What is the Collateral Source Rule in Texas?

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The collateral source rule applies in Texas tort claims, including car accidents. It limits evidence of other sources of payment at trial.

It’s important to know how the rule applies to your claim. The Houston car accident attorneys at Haun Mena explain.

What is the Collateral Source Rule in Texas?

The collateral source rule in Texas prohibits a defendant in a legal claim from admitting other sources of payments and benefits. If the plaintiff has ways of offsetting their losses, like insurance or gifts, the defendant cannot admit evidence of these resources as a defense in the case against them.

Where does the Texas collateral source rule come from?

The general rule comes from common law, but it has been modified by the Texas Civil Practice and Remedies Code § 41.0105. Generally, a defendant may not admit evidence of third-party resources, like medical insurance. However, admission of medical expenses is limited to actual charges billed if charges are reduced through insurance-negotiated rates.

See Haygood v. De Escabedo, 356 S.W.3d 390, 54 Tex. Sup. Ct. J. 1377 (Tex. 2012) (explaining that the collateral source rule precludes a defendant from reducing their liability because of payments from a third-party – or collateral – source), see also Daughters of Charity Health v. Linnstaedter, 226 S.W.3d 409 (Tex. 2007).

Types of Collateral Sources

Common collateral sources include:

  • Health insurance
  • Car and property insurance
  • Medicare, Medicaid benefits
  • Workers’ compensation
  • Social security
  • SSDI, disability insurance
  • Life insurance
  • Gifts from family and friends

How Does the Collateral Source Rule Work in Texas?

Here are two examples of how the collateral source rule works in Texas:

Example #1

The victim is in an accident. They incur $20,000 in medical bills. Insurance pays $15,000. There is $5,000 left to pay out of pocket.

The victim brings a lawsuit against Tortfeasor to recover the $20,000. Tortfeasor wants to tell the jury that the Victim’s insurance paid most of the bill. However, because of the collateral source rule, they can’t mention the insurance payment.

Example #2

Victim is in an accident. They incur $25,000 in vehicle damage. Their extended family buys them a new vehicle. Tortfeasor wants to tell the jury about the family gift. Tortfeasor can’t admit this evidence because of the collateral source rule.

What to Know About the Texas Collateral Source Rule

There are two important things to know about the Texas collateral source rule: insurance-negotiated rates and liens for medical care.

Negotiated rates and the collateral source rule

Few people pay full price for medical services. Insurers typically negotiate lower rates. This isn’t what the insurance company pays on your behalf. Rather, it’s a discounted rate for services.

For example, the hospital charges $10,000 for surgery. They submit the bill to the insurance company. The insurance company’s negotiated rate for that type of surgery is $3,000. The hospital may charge the patient $3,000, even though their “sticker price” is higher.

It’s the lower amount – the $3,000 – that the plaintiff can seek as damages. The law doesn’t see this as creating a windfall to the tortfeasor. Instead, it prevents the plaintiff from receiving a windfall for expenses they don’t have. (See Texas Civil Practice and Remedies Code § 41.0105).

Liens for medical payment

If a victim receives compensation for medical payments, a hospital or other care provider may seek reimbursement of their costs. They may place a lien on the plaintiff’s recovery. The reason for this rule is that it wouldn’t be fair for the defendant to pay the victim for medical expenses only to have the care provider left unpaid. A victim should be aware of the possibility of a medical lien.

What is the purpose of the collateral source rule?

The purpose of the collateral source rule is to make defendants fully liable for the harm that they have caused. They shouldn’t benefit because the victim has insurance. In addition, the rule encourages people to buy insurance rather than rely on compensation from a tortfeasor.

The defendant isn’t a party to the insurance policy or any other means of financial relief that the victim receives. The collateral source rule prevents a defendant from escaping full liability because of the plaintiff’s decision or good fortune to have other resources. Brown v. American Transfer & Storage Co., 601 S.W.2d 931 (Tex. 1980).

Talk to an Auto Accident Attorney in Houston

If you have been hurt, we invite you to talk to an attorney at Haun Mena. We can talk about the specifics of your auto accident, including how the collateral source rule may apply. Contact us today.

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