Civil lawsuits are often, at their core, a question of compensation. A is wronged by B and suffers $100,000 in damages as a result. A sues seeking $100,000 recompense from B to make himself whole again. But what happens when C steps into the picture and makes A whole again? Does B still have to pay? Is it fair to let B off the hook? Is it fair that A recover twice? These questions are the basis of the Collateral Source Rule.
The Collateral Source Rule states that:
[I]f an injured party receives compensation for injuries from a source independent of the tortfeasor, the payment should not be deducted from the damages that the tortfeasor must pay.
Black’s Law Dictionary, 9th 3d, p. 299 (emphasis added).
The rule is traced to the U.S. Supreme Court’s decision in The Propeller Monticello v. Mollison. The admiralty case concerned the collision of a schooner and steamship on Lake Huron, resulting in the loss of the schooner’s cargo. The defense in that case pointed out that the schooner’s insurers had already covered the losses and asked the Court to dismiss the case on that basis. The Court held that the defendant was not entitled to avail himself of the benefit of the plaintiff’s insurance, stating that, “[t]he contract with the insurer is in the nature of a wager between third parties, with which the trespasser has no concern.” The Propeller Monticello, 58 U.S. 152, 155 (1855).
The rule was widely accepted and adopted across the country and eventually worked its way into the common law. The rule is typically seen as rule of evidence – prohibiting the introduction of evidence showing that the plaintiff has received payment from a third party. Courts and scholars have offered several justifications for the Rule, including that a wrongdoer should not benefit from the plaintiff’s foresight in obtaining insurance and that unless the defendant is made to pay for damages, the deterrent purposes of tort liability will be undermined. See Christian Saine, Note, Preserving the Collateral Source Rule, 47 Case W. Res. 1075, 1077-78 (1997).
The Restatement of Torts embraces the rule as well, stating that while a tortfeasor may receive credit for payments he makes toward his own liability, he cannot receive credit for payments from other sources. “Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor’s liability, although they cover all or a part of the harm for which the tortfeasor is liable.” Restatement (Second) of Torts § 920A(2).
Perceived to allow ‘double recoveries’, the rule came under attack in the tort reform movement of the late 1980’s. Like many other jurisdictions, the Virgin Islands enacted a statute which limited the application of the collateral source rule. The law, enacted by the legislature in 1986, states that:
In any cause of action alleging damages for medical expenses or lost income sustained by or on behalf of a party, including, without limitation, actions alleging damages for bodily injury, death or property damage, or any combination thereof, the collateral source rule shall not be applied. Any party may introduce evidence that the other party who is claiming damages for medical expenses or lost income has received, or is entitled to receive, other compensation for such damages, including, but not limited to benefits from workmen's compensation, medical and hospital insurance, prepaid health care, social security, retirement or pension, and any employer paid program, such as wage continuation and disability benefits programs. Nothing in this section shall be construed to reduce any award where there is a statutory lien against the judgment as a result of a third party payment.
5 V.I.C. § 427 (emphasis added).
Limits on the application of the rule, such as Section 427, are based upon the “basic principle of tort law that damages are to be compensatory to the full extent of the injury sustained, but the award should be limited to compensation and compensation alone." Incollingo v. Ewing, 282 A.2d 206, 228 (Pa. 1971). It seeks to remove the possibility of a plaintiff windfall.
The sole object of compensatory damages is to make the injured party whole for losses actually suffered; the plaintiff cannot be made more than whole, make a profit, or receive more than one recovery for the same harm. Thus, a plaintiff in a civil action for damages cannot, in the absence of punitive or statutory treble damages, recover more than the loss actually suffered. The plaintiff is not entitled to a windfall, and the law will not put him in a better position than he would be in had the wrong not been done.
22 Am.Jur.2d. Damages § 28.
The most significant discussion of Section 427 in caselaw comes in Pedro v. Huggins, 53 V.I. 98 (V.I. Super. 2010). In this opinion by Judge Carroll, Section 427 is found to not apply to the case – because the damages sought were not medical or income related. Judge Carroll discusses Section 427 and, importantly, rules that the statute must be strictly construed as it is in derogation of the common law.
It is a well-established and longstanding principle that statutes which invade the common law ... are to be read with a presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident. Section 427, which limits the collateral source rule as established by the common law, must be strictly construed.
Id., at 102 (internal quotations and citations omitted).
Even construed strictly, the provisions of the statute are clear. Based upon Section 427, the collateral source rule does not apply in actions seeking recoupment of medical expenses or lost income. Given that the rule does not apply, and as the Code explicitly allows, a defendant may introduce evidence that the Plaintiff has received payment for medical expenses (or other collateral sources). Above and beyond that, as the rule actually discusses deduction from damages awards, there is a sound basis for taking the position that every dollar already paid – whether by insurer or other donor - is a dollar less to be awarded.
If you have any questions about the impact of the Collateral Source Rule, please contact Mark Wilczynski at 340-774-4547 or mark@usvilaw.com.