When you make a claim for negligence — whether it be from a fall on slippery property or your painting contractor tipping over a paint can in your living room (destroying your hardwood floors) — you can sue for compensation. That much is clear.
But what happens your own insurance pays for your damages from the negligence of another? Let’s say your home owner’s insurance — State Farm, for example — pays to replace your paint-damaged floors, in the above scenario. Can the negligent contractor take advantage of your own insurance and escape having to pay you for your damages, since your own insurance already paid you for it?
The answer is no: the contractor remains liable to you for the full cost to fix or replace the flooring, even though you were already compensated by a “collateral source” (your own insurance). It can give you a double recovery. This is called collateral source rule, which Pennsylvania courts follow, with only a few exceptions, discussed below.
Collateral Source Rule in Pennsylvania
In PA, the victim of a tort is entitled to the damages caused by the tortfeasor’s misconduct regardless of compensation the victim has received from a “collateral” source. See Denardo v. Carneval, 297 Pa. Super. 484, 444 A.2d 135, 140 (1982) (citing, inter alia, Boudwin v. Yellow Cab, 410 Pa. 31, 188 A.2d 259 (Pa. 1963); Griesser v. National Railroad Passenger, 2000 Pa. Super 313, 761 A.2d 606, 609 (2000).
But isn’t it unfair to get a double recovery?
Reasons Underlying the Collateral Source Rule in PA
The collateral source rule is fair for two reasons. First, why should the negligent party — who caused your harm — catch a break based on his victim’s choice to carry insurance for damages the negligent party caused?
Secondly, Pennsylvania law allows the victim’s insurance carrier — who has paid to compensate a victim — to get paid back out of any settlement. Or, the insurance company can sue the tortfeasor directly. In fact, the insurer can stand in the shoes of its insured and sue the negligent party for the damages paid. This is called “subrogation.” The right to sue is “subrogated” — or substituted — in favor of the insurance company.
An example will make sense of this.
In the above scenario, let’s say State Farm homeowner insurance paid the homeowner $20,000 for damages from the tipped over paint can. State Farm can sue the tortfeasor directly for 20K. But here’s the problem. The tortfeasor can only be sued once: either by State Farm or the homeowner, not both. It’s the civil court’s version of criminal “double jeopardy,” but on the civil side it’s called “res judicata,”.
Thus, with the Defendant only able to be sued once, the party suing against the negligent party must bring all claims at once. For example, the home owner can sue for his damages plus the amount State Then, State Farm can assert a lien against the home owner’s recovery for repayment.
The Collateral Source Makes a Double Recovery Possible
So here’s where it gets interesting — and lucrative — for the victim of another’s negligence: the collateral can create a double recovery.
Here’s how.
- The Insurance Carrier Opts Against Taking a Lien or Subrogation. Let’s say State Farm (in the above example) paid 20K, but decides not to seek subrogation. This could happen for a number of reasons. Perhaps State Farm decides the claim isn’t worth their time. Or, State Farm could believe the amount of time and money (and legal fees) it would take to win against the tortfeasor would not justify keeping its file open to monitor the home owner’s claim against the tortfeasor.
- Law Precludes Subrogation. Unless the State Farm homeowner policy allows the insurance carrier — here, State Farm — to be paid out of the victim’s recovery against the negligent party, such a right will exist. As such, the Plaintiff-victim can walk away with a double recovery. In the above example, he can recover $20,000 from State Farm and $20,000 from the negligent party.
Types of Collateral Sources At issue
Moreover, the collateral source rule extends beyond homeowner’s insurance and can allow a double recovery for benefits paid for:
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- lost wage benefits from any “collateral source,”
- medical bills, by one’s own health insurance (with a big exception discussed below), or
- renter’s insurance, for damages to one’s possessions.
Exceptions to the Collateral Source Rule
There are four significant exceptions to the collateral source rule in PA, preventing a double recovery in several common instances:
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- Medicare (Federal) Benefits – or pursuant to a Medicare-related insurance policy. Here, Medicare expressly disavows a double recovery and issues severe penalties for failing to protect Medicare’s interests when resolving any claim for damages where Medicare paid any portion of the damages in the case.
- Benefits paid by PA’s Department of Human Services, or “Medicaid” or one of its administrators, such as UPMC For You. Here, Pennsylvania’s right to repayment is absolute, like Medicare.
- “No-Fault” and Other Motor Vehicle Benefits. This exception is huge. If you’re a PA driver, PA’s Motor Vehicle Financial Responsibility Act (“MFVRL”) requires you carry at least 5K in “no fault” medical coverage, which pays for your injuries from the accident, even if caused by another driver. That said, MVFRL statutorily excluded from the collateral source rule benefits paid by your own motor vehicle insurance, meaning, you cannot get a double recovery.
- Private Health Insurance plans organized under federal law, namely ERISA. Here, plans organized under ERISA are entitled to “medicare-like” priority. As such, the plan can — and will — seek to be repaid out of any settlement with any tortfeasor, where the plan paid any portion of the claim.
The collateral source rule involves the interplay of highly technical areas of law. These include breach of contract, tort, motor vehicle law, ERISA, and Medicare. As such, you should consult with a lawyer having experience in these areas before settling any claim for damages in Pennsylvania.
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Contact a Pittsburgh lawyer about any claim for damages involving the collateral source rule or otherwise.
412.342.0992
