Collateral source rule
A rule that prevents a defendant from reducing damages by amounts the claimant has already received from independent sources (insurance, employer benefits, etc.).
What it means in practice.
Many US states have modified or abolished this rule for medical-malpractice and other categories; the position varies by state.
The collateral source rule deals with money you receive from somewhere other than the person who hurt you, most often health insurance that paid your medical bills. The traditional rule says those payments do not reduce what the wrongdoer owes, and the jury is not told about them.
Many states have changed that. Some let the defense tell the jury that insurance paid the bills. Others keep the jury in the dark but have the judge subtract the payments from the verdict afterwards.
Whether a payment counts often depends on whether the insurer has a right to be repaid. If your health plan will claw its money back from your settlement, deducting it again would leave you paying twice, so those payments are usually left alone.
How it works, step by step.
| Where | What happens to insurance payments | Source |
|---|---|---|
| Alabama | The defense may introduce evidence that medical and hospital expenses were or will be paid by insurance or other collateral sources. | Ala. Code § 12-21-45, applied in McCormick v. Bunting (Ala. Civ. App. 2012) |
| Kentucky | Collateral source payments, except life insurance, and known subrogation rights are admissible at trial. | KRS 411.188(3) |
| Connecticut | Health insurance and similar payments are subtracted from the economic damages after the verdict, except payments the insurer has a right to recover. | Conn. Gen. Stat. § 52-225a; Marciano v. Jiminez (Conn. 2016) |
| Kentucky car crashes | Tort liability is abolished to the extent no-fault PIP benefits are payable, so those losses are not claimed from the other driver at all. | KRS 304.39-060(2)(a) |
| Queensland work injuries | Workers compensation already paid is refunded to WorkCover out of the damages. | Goldthorpe v HJS Store [2025] QDC 209 |
A worked example.
When the refund swallows the claim: Goldthorpe v HJS Store (Qld 2025)
- Injury
- Soft tissue lower back injury delivering whitegoods, 21 July 2023
- General damages
- ISV 1, $1,535
- Owed back to WorkCover
- $10,977.86
- Left for the worker
- $0
- Result
- Claim dismissed
This is the opposite of the traditional collateral source rule: the benefits already paid came off the damages first, and nothing was left.