acts by making sure that, one way or another, the guilty party will pay for them. The Collateral Source Rule is also a lynch pin of consumer protection because it prevents companies from avoiding responsibility for the harm caused by defective products simply because the consumer that got hurt had insurance.
In Virginia, the Rule is both a rule of evidence, that is, whether you have insurance is not supposed to be admitted in evidence in your suit against the wrongdoer, and a rule of damages. This means that the compensation to which you are entitled is not reduced by anything your insurance company may have paid you.
Perhaps, some people might think that allowing the injured party to have his hospital bills paid by his health insurance carrier and then recovering for the injury from the wrongdoer was a kind of windfall or double recovery for the injured party. But our Virginia courts, as well as those elsewhere, have rejected that notion. For example, in a 2000 case called Acuar v. Letourneau, the Virginia Supreme Court said: “To the extent that such a result provides a windfall to the injured party, we have previously recognized that consequence and concluded that the victim of the wrong rather than the wrongdoer should receive the windfall.”
But the Collateral Source Rule is under heavy attack from “ATRA,” American Tort Reform Association, a group of chemical, tobacco, drug and insurance companies, who would like to save themselves some money. Flying under the flags of “tort reform” and improving public policy, members of this self-serving special interest group would simply like to be relieved of their current financial responsibility for harm caused by defective products. Joining them are defense lawyers who service clients who would also like not to have to pay for the injuries they cause.
In a recent 2014 case from neighboring West Virginia, called Kenney v. Liston, a drunk driver seriously argued that he should not be financially responsible for injuries he caused because the injured party had health insurance that paid the medical bills and that the drunk driver should also get the benefit of the reduced costs the health insurance company had negotiated with various health care providers.
Unfortunately, such attacks on the Collateral Source Rule are not uncommon and have gained some ground here in Virginia. In a 1988 case called Schickling v. Aspinall, our Supreme Court went way out of its way to call the Collateral Source Rule into question. In a footnote to its opinion it said that, “arguably,” the balance is upset and the logic underlying the Collateral Source rule “is defeated when the wrongdoer is insulated by insurance from liability for his wrong and the plaintiff’s insurer is entitled, by way of subrogation, to the plaintiff’s right of recovery against the tortfeasor.” What this means is that, perhaps, the Collateral Source Rule prohibiting the wrongdoer from getting credit for the injured party’s insurance should not apply where the wrongdoer is also insured and the injured party’s insurance company has the right to be “subrogated,” paid back, for anything it has laid out for the injury.
The footnote is highly unusual because courts are not supposed to speculate, but only to keep their opinions narrowly focused on the case they are deciding. It’s also oddly out of touch with reality because, with the exception of health insurance, almost all insurance companies are always “subrogated,” entitled to be reimbursed for the payments they have made to their insureds from the insureds’ recovery from the wrongdoer. So, the possible exception that the Court was thinking about would actually occupy a huge amount of Collateral Source Rule territory.
Ignoring the principle of judicial restraint, manufactured entirely out of whole cloth and apropos of nothing, our Court has already wondered aloud whether the Collateral Source Rule should apply when an injured party’s insurance policy contains a subrogation clause, which almost all insurance policies, except health insurance policies, do.
Fortunately, many courts have rejected the ATRA-led invitation to abrogate the Collateral Source Rule and relieve wrongdoers of their responsibility to compensate injured victims. Addressing the very issue raised by our Supreme Court as to whether the rule applies if the injured party’s insurance policy has a subrogation clause, Oklahoma, in its Dippel v. Hunt case says, “Actually when the smoke of controversy clears away much can be said for the notion that it is really none of the tortfeasor’s concern what rights might exist between the tortfeasor’s victim and the latter’s own insurance carrier.”
Kansas, in its Southard v. Lira case, says that the Collateral Source Rule is “not affected by the fact that the insurer is entitled to be subrogated to the rights of the insured, as against the tortfeasor, or to recover back from him the amount he recovers.” Kentucky, in its Schwartz v. Hasty case, similarly says that “any agreements concerning subrogation rights between the insured and insurer are of no consequence or concern of the tortfeasor except to avoid his subjection to double recovery exceeding the amount of tort damages.”
It can only be hoped that when an appropriate case reaches the Virginia Supreme Court it will join Oklahoma, Kansas and Kentucky in holding that the Collateral Source Rule continues to apply regardless of what’s in the injured party’s insurance policy and reject ATRA’s efforts to abrogate the Rule, which has provided just compensation to injured parties and enforced responsibility against wrongdoers since the founding of our Republic.