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The Collateral Source Rule in Maryland and the District of Columbia

Written by Padraic K. Keane. Posted on 02/14/2012.

Both Maryland and the District of Columbia recognize, as long-standing common law, the collateral source rule in the context of personal injury litigation. Maryland, for example, has recognized the collateral source rule for at least 112 years. See Norfolk Southern Ry. Corp. v. Tiller, 179 Md. App. 318, 327 (2008) (noting recognition of the doctrine since at least 1899). In Maryland, the collateral source rule "permits an injured person to recover the full amount of his or her provable damages, regardless of the amount of compensation which the person has received for his injuries from sources unrelated to the tortfeasor." Debbas v. Nelson, 389 Md. 364, 378 n.3 (2003). Stated somewhat differently,

it is the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor. If the plaintiff himself was responsible for the benefit, as by maintaining his own insurance or making advantageous employment arrangements, he should not be deprived of the advantage that it confers. The law does not differentiate between the nature of benefits, so long as they did not come from the defendant or a person acting for him.

Motor Vehicle Admin. v. Seidel, 326 Md. 237, 254 (1992), citing Restatement (Second) of Torts, ' 920A(2), comment (b) (1977). To the extent this results in a double-recovery for the plaintiff, the collateral source permits such a double-recovery. For example, if a plaintiff misses work due to an injury, but receives sick pay, the plaintiff may claim for lost wages even though the lost wages were covered by the sick pay. In so doing, the plaintiff recovers not only the sick pay, but also the "lost wages" as a result of the tortious injury.

The collateral source rule rests on two basic public policy concepts: "principally, the tortfeasor should not receive a windfall because the plaintiff received a benefit from an independent source, but also that . . . the rule encourages the maintenance of insurance." Haischer v. CSX Transp., Inc., 381 Md. 119, 132 (2004). While the rule is often discussed in the context of health insurance benefits, the rule is not limited to such benefits.

The collateral source rule can manifest itself in unexpected ways. For example, where a military service member was injured by a third party, and received free medical care from a U.S. Navy hospital, the Maryland Court of Appeals held that the jury should have been allowed to consider the reasonable value of the medical services received by the plaintiff when awarding damages. See Plank v. Summers, 203 Md. 552, 562 (1953); Lawson v. United States, 454 F.2d 373, 422 (D. Md. 2006) (citing to Plank as Maryland law). The Plank court noted that the free medical treatment represented a benefit to the plaintiff as a result of his military service contract, and that to exclude the value of that treatment (despite the fact the treatment was completely free) would provide the tortfeasor with a windfall due to the employment arrangement. Id. Thus, the court allowed the plaintiff to recover medical expenses that were never incurred.

However, Maryland does recognize limited exceptions to the collateral source rule. For example, evidence of insurance payments to an injured party may be admissible to rebut a false claim of impoverishment by a plaintiff. See Abrishamian v. Barbely, 188 Md. App. 334, 346 (2009) ("as with nearly all rules, the collateral source rule as its exceptions. The exception relevant to this case is that evidence of a plaintiff's insurance coverage is admissible if the plaintiff opened the door by asserting a misleading level of poverty.") Maryland courts have also recognized that collateral benefits may be admissible if relevant to the issue of malingering. See Tiller, 179 Md. App. at 336.

Additionally, Maryland has limited the collateral source rule by statute. For example, under the non-economic damages cap applicable to medical malpractice claims, damages in the form of past medical expenses are expressly limited to amounts paid by or on behalf of the plaintiff, and the amounts incurred but not paid but for which another person, on behalf of the plaintiff, is obligated to pay. See Md. Code Ann. Courts & Jud. Proc. sec. 3-2A-09(d). As such, in the context of medical malpractice claims, a plaintiff may only recover the amounts that are actually paid, as opposed to the value of such services. (Given that the non-economic damages cap for general personal injury actions, Md. Code Ann. Courts & Jud. Proc. sec. 11-108, does not contain such language, it appears that the Maryland legislature chose not to limit the collateral source rule's applicability in personal injury actions.)

The District of Columbia courts' view of the collateral source rule is essentially identical to Maryland's. "The collateral source rule provides, as a general proposition, that a party may recover full compensatory damages from a tortfeasor regardless of the payment of any amount by any independent party (a 'collateral source'), such as an insurance carrier." Bushong v. Park, 837 A.2d 49, 57 (D.C. 2003) (citing Restatement (Second) of Torts sec. 920A). This is the case even where the application of the collateral source rule may result in a double recovery. Jacobs v. H.L. Rust Co., 353 A.2d 6, 7 (D.C. 1973). It is important to note, however, that the "collateral source" must truly be independent of the tortfeasor for the rule to apply. For example, in District of Columbia v. Jackson, the District of Columbia (as defendant) was entitled to introduce evidence that the plaintiff's medical bills had been paid via Medicare, as the District of Columbia was the administrator of the Medicare system. To exclude such evidence would have not only resulted in a double recovery for the plaintiff, but also a double payment by the tortfeasor. 451 A.2d 867, 873 (D.C. 1982).

In 2003, the D.C. Court of Appeals in Hardi v. Mezzanotte, 818 A.2d 974 (D.C. 2003) addressed the issue of whether unpaid, or "written-off" medical expenses (i.e., expenses that no party was ever legally obligated to pay) could be recovered by a plaintiff. Noting that the issue had never been addressed in the District of Columbia, the Court of Appeals held that the collateral source rule required that the plaintiff be able to recover such expenses, reasoning that the written-off amounts constituted a benefit that the plaintiff had obtained pursuant to her contractual arrangement with her insurance company, and as such the written-off amounts constituted a benefit from a source wholly independent of the tortfeasor. Id. at 984. In this context, the collateral source rule operates not only as a shield (to prevent a tortfeasor from introducing evidence that a claimed damage has already been satisfied) but also as a sword (as it allows a plaintiff to recover a fictitious amount as damages). (Compare with Blake v. Delaware & Hudson Ry., 484 F.2d 204, 207 (2nd Cir. 1973) (in which Judge Friendly referred to a similar outcome as "shockingly unfair.").

The surprising (and depending on one's perspective, arguably unfair) outcomes resulting from the collateral source rule has led to calls to repeal or restrict the application of the rule. For example, the American Tort Reform Association (http://www.atra.org) has identified the collateral source rule as a target for reform. See http://www.atra.org/issues/index.php?issue=7344 Addit.ionally, numerous states have restricted the collateral source rule in certain contexts (for example, Maryland as discussed supra in the context of medical malpractice claims), or repealed the rule altogether. See, e.g. Alabama (Ala. Code sec. 6-5-545); Idaho (Idaho Code Ann. sec. 6-1606); Wisconsin (Wisc. Stat. Ann. sec. 893.55 (7)). Despite the criticisms of the collateral source rule, and notwithstanding Maryland's limitation of the rule in the context of medical malpractice litigation, it does not appear that either Maryland or the District of Columbia will discontinue following the collateral source rule in the near future.

As such, any attack on the collateral source rule (and the bizarre results that can occur in some applications of the rule) is best focused not on the validity of the rule, but on its applicability. For example, in Rotolo Chevrolet v. Staudt, a California Court of Appeal matter, the court was presented with a plaintiff who was injured and sued a car dealership. The plaintiff alleged that as a result of his injuries, he was forced to retire from his employment as a firefighter, and sought to recover for the lost value of his retirement pension. However, the plaintiff also sought to exclude, relying on the collateral source rule, evidence that the plaintiff was receiving a disability retirement pension. (As such, the plaintiff would have recovered not only his ordinary retirement pension as a damage, but also his disability pension.) The court, in analyzing the issue, held that such a result would be "inequitable," and that it was inapplicable. See 105 Cal. App. 4th 242, 246 (2003). The court reasoned that the retirement benefits could not be "separated into two categories, and that . . . [the plaintiff could] claim 'injury' to his 'regular' benefits as to which his disability benefits were a collateral source . . . A pension is a pension is a pension . . . the fact that the employer provides two potential types of pension benefits does not make one type 'collateral' to the other, which is already 'collateral' to [the plaintiff's] lost earnings." Id. At 246-247. In other words, the court found that the collateral source rule was inapplicable because while the pension would ordinarily be collateral to any lost wages, the plaintiff could not claim one benefit from a third party was 'collateral' while seeking to recover for a different benefit from the third party.

If you would like to discuss the defense of any matter involving the collateral source rule, call Steve Schwinn, 703-246-0900.