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Collateral Source Rule

Collateral Source:  Getting Paid Twice

Under Maryland law, automobile accident victims are entitled to recover from a negligent driver for medical expenses and lost wages even if they have already been paid by other sources.  This increases the settlement and trial values of a claim because the plaintiff is allowed to double-recover for some losses and harms.

There are three typical examples of where this happens:

Personal Injury Protection (PIP) Insurance

Many automobile insurance policies include a provision for personal injury protection (PIP) and/or a medical payments policy.  This typically entitles vehicle occupants to no-fault payments between $2,500 and $10,000 for certain injuries.  In most cases, it is used to pay medical expenses and lost wages.  These payments typically happen very quickly after an accident—sometimes within months.

When settling the automobile accident claim or going to trial, the victim is entitled to the full amount of medical expenses and lost wages, even if he received payments through PIP or medical payments coverage.

Health Insurance

If an automobile accident victim is insured with private health insurance, has Medicare, or has medical assistance (Medicaid), some or all of his medical expenses may be paid.

The automobile accident victim is allowed to seek full recovery for the original medical expenses, whether paid by insurance or written off by the provider.  In some cases, the victim may have to pay back the insurance company or government for all or some of their expenses, however.

Sick & Vacation Time

A worker who uses sick time, vacation time, or disability insurance to compensate for missed work will be allowed to seek the full value of the wages from missed work.  The theory here is that the worker is giving up other benefits (like sick time and vacation time) that he will not have available later.

Reasons For The Collateral Source Rule

The collateral source rule is important for many reasons.  First, negligent drivers should not be permitted to cause injury and then get away with it—the law calls that a windfall, which is disfavored.  It is generally better policy for an injury-causing person to pay for the damage they’ve caused.

Second, the accident victim typically pays something for these benefits.  He pays insurance premiums for PIP, insurance premiums for health insurance, and uses vacation or sick time would have been available but for the accident.  The victim is therefore injured, and that loss should be compensated.

Third, many insurance companies, Medicare and Medicaid place a lien of recovery on payments they make.  If the injured victim negotiates a settlement without getting compensated, he may end up doubly injured because he will still have to repay for medical expenses.

In smaller cases, the collateral source rule also helps victims because, when hiring a lawyer, they can almost never be made whole.  A portion of their recovery will be used for attorneys’ fees, and in the United States most tort claims do not permit for “loser pays.” If the victim gets a few extra dollars because of the collateral source rule, he is closer to being made whole.

Importantly, insurance companies prefer to negotiate cases with unrepresented victims.  Some victims do not know the law of collateral source, and insurance companies will often take advantage of that lack of knowledge.  Some insurance adjusters don’t know the law, either (particularly those who are based out of other states).