Definition of Collateral Source Rule
The collateral source rule does not allow a plaintiff to have their benefit from the tortfeasor or from the lawsuit reduced because they receive compensation from another source, such as an insurance company. Under the collateral source rule if a plaintiff has additional sources of payments such as insurance coverage to pay for their expenses or losses which are identified in a civil action, these additional payments are considered irrelevant to the case.
The collateral source rule was created to ensure the defendant should not benefit from the plaintiff's foresight in paying insurance premiums, although in some cases it may allow the plaintiff to receive double recovery (to the extent that their medical bills and lost wage claims have already been paid by their insurance carrier).
Some states have abolished or limited the collateral source rule and allow the courts to reduce the plaintiff's award if expenses have already been paid. It is not clear, however, how these changes will affect claims for future medical expenses if the plaintiff loses their insurance coverage.