Insight

The “Collateral Source Rule” & How it Can Cost (or Make) You Thousands – Part I

Published on: July 14, 2017

Imagine you are a defendant sued because you negligently injured someone in Louisiana. In the accident, the plaintiff received extensive medical treatment. The health insurer paid $50,000 for medical costs even though the doctors billed $150,000 for the plaintiff’s care. The plaintiff was only out-of-pocket $500 for his health insurance deductible. What amount should you have to pay: $150,000, $50,000, or only $500?

The answer to this question is not so simple. You will certainly have to pay more than the plaintiff’s deductible, that much is clear. But whether you are required to pay the medical providers’ full rate of $150,000, the insurer’s discounted rate of $50,000, or some other amount for the medical services provided is a more complicated issue.

This blog is broken down in a two-part series. This installment will address the background of the collateral source rule and the public policy behind the rule.

What is the Collateral Source Rule?

The collateral source rule provides that a tortfeasor is generally not entitled to a credit for payments made to a plaintiff through “collateral sources,” i.e., sources not provided by the defendant. Under this rule, a tortfeasor’s exposure for damages should be the same regardless of whether or not the plaintiff purchased health insurance.

The collateral source rule permits the plaintiff to recover medical expenses in excess of the amounts actually paid by the plaintiff or their insurer. Critics therefore assert that the rule provides a “windfall” to the plaintiff that violates the goal of Louisiana tort law, namely to make the victim “whole.” As applied, the rule can make the victim more than whole.

Origins of the Collateral Source Rule

To understand the collateral source rule, it helps to look at its origins. The rule in the United States at least dates back to the 1854 case The Propeller Monticello v. Mollison, 58 U.S. (17 How.) 152, 15 L.Ed. 68 (1854). In Propeller Monticello, two ships wrecked and one sank. The insurer of the ship that sank paid for the loss. The owner of the at fault ship asserted that the plaintiff had been fully compensated by the insurer’s payment and that it was therefore not obligated to pay for the damage. In rejecting this argument, the Propeller Monticello Court held the defendant was not a party to the insurance contract and could not reduce exposure by citing to the insurance available to the plaintiff.

Policies Behind the Collateral Source Rule

In Dep't of Transp. & Dev. v. Kansas City S. Ry. Co., 846 So. 2d 734 (La. 5/20/03), the Louisiana Supreme Court detailed the public policy concerns that support the collateral source rule. According to the court, the policies in favor of the rule include:

i. Fairness- a defendant should not gain an advantage from benefits provided to the plaintiff independent of any act of the defendant;

ii. Deterrence- the rule provides a deterrence to negligent conduct; and,

iii. Promotion of Insurance- victims could be dissuaded from purchasing insurance if that act could affect tort recovery.

So, how much do you owe: $50,000, $150,000, or some other amount? We’ll tell you in Part II of this blog.

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Keogh Cox & Wilson, Ltd. provides this blog as a public service for general information only. The materials contained herein may not reflect the most current legal developments or even express the opinion of all or even most of Keogh Cox attorneys. Such material does not constitute legal advice or form any attorney-client relationship. Keogh Cox and all contributing author(s) expressly disclaim all liability to any person with respect to the contents of this Web site and Blog and expect that no reliance will be made upon the information provided.

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Outdoor Living: Federal Court Rules That Uneven Terrain in Parking Lot Does Not Present an Unreasonable Risk of Harm

A federal court for the Middle District of Louisiana recently ruled that a 1½ inch elevation change in a Walmart parking lot did not present an unreasonable risk of harm to the plaintiff patron in Lacaze v. Walmart Stores, Inc. The case involved a slip and fall/trip and fall accident in the parking lot of Walmart’s Burbank Drive store in Baton Rouge. The defendant moved to dismiss the suit where the plaintiff claimed she tripped and fell as she crossed the area where the black asphalt parking lot adjoined the concrete crosswalk as pictured below.

In the area where the asphalt meets the crosswalk, the surface presented a ¼ inch to 1½ inch change in elevation. Plaintiff admitted the black pavement was distinct in appearance and color from the concrete crosswalk. Surveillance showed that plaintiff looked down at her cell phone at the time she tripped and fell. Though in a high pedestrian traffic area, Wal-Mart maintained this was the first reported incident.

The Court found the condition was open and obvious and did not present an unreasonable risk of harm. To reach this decision, the Court made the following observations:

Parking lots have clear and apparent utility. Crosswalks do as well. Crosswalks give patrons a designated area to traverse the lot safely.
The likelihood and magnitude of the risk posed by the condition was low. The Court noted it is common for surfaces of parking lots and sidewalks to be irregular, and no other patrons reported problems or accidents.
The cost of preventing the harm was high. The Court would not consider only the cost of fixing the specific injury-causing defect. Rather, it considered the cost of eliminating all defects in the Walmart parking lot.
Plaintiff conducted an ordinary commercial activity that was not dangerous in nature.

The Court concluded that all but factor four pointed to a single conclusion: the 1½ inch elevation difference did not pose an unreasonable risk of harm. The Court reached this conclusion even though the plaintiff retained an expert who gave opinions regarding possible violations of the Americans with Disabilities Act (ADA) and OSHA regulations. The expert’s opinions were insufficient to defeat summary judgment when the condition was open and obvious. In reaching its ultimate conclusion, the Court joined with several other courts, including the following:

Chambers v. Vill. of Moreauville, where a one-and-one half inch deviation did not present an unreasonable risk of harm;
Reed v. Wal-Mart Stores, where a height variance of one-fourth to one-half inch between concrete blocks in parking lot did not present an unreasonable risk of harm; and
Boyle v. Board of Sup'rs, Louisiana State University, where a depression of up to one inch in a sidewalk did not pose unreasonable risk of harm.

Case References: Lacaze v. Walmart Stores, Inc., No. CV 20-696-JWD-EWD, 2022 WL 4227240 (M.D. La. Sept. 13, 2022); Chambers v. Vill. of Moreauville, 2011-0898 (La. 01/24/12), 85 So.3d 593; Reed v. Wal-Mart Stores, 97-1174 (La. 03/04/98), 708 So.2d 362; and Boyle v. Board of Sup'rs, Louisiana State University, 96-1158 (La. 01/14/97), 685 So.2d 1080.

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Past Mistakes: Waiver of Coverage Defenses

What does it mean to “waive” something? To an insurer in Louisiana, the meaning is clear; a waiver can mean thousands or even millions of dollars in insurance coverage that may otherwise be excluded. Recently, the Louisiana Supreme Court in Forvendel v. State Farm Mutual Automobile Insurance Company, 2017-C-2074 (June 27, 2018) clarified when an insurer will be found to have waived coverage defenses.

Waiver is generally understood as the “intentional relinquishment of a known right, power, or privilege.” Waiver occurs when there is: 1) a right; 2) that is known; and, 3) an actual intention to forego the right or conduct so inconsistent with an intent to enforce the right so as to induce a reasonable belief that it has been relinquished. The waiver rule is generally applied to an insurer who defends itself and its insured without having obtained a nonwaiver agreement to preserve its coverage defense. The joint defense of the insured and the insurer, without asserting a known defense, is deemed to be conduct inconsistent with the enforcement of the coverage defense and therefore a waiver.

In Forvendel, the Louisiana Supreme Court considered whether an insurer’s waiver of a coverage defense in a prior claim served to waive the coverage defense in a subsequent claim involving the same insured and similar circumstances. The key issue in the case was whether the insurer’s conduct in allowing the same insured to "stack" two UM coverages contrary to Louisiana's "anti-stacking" law (La. R.S. 22:1295 (1)(c)) when adjusting an accident claim in 2007 served as a waiver of the right to assert the anti-stacking law when adjusting a 2013 accident claim.

Luckily for insurers, who could be forever bound by past mistakes in their handling of claims, the Louisiana Supreme Court reversed the two lower courts and found the right was not waived. In so ruling, the Court distinguished prior case law in which a coverage defense was found to have been waived because the insurer’s conduct took place while handing the same claim, not a prior claim. The Louisiana Supreme Court also drew on a line of cases that allowed insurers to recover previously made payments under well-established principles of Louisiana law allowing for the recoupment of payments not due.

The Forvendel case provides a common-sense result by relieving insurers from unintended consequences from past omissions in the handling of an insured’s new claim.

Nancy B. Gilbert is a partner with Keogh Cox. She is a puzzle-solver by nature and uses these skills to provide clear and in-depth analysis of complex litigation issues. Nancy is a devoted grandmother, an avid camper and gardener, and enjoys renovating her 80-year-old home.

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Here Comes Hurricane Ida: What To Do If Your Home is Damaged by a Storm or Flood

Unfortunately, Louisianians have endured many natural disasters in the past several years. From the historic flooding in Baton Rouge in August 2016 to the devastation caused by Hurricanes Laura and Delta in 2020, Gulf Coast residents are very familiar with significant storms and flooding events. While the rebuilding process will take months or years to complete, this article is designed to provide some basic information on how to document and report your property damage claim and apply for and obtain disaster assistance.

DOCUMENT, DOCUMENT, DOCUMENT - Once you are able to do so, make sure to document the damages to your home and contents. Whether for a homeowners or flood insurance policy or to obtain government assistance, take plenty of photos of the damage. Make a list of the items in your home that were damaged or destroyed. One way to organize this list is to list each item from each room together, approximate its age, where it was purchased and its value when purchased. As you rebuild, and materials and items are thrown out, it will be much more difficult to document your claim.

REPORT YOUR CLAIM – Report your damage to your homeowners or flood insurer as soon as possible. Provide as much detail about the damage as you can. If you are unaware of your insurer, contact your insurance agent who can help you to report your claim.

OBTAIN MULTIPLE ESTIMATES - Although it is often difficult to do so after a natural disaster because of the volume of work, obtain multiple estimates for the work needed on your home. Pay for the estimate if necessary. If you have three estimates and the amounts are close, they are much more credible. Also, try and get as much detail as possible in each estimate, including specific materials to be used, dimensions, and finishes.

SAVE YOUR RECEIPTS – Whether for repairs you undertake to fix the damage to your home, to replace contents, or for living expenses after the storm, save your receipts. These receipts will be used to document your losses and verify the amount of your claim to your insurer.

FOLLOW UP WITH YOUR INSURER - Provide whatever is requested by your insurer as they adjust your claim. Communicate with your insurer on a regular basis. Although it may seem tedious, communication with your insurer during the claim is important.

APPLY FOR ASSISTANCE - Especially if your property is not insured, make sure to immediately apply for government assistance. You can apply for federal assistance at www.disasterassistance.gov. Oftentimes, the state government will also administer federal or state disaster assistance funds.