Decoding the Collateral Source Rule

by Chad Lieberman on August 1, 2012

In Colorado, collateral source matters are governed by both common law and statute.  The collateral source rule consists of two components: (1) a post-verdict set-off rule; and, (2) a pre-verdict evidentiary rule.

Historically under the common law collateral source rule, any third-party payments or benefits received by a plaintiff accrued solely to the plaintiff’s benefit and were not deducted from the amount of the tortfeasor’s liability, even if it resulted in a windfall to the plaintiff.  See Gardenswartz, 242 P.3d at 1082-83; see also Colo. Permanente Med. Grp., P.C. v. Guidot, 926 P.2d 1218, 1230 (Colo. 1996); Keelan, 840 P.2d at 1074.  The collateral source rule did not apply if the payments or benefits were attributable to the defendant or if the compensation or benefits had been “gratuitously furnished” to a plaintiff by a governmental body.  See Keelan, 840 P.2d at 1074; see also Levy, 2011 Colo. App. LEXIS 148 at *10 (“Colorado law recognizes that the collateral source rule is inapplicable in situations where the plaintiff’s compensation is attributable to the defendant or tortfeasor.”).  Evidence of such third-party payments or benefits was inadmissible at trial to ensure that the jury would not be misled by the evidence.  See Gardenswartz, 242 P.3d at 1083.

The post-verdict component of the common law collateral source rule was codified in 1986 by the enactment of the collateral source statute.  See C.R.S. § 13-21-111.6; Gardenswartz, 242 P.3d at 1084.  “Section 13-21-111.6 sets forth a general rule that damages for which a claimant has been wholly or partially indemnified or compensated by another cannot be recovered in a tort action against the tortfeasor involving the same injury.”  Miller v. Brannon, 207 P.3d 923, 931 (Colo. App. 2009).  The statute requires a court to reduce any verdict by deducting the compensation or benefits that a plaintiff has received from collateral sources.  See C.R.S. § 13-21-111.6 (“In any action by any person or his legal representative to recover damages for a tort resulting in death or injury to person or property, the court, after the finder of fact has returned its verdict stating the amount of damages to be awarded, shall reduce the amount of the verdict by the amount by which such person, his estate, or his personal representative has been or will be wholly or partially indemnified or compensated for his loss by any other person, corporation, insurance company, or fund in relation to the injury, damage, or death sustained. . . .”).

However, the collateral source statute contains a contract exception that retains the common law collateral source rule for compensation or benefits received by a plaintiff that were “paid as a result of a contract entered into and paid for by or on behalf of such person.”  Id.  The contract exception is “broad enough to cover contracts for which a plaintiff gives some form of consideration, whether it be in the form of money or employment services, with the expectation of receiving future benefits in the event they become payable under the contract.”  Keelan, 840 P.2d at 1079.  But if the payor of such compensation or benefits is found liable for the plaintiff’s injuries, the contract exception is not applicable.  Guidot, 926 P.2d at 1231-32 (holding that where the plaintiff’s medical insurer pays for the plaintiff’s medical expenses and is later found to be partially at fault for the plaintiff’s injuries, the court should reduce the plaintiff’s damages by the portion of medical expenses paid by the insurer that are attributable to the medical insurer’s fault).

The pre-verdict evidentiary component to the collateral source rule was codified in 2010 by the enactment of C.R.S. § 13-21-111.6.  See C.R.S. § 13-21-111.6(10)(a).  The Colorado Supreme Court recently clarified this issue in three separate rulings.  In those rulings, the Colorado Supreme Court held that C.R.S. § 13-21-111.6(10)(a) codified the common law pre-verdict collateral source rule that excludes all evidence at trial of amounts paid by a collateral source to cover a plaintiff’s medical bills.  See Wal-Mart v. Crossgrove, 2012 Colo. LEXIS 330 , at 333 (2012) (“The Legislature codified the evidentiary component of the collateral source rule in 2010…”); Smith v. Jeppsen, 2012 Colo. LEXIS 331 at 335 (2012) (“Subsection 10-1-135(10)(a) unambiguously codifies the pre-verdict common law principle by excluding from evidence the fact or amount of any collateral source payment of benefits.”); Sunahara v. State Farm Mutual Automobile Insurance, 2012 Colo. LEXIS 328 (2012).

The current rule is: evidence of a collateral payment is excluded and may not be included for any purpose.  See Crossgrove, 2012 Colo. LEXIS 330 at 334, 335 (“Admitting amounts paid evidence for any purpose, including the purpose of determining reasonable value, in a collateral source case carries with it an unjustifiable risk that the jury will infer the existence of a collateral source… [T]rial courts must exclude evidence of amounts paid by a collateral source even to show the reasonable value of the services rendered.”). See also C.R.S § 13-21-111.6(10)(a).

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