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Judge Vance Order – Collateral Source


A huge topic amongst litigation attorneys in Alabama has been the abolishment of the collateral source rule. This has probably been the single most effective tort reform action taken in the State. What is the Collateral Source Rule?

Well, the best way to answer that is with an example. Let’s say John Doe’s car collides with Mary Smith, and Mary Smith is injured. Mary Smith has BlueCross BlueShield health insurance, and they pay for all of her medical bills. If her bills total $20,000, BlueCross will probably only pay the hospitals and doctors $8,000-$10,000 based upon the contracts BlueCross has with all of the medical providers.

Now, Mary Smith has to file suit against John Doe because either John Doe’s insurance company won’t pay enough to settle the case or because they dispute that John Doe caused the collision. In court, Mary Smith has to prove her medical damages. When the collateral source rule was in effect, Mary Smith would tell the jury that her medical bills were $20,000, and the jury would decide the case based upon those damages. John Doe could NOT tell the jury that Mary Smith had BlueCross and that they paid her bills. John Doe could not benefit from the fact that Mary Smith had a "collateral source" which paid the bills.

Since the collateral source rule has been abolished, Mary Smith could tell the jury that her medical bills were $20,000, but John Doe will ask her, "Did you have health insurance?" Mary Smith will have to answer, "Yes." He will ask, "Did they pay your bills?" Mary Smith will have to answer, "Yes, but for co-pays and deductibles." He may ask how much they paid. BlueCross is entitled to recover what they paid so Mary Smith can tell the jury what BlueCross paid, and she can also enter into evidence all the premiums she has had to pay for such coverage.

Unfortunately, many juries don’t understand this. They look at Mary Smith and ask, "If all your bills have been paid, why are you here asking for money?" They don’t get the fact that it’s a cost shifting system and that BlueCross shouldn’t have to pay because John Doe caused the collision. That’s why John Doe has insurance, but Mary Smith is NOT allowed to tell the jury that John Doe has auto insurance (weird huh? But, that’s the law). So, the value of Mary Smith’s case has gone from $20,000 in medical bills to $8,000-$10,000 in medical bills (even less really because it takes the sting out of the case) all because the collateral source rule was abolished.

In addition, the evidentiary rules dealing with this issue are difficult. Even the Judges are having a hard time with it. As a result, Judge Vance, in Jefferson County, has entered an Order which addresses this issue legally. A copy of this Order can be read HERE.

So, when you or someone you know is involved in a wreck, be aware that the value of your case has been substantially reduced if you have health insurance. However, if you don’t have health insurance, you are in luck because the same case without health insurance is worth more. Does that make sense?


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  1. Brett Emison says:
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    An even better example is where there is no insurance and the innocent victim is forced to rely on friends and charity. Collateral sources also include church bakes sales, donation jars, and the neighbor that brings over supper every other night. I curious as to what readers think: Should a defendant who has been found negligent and at fault be given the benefit of his/her victim’s insurance, friends and family when the jury returns its verdict?

  2. Mike Bryant says:
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    This protects the wrong doer and gives them a benefit from who they hit. Flys in the face of any theory of personal responsibility or making sure people are made whole. Hopefully, all states will eventually understand that.