LOST AT SEA: WHICH PORT SHOULD THE COLLATERAL SOURCE RULE RETURN TO, THE FIFTH OR ELEVENTH CIRCUIT?

• Author: Brewster, Alexander

1. Introduction 24 A. Hypothetical 24 B. Purpose and Objective 25 II. Historical Foundation 25 A. English Law 25 B. U.S. Law 26 1. The History of the Collateral Source Rule in the Maritime Context in the Fifth Circuit. a. The Current Stance of the Fifth Circuit on the Collateral Source Rule in the Maritime Context and OCSLA 30 2. The History of the Collateral Source Rule in the Maritime Context in the Eleventh Circuit 31 a. The Current Stance of the Eleventh Circuit on the Collateral Source Rule in the Maritime Context 33 III. The Key Differences Between the Fifth and Eleventh Circuit Cases 34 A. Deperrodil Was a Third-Party Claim That Gave PEI, The Employer, Certain Legal Rights 34 B. OCSLA Cases Look to State Law in the Absence of Federal Authority 35 C. Higgs Involved a Private Insurance Plan and the Eleventh Circuit Did Not Look to State Law in the Absence of Direct Federal Authority 36 D. How Each Case Analyzed the Collateral Source Rule 37 IV. LHWCA Third Party Claims and Medicaid Follow the Same Analysis 37 V. Torts on Land Versus Torts at Sea. Should General Maritime Tort Cases Look to State Law for Guidance? 39 VI. Is the Collateral Source Rule a Matter of Law or a Matter of Fact 41 VII. Conclusion 42 I. Introduction

   1. Hypothetical

      Consider the following hypothetical: an individual on a vessel is injured and files suit against the vessel's owner. The claimant seeks damages (1) against the vessel owner, but what amount of damages should be sought? With respect to medical expenses, should the injured individual be entitled to the amount charged for their medical expenses or the amount paid by the medical provider, and what evidence should be presented to the jury? These issues have caused certain Federal Courts of Appeal, specifically the Fifth and Eleventh Circuits, to reach different results. To determine the extent of damages for persons injured on vessels, courts should consider the following questions: Was the injured party a seaman (2), a longshoreman (3), a maritime worker who falls under the Outer Continental Shelf Lands Act (OCSLA) (4), or a private citizen who was a passenger on a vessel? Was the vessel owner the employer or a third party? What is the court's jurisdiction in the matter? Is someone contractually or legally bound to pay for the injured individual's medical damages? Is the employer's insurance or the injured individual's private insurance used to cover the medical damages? Is there a subrogation clause in the private insurance policy, or is your employer legally entitled to intervene once it has paid for the injured individual's damages? And lastly, is the amount of damages that the individual is entitled to a matter of fact or a matter of law?

      These considerations are relevant in the context of how and when the collateral source rule applies in a maritime claim. The collateral source rule is comprised of both evidence and substantive law. (5) As a substantive rule of law, the collateral source rule "bars a tortfeasor from reducing the quantum of damages owed to a plaintiff by the amount of recovery the plaintiff receives" from a third party that is independent of the tortfeasor, making it collateral. (6) As a rule of evidence, the collateral source rule bars the introduction of collateral benefits to prevent concerns that this kind of evidence may prejudice a jury. (7) In the United States the intention of the collateral source rule was to benefit injured parties and ensure that the benefit does not create a windfall that would advantage the tortfeasor. (8) "In its simplest form, the collateral rule asks whether the tortfeasor contributed to, or was otherwise responsible for, a particular income source; if not, income is considered independent of, or collateral to, the tortfeasor, and the tortfeasor may not reduce its damages by that amount." (9)

   2. Purpose and Objective

      The purpose and objective of this comment is to follow the history of the collateral source rule from its original conception in England to its most recent applications in the United States Federal Court system. Currently, the Fifth and the Eleventh Circuits have two different approaches in applying the collateral source rule to insurance write-offs. Additionally, this comment will determine whether the amount of damages an individual is entitled to recover is a question of law or fact.

2. Historical Foundation

   1. English Law

      The English common law courts first established the "collateral source" rule in Mason v. Sainsbury. (10) In Mason, the Plaintiff's home was destroyed by rioters, after which the Plaintiff's insurance company provided payment to the Plaintiff. (11) The Plaintiff filed the claim on behalf of the insurer, and the Defendant argued that "it is impossible that a Plaintiff could recover in respect of that for which he had already received satisfaction." (12)

      The court held that this was not a double satisfaction case but rather a single recovery by using the Plaintiff's name. (13) More specifically, Lords Mansfield and Bueller held that the contract between the Plaintiff/insured and the insurer was one of indemnity. (14) Thus, the insurer and the insured are one, and "paying before or after can make no difference." (15) The court established that the insurer's payment does not absolve the liable Defendant from damages paid by a third party, and due to the indemnity contract, the insurer is allowed to recover from the liable tortfeasor. (16)

      Yates v. Whyte was the first maritime English case to adopt the precedent established in Mason. (17) The claim involved a collision between the Defendant's vessel, the GAZELLE, and the Plaintiff's vessel, the SESOTRIS. (18) The parties went to arbitration to decide the amount of entitled damages, considering the cost of repairs that the Plaintiff's insurance company had paid. (19) The arbitrator held that the Defendant was entitled to reduce the damages owed to the Plaintiff by the amount that the Plaintiff had recovered from its insurer. (20)

      The Plaintiff challenged the arbitrator's award, and the court had to determine whether the Defendant was entitled to reduce the damages owed by the Plaintiff's insurance payment. (21) The judges, led by Chief Judge Tindal, agreed that the rule established in Mason was the correct precedent. (22) The court determined that even though the claim in Mason was brought on behalf of the insurer by the insured and the current claim was brought on behalf of the insured, the same principles applied. (23) Judge Tindal reiterated that "recovery upon a contract with the insurers is no bar to a claim for damages against the wrong-doer" and that the insurer and insured are seen as one person through indemnity. (24) The insurer then has the right to recover its losses from the insured, (25) which prevents a double recovery to the Plaintiff. The court solidified the principle that the negligent tortfeasor remains liable for damages to the injured person even if a third party contributes a collateral payment to the injured party for its losses. (26)

   2. U.S. Law

      1. The History of the Collateral Source Rule in the Maritime Context in the Fifth Circuit.

         In 1972, the Fifth Circuit decided one of its first significant maritime cases concerning how to apply the collateral source rule to a seaman's retirement benefits in Haughton v. Blackships. (27) The Plaintiff was a seaman on the S/S GULF PANTHER, the employer's vessel, and slipped on the deck because it was covered in slick snow. (28) The trial court recognized that the Plaintiff received retirement benefits from an independent fund created by a contract between his employer, Blackships, and the National Maritime Union. (29) The Plaintiff's employer was the sole contributor to the pension fund, and the trial court held that because the Plaintiff's "pension was a benefit directly attributable to the employer," it should be considered in the mitigation of damages because it was collateral source income. (30)

         The Fifth Circuit held that the basic principle regarding the collateral source rule "is that the employer-tortfeasor is not entitled to mitigate damages by setting off compensation received by the employee from an independent source," but when an employer supplies such funds, "the source of the funds may be determined to be collateral or independent." (31) The court heavily relied on the Ninth Circuit case of Gypsum Carrier, Inc. v. Handelsam to conclude that the "[a]pplication of the collateral source rule depends less upon the source of funds than upon the character of the benefits received." (32) The trial court's ruling was reversed and held that the deduction of the Plaintiff's maritime pension in the mitigation of damages was improper. (33) The court further discussed an interesting point concerning an employer which "voluntarily undertakes to indemnify itself against liability by payment into a fund for that purpose," and held that the employer "should not be penalized by permitting the Plaintiff a double recovery of his benefits under the fund as well as his full measure of damages." (34)

         Twenty years later, the Fifth Circuit revisited the character of benefits in Phillips v. Western Co. of N. Am. (35) The Plaintiff injured his back while connecting "a flow line to the bell nipple on the blow-out preventer (BOP) stack of the TRITON III, a jack-up drilling rig" that the Defendant/employer-owned. (36) The Plaintiff received long-term disability, medical, and maintenance payments from the employer following the accident and asserted a Jones Act claim against the employer. (37) At trial, the employer introduced evidence of medical payments despite objections by the Plaintiff about the introduction of the disability and maintenance payments. (38) The Plaintiff argued that disability benefits were fringe benefits and may prejudice the jury if admitted. (39) The trial court found that the benefits were income and should be introduced to prevent the Plaintiff from double...