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⚖️ '''Collateral source rule''' is a legal doctrine with significant implications for the insurance industry, holding that compensation a [[Definition:Claimant | claimant]] receives from sources independent of the [[Definition:Tortfeasor | tortfeasor]] — such as [[Definition:Health insurance | health insurance]], [[Definition:Disability insurance | disability insurance]], or [[Definition:Workers' compensation | workers' compensation]] benefits — cannot be used to reduce the damages the tortfeasor owes. For insurers providing [[Definition:Liability insurance | liability coverage]] to defendants, this rule can substantially increase [[Definition:Indemnity payment | indemnity payments]] because the jury never learns that the plaintiff's medical bills or lost wages were already partially or fully covered by another [[Definition:Insurance policy | insurance policy]].

🔍 In practice, the rule operates as an evidentiary bar during [[Definition:Litigation | litigation]]. Defense counsel — and by extension the [[Definition:Liability insurer | liability insurer]] managing the defense — is typically prohibited from introducing evidence that the plaintiff carried [[Definition:First-party insurance | first-party coverage]] that reimbursed the claimed losses. This means a plaintiff might recover the full face value of medical expenses from the defendant's insurer even though the plaintiff's own health plan already paid those bills, sometimes at a deeply discounted rate. Some jurisdictions have modified or abolished the rule through [[Definition:Tort reform | tort reform]] legislation, allowing juries to consider collateral payments and reducing [[Definition:Damages | damage awards]] accordingly. [[Definition:Subrogation | Subrogation]] rights held by the plaintiff's own insurer can complicate matters further, as the first-party carrier may seek reimbursement from the liability recovery.

📊 The financial stakes for the insurance sector are considerable. In states that strictly enforce the collateral source rule, [[Definition:Loss cost | loss costs]] in [[Definition:Auto liability insurance | auto liability]], [[Definition:General liability insurance | general liability]], and [[Definition:Medical malpractice insurance | medical malpractice]] lines tend to run higher because defendants cannot offset damages with evidence of other payments. [[Definition:Actuarial analysis | Actuarial analysis]] of [[Definition:Claim severity | claim severity]] must account for whether a given jurisdiction applies, modifies, or rejects the rule, and this variation directly feeds into [[Definition:Rate filing | rate filings]] and [[Definition:Reserve | reserving]] decisions. Insurers and industry trade groups frequently engage in legislative advocacy around collateral source reform, viewing it as one of the most impactful levers for controlling [[Definition:Liability insurance | liability]] claim inflation.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Subrogation]]
* [[Definition:Tort reform]]
* [[Definition:Liability insurance]]
* [[Definition:Claim severity]]
* [[Definition:Damages]]
* [[Definition:First-party insurance]]
{{Div col end}}

Definition:Collateral source rule - Revision history

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