Back in 1854 on the Great Lakes, a steamboat collided with a schooner causing it to sink while loaded with freight. The schooner was insured and the defense argued that they had already been paid for the replacement. The court would not make any reduction in damages stating that the insurance had no relevance to the case. Many states still employ the collateral source rule (including Colorado), which existed under common law. The rule states that recovery for damages will be independent of any compensation that a plaintiff receives from other sources. The Colorado version of the law states that evidence of collateral funds is inadmissible in a trial; however, post-verdict these awards can be reduced by amounts received from collateral sources. There is an exception, for when the source was based on a contract that the plaintiff entered into and paid for.
Common Law Reasoning for the Doctrine
As time has passed, the collateral source doctrine has evolved. One way of justifying the doctrine was that it created an incentive to purchase insurance, or at least doesn't discourage people from doing so. If insurance reduces the amount of potential recovery in litigation, some may see that as a reason not to have insurance. Day-to-day, it is doubtful that today's consumer makes insurance decisions based on this doctrine. Another thought was that the doctrine prevented a wrongdoer from benefiting unjustly from the plaintiff's insurance. If the plaintiff had expansive insurance in place, the wrongdoer may have very little true liability.
The Doctrine as a Deterrent
If the defendant must fully assume responsibility for compensating the injured party, it serves as a deterrent for risky behavior. Conversely, if the defendant does not have to pay significant compensation, there is less reason to be cautious. From a product liability standpoint, if victims receive the majority of compensation from their own insurance, businesses will deem that ensuring product safety is less important.
The Argument Against Double Plaintiff Recovery
If there is no reduction for collateral benefits received, the plaintiff in effect may receive “double-recovery”. Many argue that allowing the plaintiff to potentially receive extra compensation, is better than having a wrongdoer benefit from lessened liability. An additional consideration is that plaintiffs pay premiums, which can be costly, for this coverage. Some insurance policies have clauses that entitle insurers to some reimbursement if plaintiffs receive an award. Tort law is more comprehensive than simply about monetary amounts. In fact, the non-compensatory damages are awarded to account for pain, grief, and reduced quality of life. Further, in instances of malicious acts, the plaintiff may receive punitive damages. Monetary awards in these instances are the only means of compensating victims for losses in the current system.
When someone exhibits careless or negligent behavior which injures another, Colorado law allows for victims to seek justice through civil litigation. The Law Firm of Jeremy Rosenthal has advocated for Colorado injury victims for many years. Contact the office today to consult with an attorney at (303) 825-2223.