What Is the Collateral Source Rule?

What Is the Collateral Source Rule?

4 Min.

In the United States, every state has a collateral source rule. This rule ensures that if the costs of a monetary award are covered by another source, the award cannot be reduced. Additionally, the rule may prevent the presentation of evidence regarding such payments in court. Although the collateral source rule exists in all U.S. states, the specific details of the rule may differ from state to state.


In state jurisdictions, the collateral source rule is a law that protects plaintiffs who have suffered injury, illness, or disability. This rule prevents the reduction of damages awarded to the plaintiff by the amount they have already received from a third party, such as an insurer.

While the specifics of the rule may differ by state, it generally states that any damages awarded to the plaintiff in court cannot be reduced by the amount already covered by other sources. These sources may include health insurance or workers' compensation that provides coverage for the damages.

How Does the Collateral Source Rule Work?

The collateral source rule is a legal principle that applies in different places. It deals with whether evidence of compensation received by a person from other sources, like insurance, can be used in court. The rule varies across states, with some allowing this evidence in certain cases and excluding it in others.

There are debates about the collateral source rule. Some argue that people shouldn't be able to claim damages for losses that have already been reimbursed by other sources, such as health insurance, workers' compensation, or disability benefits.

People who support changing tort laws often disagree with the collateral source rule. They say it encourages dishonest claims by offering the possibility of receiving compensation twice. In some cases, insurance companies can try to get their money back through subrogation. For example, if an accident causes $20,000 in medical bills and the insurance company pays that amount, they may sue the responsible party or their insurer to recover the money.

Advantages and Disadvantages of the Collateral Source Rule

The collateral source rule has been a topic of debate among advocates of tort reform. Here are some advantages and disadvantages associated with this rule:


  • Accountability: Supporters argue that defendants should be held responsible for their negligence or malpractice, regardless of whether the damages were covered by insurance or government benefits.
  • Responsible behavior: The rule encourages individuals to acquire insurance, knowing they will be reimbursed for damages from either the defendant or their insurer.
  • Preventing double compensation: Critics claim that awarding plaintiffs double the damages for an injury is unfair and can lead to frivolous legal claims.


  • Double compensation: Opponents argue that the collateral source rule can result in plaintiffs receiving more than they are entitled to, as they are compensated by both the defendant and insurance sources.
  • Discouraging tort reform: The rule may hinder efforts to reform tort laws by making it harder to limit excessive damage awards.
  • Limiting insurer reimbursement: Some insurance companies include subrogation clauses in their contracts, allowing them to demand reimbursement from successful plaintiffs for damages already covered by the policy.

In response to concerns, several states have taken steps to weaken or restrict the application of the collateral source rule in specific types of cases. This evolving landscape has prompted some insurance companies to incorporate subrogation clauses, requiring plaintiffs to repay amounts covered by their policies if they win their lawsuits.


Overall, the collateral source rule is a legal principle that protects plaintiffs from having their damages reduced by amounts covered by other sources such as health insurance or workers' compensation. While it has its advantages and disadvantages, its specific details may differ from state to state and continue to evolve. The rule encourages accountability and responsible behavior, but critics argue that it can lead to double compensation and discourage tort reform. Despite these debates, the collateral source rule remains an important aspect of personal injury cases in the United States.

Collateral Source Rule