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The Collateral Source Rule

Suppose you find yourself in the unfortunate circumstance of having been involved in a car accident, a slip and fall, or some other accident that results in you being injured. Now assume the injuries you sustained are the result of someone else’s mistake. Oftentimes, your health insurance company pays for the medical treatment you receive. If you look closely at the explanation of benefits form sent to you by the health insurance company, you may notice that the amount billed for your treatment was fully satisfied with a payment well below the invoice amount. This is because your health insurance company has a contractually agreed upon price plan for certain services performed at the facility that rendered you treatment. This situation raises an interesting question: Does the at-fault party owe you for the full amount of the bill or the smaller amount paid by your health insurance company that fully satisfied the invoice?

This is a very common occurrence and one that is governed by Arizona’s Collateral Source Rule. The Collateral Source Rule allows an injured person to make a full and complete recovery from the responsible party without regard for payments made by a secondary source. This source is known as a collateral source and is often a health insurance company. In other words, a person may still recover fully from the guilty party even when the injured person has already had all or part of the costs related to the injury paid for by their health insurance company. As long as the payments were made by a source that is completely independent from the at-fault party, your claim will not be reduced because you made the prudent decision to purchase health insurance.

Additionally, the Collateral Source Rule prevents a jury from reducing the amount you may recover because health insurance has already paid the bill. The Collateral Source Rule goes even further and prohibits a jury from even hearing evidence that you have received this compensation.

Don’t expect the insurance company of the at-fault party to explain the Collateral Source Rule to you. In fact, insurance companies regularly attempt to reduce your final settlement by applying the inverse. In other words, if the emergency room bill is $3,000.00 and your health insurance company paid it in full at a previously agreed upon price of $1,000.00, the insurance adjuster will attempt to reduce your overall recovery by $2,000.00. A move such as this runs contrary to the Collateral Source Rule. The Collateral Source Rule prevents any reduction to an award of damages due to compensation from a collateral source that is completely independent from the at-fault party and it makes evidence related to collateral compensation inadmissible.

If you have been injured, due to no fault of your own, don’t let the insurance adjuster take advantage of your inexperience by applying its own set of rules in an attempt to reduce your just compensation. Call POUNDSTONE SCOTTEN, PLLC for a free consultation.


The information provided in this website is meant only as a general description of the current laws as of the date of the writing. It is not meant to be an exhaustive discussion of all the nuances of the law and is intended to be only an overview. Many issues may appear simpler than they are, and an individual should always contact an attorney to obtain a complete, accurate interpretation of the law given the individual’s particular circumstances. POUNDSTONE SCOTTEN, PLLC makes no representations as to how the law would affect a particular situation and intends only to illustrate areas of concern and give general information.

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