The collateral source rule rarely sits well with defense attorneys. To us, it runs counter to a core purpose of tort law, which is to compensate plaintiffs for damages actually suffered. Under the collateral source rule, a defendant’s liability for a plaintiff’s financial damages is not reduced by any payments that the plaintiff receives as to those very same damages from a third-party source. So the plaintiff gets a double recovery—once from the collateral source and once from the defendant. This happens most often in connection with a plaintiff’s medical bills. While the plaintiff’s insurance pays all or most of those bills, the defendant remains liable to plaintiff for the entire amount.
There are policy reasons for the rule, and the Louisiana Supreme Court recently laid them out in Hoffman v. 21st Century North Am. Ins. Co., 2015 WL 5776131 (La. Oct. 2, 2015), a decision that addresses an attempt to expand the collateral source rule:
The most oft-cited reason is that the tortfeasor should not gain an advantage from outside benefits provided to the victim independently of any act of the tortfeasor. We have also recognized the collateral source rule promotes tort deterrence and accident prevention. Finally, absent such a rule, the reasoning goes, victims would be dissuaded from purchasing insurance or other forms of reimbursement available to them.
Id. at *2. OK. We get it, and we can live with it. We’ve become somewhat numb to the effects of the rule.
But, when plaintiffs try to expand the rule to allow recovery of medical costs that were never actually billed, it’s time to hold the line. That’s exactly what the plaintiff in Hoffman tried to do, seeking to hold the defendant liable for the $1,500 sticker price for an MRI at a hospital and not the $475 discounted price that plaintiff was actually billed. In other words, plaintiff wanted payment for a theoretical bill, not the real one. It wasn’t enough that the defendant pay medical bills that had already been paid once before by plaintiff’s insurer. Plaintiff also wanted the defendant to be liable for an amount higher than the bill. That’s not the purpose of the collateral source rule.
Fortunately, the Hoffman court saw this as too much. While policy reasons may justify the collateral source rule’s departure from tort law’s basic principle of compensating a plaintiff for his losses and no more, this expansion of the rule would go too far. It would hold a defendant responsible for damages that never happened:
[A]llowing the plaintiff to recover an amount for which he has not paid, and for which he has no obligation to pay, is at cross purposes with the basic principles of tort recovery in our Civil Code. The wrongdoer is responsible only for the damages he or she has caused.
Id. at *4. Nor did it matter to the court that the plaintiff got the MRI price discount through negotiations by his lawyer. Granting an exception for attorney-negotiated discounts would verge on subverting the American Rule that litigants bear their own legal fees and create a quagmire of ethical questions surrounding the arrangements between plaintiff’s lawyers, their clients and medical providers. Id. at *5. There could be too much, how should we say it, collateral damage. Better to simply stop expansion of the rule.