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THE COLLATERAL SOURCE RULE

The United States has a tradition of favoring private insurance for compensation. One strategy to encourage the purchase of private insurance is to allow plaintiffs to recover from defendants irrespective of their own insurance coverage. This is called the collateral source rule. The rationale for this rule is that the defendant should not benefit from the plaintiff's foresight in paying insurance premiums. This allows insured plaintiffs to get a double recovery, to the extent that their medical bills and lost wage claims have already been paid by their insurance carrier. The traditional collateral source rule also prevented the defendant from informing the jury that the plaintiff had already been compensated by private insurance.

If the insurance company wishes to be reimbursed, this may be made part of the insurance contract. This is called a subrogation agreement. Worker's compensation insurance usually contains a subrogation provision, and many group health insurance policies are adding subrogation clauses, which require plaintiffs to repay their own insurance company. A subrogation agreement reduces the value of a plaintiff's case, often dramatically. If the insurer insists on full reimbursement, the plaintiff will not be able to find representation. Although the subrogation agreement allows the insurance company to litigate the claim on behalf of the plaintiff, there is no incentive for plaintiffs to cooperate if they will not receive the award. Some insurers agree to a discounted reimbursement to make it attractive for the plaintiff to sue for compensation. Others refuse to compromise their claims, forcing the plaintiff to omit medical costs from the lawsuit.

Some states have moved to modify or abolish the collateral source rule. They may allow the judge to reduce the plaintiff's award by the amount of already paid expenses, allow the defense to tell the jury that the plaintiff has been compensated, or prevent the plaintiff from claiming for reimbursed injuries. It is not clear how these rules affect claims for future medical expenses since their payment is contingent on the plaintiff's maintaining his or her insurance.

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