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. Workers’
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.