Legal Definitions - collateral-benefit rule

The collateral-benefit rule, often referred to as the collateral-source rule, is a legal principle that prevents a party responsible for causing harm (the defendant) from reducing the amount of damages they owe to an injured party (the plaintiff) simply because the plaintiff received compensation for their injuries from an independent third party. These "collateral benefits" can come from various sources, such as insurance policies, sick leave, disability payments, or even gratuitous services provided by others.

The purpose of this rule is to ensure that the wrongdoer pays for the full extent of the harm they caused. It prevents the at-fault party from benefiting from the injured party's foresight (e.g., by purchasing insurance) or from the generosity of others. In essence, if someone causes an injury, they cannot claim a "discount" on the damages they owe just because the injured person had other means of covering their losses.

Here are some examples to illustrate how the collateral-benefit rule applies:

• Example 1: Car Accident and Health Insurance

  Imagine Liam is severely injured in a car accident caused by another driver, Sarah. Liam's medical bills amount to $50,000. His personal health insurance policy covers $40,000 of these expenses. When Liam sues Sarah for his injuries, Sarah cannot argue that she only owes Liam $10,000 (the remaining balance) because his insurance paid the majority of the bills. Under the collateral-benefit rule, Liam can still seek the full $50,000 for his medical expenses from Sarah, as his insurance payments are considered a collateral benefit.

  This example demonstrates that Sarah, the at-fault driver, cannot reduce her liability by pointing to Liam's health insurance coverage. The benefit Liam received from his insurance is independent of Sarah's actions and does not lessen her responsibility for the full cost of the medical care she necessitated.

• Example 2: Workplace Injury and Disability Benefits

  Consider Maria, who suffers a serious injury at work due to a faulty piece of equipment, causing her to miss three months of work. During this time, she loses $15,000 in wages. Her employer's short-term disability insurance policy pays her $10,000 to cover a portion of her lost income. When Maria sues the manufacturer of the defective equipment, the manufacturer cannot claim that they only owe Maria $5,000 for lost wages because she received disability payments. Maria is entitled to seek the full $15,000 in lost wages from the manufacturer.

  This example illustrates that the manufacturer, as the wrongdoer, cannot benefit from the disability payments Maria received. These payments are a collateral benefit, and the manufacturer remains responsible for compensating Maria for the entire amount of income she lost due to their faulty product.

• Example 3: Property Damage and Homeowner's Insurance

  Suppose a negligent contractor causes significant damage to David's home during a renovation, resulting in $30,000 worth of repair costs. David's homeowner's insurance policy covers the full $30,000 for the repairs. When David sues the contractor for the damage, the contractor cannot argue that they owe nothing because David's insurance already paid for the repairs. The contractor is still liable for the full $30,000 in damages.

  This example shows how the collateral-benefit rule prevents the negligent contractor from escaping liability for the property damage they caused. The payment from David's homeowner's insurance is a collateral benefit, and the contractor must still compensate David for the full cost of the repairs.