Allocating the costs of harm to whom they are due: modifying the collateral source rule after health care reform.

• Author: Levenson, Rebecca

INTRODUCTION I. CURRENT ROLE OF THE COLLATERAL SOURCE RULE II. TRADITIONAL DEBATE OVER THE COLLATERAL SOURCE RULE A. Arguments Supporting the Collateral Source Rule B. Arguments Opposing the Collateral Source Rule III. INTRODUCING THE ISSUE OF THE UNINSURED CLAIMANT: HOW THE INDIVIDUAL MANDATE CHANGES THE SCOPE OF THE COLLATERAL SOURCE RULE DEBATE IV. THE EFFECT OF MODIFYING THE COLLATERAL SOURCE RULE IN THE WAKE OF HEALTH INSURANCE REFORM A. Political Benefits B. Purpose of Tort Law C. The Collateral Source Rule as a Rule of Damages Versus a Rule of Evidence D. Subrogation E. Exemptions V. PROPOSING MODIFICATIONS TO THE COLLATERAL SOURCE RULE A. Objectives of Modifying the Collateral Source Rule 1. The Willfully Uninsured Claimant 2. The Insured Claimant 3. The Claimant Exempt from Purchasing Insurance B. Model Statute for the Introduction of Evidence Pertaining to Collateral Sources C. Effect of the Model Statute CONCLUSION INTRODUCTION

For decades, the collateral source rule has been a target of tort reform on both state and national levels. (1) The rule, which at common law prohibits the introduction of evidence regarding collateral payments received by the claimant in a suit for damages, (2) has sparked a long-standing debate. Its proponents cite its potential to align the costs of injury with tortfeasors and to deter tortious conduct, while its opponents claim that the rule results in double recovery for claimants and inflated insurance costs. The result of this debate has been varied treatment of the rule, with some states following the common law rule, some limiting its application, and some abrogating it in full. (3) Calls for tort reform have been widely influential throughout the states. Most states have already limited or abrogated the rule, and it is possible that other states as well as the federal government may follow suit. (4)

The application of the collateral source rule has become more complicated since the passage of the Patient Protection and Affordable Care Act, (5) which contains a provision establishing an individual mandate to obtain health insurance. (6) While the insured plaintiff may have benefitted from the collateral source rule before the Affordable Care Act was passed, now an uninsured claimant may benefit under the rule. (7) Under the common law collateral source rule, evidence that a plaintiff has chosen to shirk his obligation to purchase insurance must be excluded. (8) The rule's ban of insurance evidence may have the result of protecting--as opposed to penalizing--Uninsured claimants. The decision to forgo insurance that may have covered the uninsured claimants' medical expenses is hidden from the jury, whose members presumably have complied with the mandate. Under the new health care law, both insured and uninsured plaintiffs stand to gain from the use of the collateral source rule. This outcome may provide an additional incentive for states and the federal government to limit or change the common law rule.

Although commentators have put forth many arguments both supporting and opposing the use of the collateral source rule, they have proposed fewer models for its revision. This Comment will provide a model for updating and partially abrogating the collateral source rule in personal injury cases. It will examine the effect that the model will have on the outcome of these cases and the fulfillment of new policy goals in the wake of health care reform. Part I will explain the current state of the collateral source rule and will provide an overview of how it has been changed across the states. Part II will summarize the debate surrounding the elimination of the rule. Part III will address how the Affordable Care Act has changed this debate. Part IV will evaluate the consequences of modifying the collateral source rule in personal injury cases. Finally, Part V will provide a model for limiting the rule.

1. CURRENT ROLE OF THE COLLATERAL SOURCE RULE

   The common law collateral source rule prohibits reducing the amount of damages that an injured claimant is entitled to receive from the tortfeasor as compensation for reasonable medical expenses. (9) The rule therefore bars the introduction of evidence that a collateral source, such as an insurer, paid these expenses for a claimant. (10) Though the precise definition of "collateral source" varies from state to state, it is generally accepted that a collateral benefit is any form of payment provided by a source other than the tortfeasor that repairs the claimant's injury. (11) These sources can include health insurance, automobile accident insurance, disability payments, worker's compensation, and other programs and agreements that provide or pay for medical or other related expenses. (12) Payments made to the claimant by the tortfeasor, on the other hand, are admissible at trial and are credited to the tortfeasor in the computation of damages. (13)

   At trial, the collateral source rule plays both a substantive and an evidentiary role. (14) The evidentiary function of the rule is to determine what evidence pertaining to collateral sources may be introduced at trial for the jury to consider when deciding the defendant tortfeasor's liability. That is, it governs the question of whether the fact that the claimant was insured can be considered in determining if the defendant is at fault. The common law collateral source rule prevents the defendant from presenting evidence that the claimant possessed insurance to the jury before the verdict. (15) Some state statutes allow the defendant to do so in some or all circumstances. (16) The rule does not prevent the claimant from introducing evidence regarding his insurance coverage.

   The substantive, or damages, function governs whether a claimant's damages may include expenses already covered by a collateral source. (17) Once the jury has returned a verdict and a damages award, some states allow the amount the claimant received from the collateral source to be subtracted from the award. (18)

   Every state and federal (19) court has adopted the collateral source rule in some form. (20) Presently, many states have acquiesced to the demands of tort reform movements by limiting the reach of the collateral source rule or abrogating it in full. (21) In some state courts, (23) as well as in federal courts, (24) the rule remains intact. As a result of the wide disparity in the application of the rule across states and federal courts, claimants in different courts can expect widely different outcomes. (25) Since the law remains unsettled as to whether the collateral source rule is procedural or substantive, the discrepancies between the rule in different jurisdictions promote varying outcomes in federal diversity cases as well. (26)

   The differences among state collateral source rules reflect the divisiveness in the debate over the need for the collateral source rule, as well as states' differing reactions to numerous calls for tort reform. However, the academic debate over the rule has concentrated much more closely on the theoretical underpinnings of tort law.

2. TRADITIONAL DEBATE OVER THE COLLATERAL SOURCE RULE

   Originally, (27) courts justified the collateral source rule as a means of promoting tort deterrence (28) and ensuring that a defendant tortfeasor would not benefit from the injured claimant's insurance coverage. (29) Some scholars, including John Fleming, note that the rule was more applicable at the time it was adopted, given the relative unavailability of collateral source coverage during the nineteenth century. (30) However, more frequently critics debate the rule's success in promoting the theory and policy of tort law. Traditionally, there has been little disagreement or discussion about the uninsured claimant who is entitled to the costs of his medical expenses from the tortfeasor because the claimant has no collateral source to cover the costs of care. Insurance law has not changed in any way that materially would alter the scope of the debate, and so the dialogue has effectively reached a standstill--both sides have focused almost exclusively on the value of allowing the insured claimant to recover from the tortfeasor despite the claimant's insurance coverage. (31)

   Before the Affordable Care Act, the debate over the collateral source rule had effectively reached equilibrium with different states persuaded by each side. Aside from changes in the public perception of the insurance industry and in the industry's practices with regard to subrogation and increased coverage, the collateral source rule debate remained largely the same as it was decades ago. Fundamentally, the disagreement about the prevalence and use of the collateral source rule centers on the purpose of tort law, as well as the determination of which party is entitled to the costs imposed by the tortfeasor and covered by the claimant's insurance. This Section lays out the debate over the collateral source rule as it stood before the Affordable Care Act's passage mandated individuals' acquisition of medical insurance coverage.

   1. Arguments Supporting the Collateral Source Rule

      Proponents Of the rule defend it on several grounds. Advocates for the deterrent purpose of tort law are particularly protective of the collateral source rule. They assert that it is fundamental to tort law for tortfeasors to pay for the consequences of their actions, (32) and that the deterrent effect of tort law is undermined when a claimant's medical expenses are covered by his own insurance." (33) Furthermore, proponents argue, a tortfeasor in a personal injury action without the collateral source rule should not receive a windfall of lesser or no damages because the claimant in the action received benefits from a collateral source. (34)

      Some defend the collateral source rule because of the practical outcome of many personal injury cases. They argue that collateral sources never pay the full costs of recovery to the plaintiff, as the...