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The End Of The Collateral Source Rule?

There is pending legislation on the state level in assembly bill AB-559 and senate bill SB/405 to do away with the collateral source rule in the state of Wisconsin, that will significantly affect individuals injured in accidents and impact on their financial recovery. What is the collateral source rule and how will this impact consumers?

The collateral source rule provides that a plaintiff’s recovery cannot be reduced by benefits received from other sources. The collateral source rule bars any payments made on the plaintiff’s behalf or gratuitous benefits received by the plaintiff from inuring to the benefit of a defendant. The collateral source rule is grounded in the long-standing policy decision that should a windfall arise as a consequence of an outside payment, the party to profit from that collateral source is “the person who has been injured, and not the one whose wrongful acts caused the injury.” Ellsworth v. Schelbrock, 235 Wis. 2d 678, 611 N.W. 2d 764. The Wisconsin Supreme Court explained the policy behind the collateral source rule as follows:

“The tortfeasor who is legally responsible for causing injury is not relieved of his obligation to the victim simply because the victim had the foresight to arrange, or good fortune to receive benefits from a collateral source for injuries and expenses.”

When dealing with medical expenses, the collateral source rule permits the person injured (the plaintiff in a lawsuit), to recover the reasonable value of medical services, without consideration of gratuitous medical services provided or benefit payments made by other outside sources in behalf of the injured party, including payments made by insurance companies. Where the injured party’s health carrier resolves the medical bills with the injured party’s insurers at a reduced rates, the collateral source rule provides that the defendant- wrongdoer, cannot receive the benefit of the amounts of money that are written off.  The collateral source rule is solely for the protection and benefit of the plaintiff.

There are three policies central to the collateral source rule. First, is to deter a tortfeasor’s negligent conduct by placing the full cost of the wrongful conduct on the tortfeasor. Second, is to fully compensate the injured party. Third, is to allow the insured to receive the benefit of the premiums paid for coverage that he or she had the foresight to purchase.” Orloswki v. State Farm  Mut. Auto Ins. Co., 339 Wis. 2d 1 at page 14, , 810 N.W. 2d 775 (Sup. Ct. 2012).

The Wisconsin Association of Justice has spent the last ten years fighting challenges to the collateral source rule in Wisconsin. Liability insurance companies and their allies strongly would like to see the repeal of the collateral source rule in Wisconsin. This will deal a major blow to consumers in this state. The repeal of the collateral source rule will reward insurance carriers at the expense of the injured party who will suffer a diminished economic recovery in damages for their injuries.

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