Summary of the Collateral Source Rule in Virginia – Injured party recovers all damages even if paid by a separate third-party insurance contract.
Question: Does the defendant have to pay for all damages resulting from his negligence even if a third party has already paid for the damage or if covered by a separate third-party insurance contract?
Answer: Yes. The Collateral Source Rule applies to property damages and not just medical costs covered by health insurance.
Much of Virginia law related to the “collateral source rule” deals with medical bills in tort cases because it is the most common instance with most people having medical insurance. However it should be noted that medical bills are in fact a property damage in a negligence claim that is in addition to the personal injury claim for pain and suffering, disability and the like. Further, in Virginia by statute there is no subrogation by the medical insurer (unless the plan is covered by ERISA as a fully funded self-insured medical payment plan)
The underlying principal is stated as follows: “the so-called “collateral source rule” requires the tortfeasor [defendant] to bear the full cost of the injury he has caused regardless of any benefit the victim may have received from an independent (“collateral”) source.” See RESTATEMENT (SECOND) OF TORTS § 920A(2) (1979).
Not reducing plaintiffs recovery by the amount of insurance benefits is also commonly defended on the ground that the defendant should not be allowed to take advantage of a fund created by the plaintiff himself. This argument has special force where the insurance carries no right of subrogation because public policy is indifferent to the insured’s double recovery, as in the case of “sum” insurances like accident and life policies. See Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal. 3d 1, 9-11, 465 P.2d 61, 66-69, 84 Cal. Rptr. 173, 178-81 (1970).
Generally speaking the principal of collateral estoppel is that the tortfeasor should be responsible for the full amount of the damages caused by its negligence without regard to any contractual coverage for which the tortfeasor did not pay and was not a party. Those principles were discussed and applied in a personal injury case before the Virginia Supreme Court, excerpts of which are provided below:
[T]he defendant, who by his negligence, has injured another, owes to such other compensation for the injuries he has inflicted and the payment for those injuries from a collateral source cannot relieve the defendant of his obligation.
Kellam, 162 Va. at 764, 175 S.E. at 636. Accord Burks v. Webb, Adm’x, 199 Va. 296, 304, 99 S.E.2d 629, 636 (1957). Pursuant to the rule, “compensation or indemnity received by a tort victim from a source collateral to the tortfeasor may not be applied as a credit against the quantum of damages the tortfeasor owes.” Schickling, 235 Va. at 474, 369 S.E.2d at 174. A person who is negligent and injures another “owes to the latter full compensation for the injury inflicted[,] . . . and payment for such injury from a collateral source in no way relieves the wrongdoer of [the] obligation.” Walthew v. Davis, Adm’r, 201 Va. 557, 563, 111 S.E.2d 784, 788 (1960) (citing Webb, 199 Va. at 304, 99 S.E.2d at 636).
[T]he purpose of compensatory damages, which is to make a tort victim whole. However, the injured party should be made whole by the tortfeasor, not by a combination of compensation from the tortfeasor and collateral sources. The wrongdoer cannot reap the benefit of a contract for which the wrongdoer paid no compensation. Baltimore & Ohio R.R. Co., 70 Va. (29 Gratt.) at 446. The extent of Acuar’s liability to Letourneau cannot be “measured by deducting financial benefits received by [Letourneau] from collateral sources.” Owen v. Dixon, 162 Va. 601, 608, 175 S.E. 41, 43 (1934). In other words, “it is the tortfeasor’s responsibility to compensate for all harm that he [or she] causes, not confined to the net loss that the injured party receives.” Restatement (Second) of Torts § 920A cmt. b (1977).
Acuar v. Letourneau, 260 Va. 180, 189-93, 531 S.E.2d 316, 320-23 (2000)
The following persuasive case law relates solely to “property damage” cases as opposed to personal injury claims.
New Foundation Baptist Church v. Davis, 257 S.C. 443, 186 S.E.2d 247 (1972), the defendant had negligently constructed an addition to the plaintiffs sanctuary, which resulted in the floor collapsing during a funeral service. The repairs were carried out by a contractor who, as trustee of the church, merely charged for his expenses and contributed his time, waiving all profit. The court held that the trustee’s generosity should not inure to the benefit of the defendant and, invoking the collateral source rule, awarded full damages for the value of the repairs.
See also Great Lakes Gas Transmission Co. v. Grayco Constructors Inc., 506 F.2d 498, 503-04 (6th Cir. 1974), cert. denied, 420 U.S. 947 (1975); Staten Island Rapid Transit Ry. v. S.T.G. Constr. Co., 421 F.2d 53 (2d Cir.), cert. denied, 398 U.S. 951 (1970); Western Fire Ins. Co. v. Milner Hotels, 232 F.2d 779 (8th Cir. 1956); The Dimitrios Chandris, 43 F. Supp. 829 (E.D. Pa. 1942), alfdsub nom. Ring v. The Dimitrios Chandris, 133 F.2d 124 (3d Cir. 1943); Manila School Dist. No. 15 v. Sanders, 226 Ark. 270, 289 S.W.2d 529 (1956); Freeman v. Rubin, 318 So. 2d 540 (Fla. Dist. Ct. App. 1975); Executive Dev. Properties, Inc. v. Andrews Plumbing Co., 134 Ga. App. 618, 215 S.E. 2d 318 (1975); Cereal Byproducts Co. v. Hall, 16 Ill. App. 2d 79, 147 N.E.2d 383 (1958); Daeschner v. Gibson, 103 Kan. 555, 175 P. 681 (1918).
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