Florida’s Collateral Source Rule Explained
What is the collateral source rule?
An injured party may recover past economic damages, which includes the cost of past medical treatment and lost wages or earning capacity. Florida Statutes § 768.76 states how to this is done: The jury may not consider the amount paid or payable for these costs or the income the claimant will have after the injury was inflicted. Whether the defendant owes these amounts is a question separate from the determination of liability. The defendant is liable for all past medical expenses and lost wages as long as the medical expenses were reasonable and necessary and the wages were "lost" due to injury. Also, in Florida, there is a "collateral source rule". This means that if the injured party is receiving compensation from an outside source like health insurance or disability insurance, the defendant gets a reduction in the amount they owe to the plaintiff. As a result of this, many cases are now being filed under Florida Statute § 768.0427 which states: In an action brought against an insurer pursuant to s. 518 . 11, the insurer is entitled to a credit for any amounts paid or payable to the insurer from any collateral sources other than in an attorney fee and cost contract. The insurer must prove that any amounts paid or payable from collateral sources are to be subrogated against the plaintiff or the claimants pursuant to an express provision of the policy issued by the insurer and must also prove what the reduced amount is, if any, that the plaintiff or the claimants are required to pay to the insurer pursuant to the policy of insurance. However, the insurer may not make a demand against the plaintiff or the claimants for amounts owed to an insurer unless the insurer is bringing the action against the claimant as subrogee as defined in subsection (2). This statute means that a Defendant in an action against an insurer where a lien of a health insurance company or ERISA plan is involved, is not entitled to reduce or offset the amount owing by the insurer as the result of amounts paid by the health insurance company or ERISA plan. This means that the entire policy limits are available to the injured plaintiff.
The Rule’s History in Florida
The history and evolution of the law in Florida dealing with the application of the collateral source rule is relatively short. Prior to the abolishment of contributory negligence in 1969, the legal effect of the collateral source rule was to increase the plaintiff’s damages where there was evidence of medical bills paid from a collateral source.
The author knows of no case, prior to 1969, which cites the collateral source rule anywhere other than in a footnote and then only to state that the plaintiff – particularly in cases of negligence – does not have to show that he or she is entitled to recover the particular sum of an item, but only that he or she has suffered injury sufficient to justify recovery of an amount which will fairly compensate for the wrong suffered.
On June 1, 1967, in an article in the Orlando Sentinel, it was stated that at least six automobile accident cases had been settled by insurance companies in which plaintiff’s medical expenses were paid by workmen’s disability, and the plaintiffs were also paid disability income benefits from Social Security. Not one of these accident cases settled for less than $10,000, and some of them settled for considerably more. (This newspaper report is cited to show at least the litigation explosion about health care costs which was approaching.)
A study by the Claims Counsel, American Insurance Association, cited in 35 ALR 3d 1189, 1250, comments: "No matter what injury occurs, the bill must be paid. Only if the plaintiff recovers for his losses, including his lost wages, does he recover the amounts which were paid by other sources."
In 1961 the American Law Institute published its Restatement of the Law of Torts, Volume 4, section 920, where it states: "There is given to the plaintiff in an action of tort an award of damages for his loss of time, expenses of hospitalization or medical or surgical operation and for loss of wages during the period of his injury. Where some or all of these expenses have been paid by collateral sources, the amount of such payment is deducted from the damages which would otherwise be awarded to the plaintiff."
Restatement of the Law, Second, Tort 2d, vol. 4, section 920A (1979) states: "There is given to the plaintiff in an action of tort an award of damages for his loss of time, expenses of hospitalization or medical or surgical operation and for loss of wages during the period of his injury. Where some or all of these expenses have been paid by collateral sources, there is no deduction from the damages awarded to the plaintiff."
Restatement of the Law, Third, Torts, Restatement 3d, vol. 4, section 92 (1988) states: "There is given to the plaintiff in an action of tort an award of damages for his loss of time, expenses of hospitalization or medical or surgical operation and for loss of wages during the period of his injury. Where some or all of these expenses have been paid by collateral sources, there is no deduction from the damages awarded to the plaintiff." That principle has not changed in the Restatement.
The Restatement derives the principle that a party who has suffered a loss should not be relieved of the loss by reason of all or part of the loss being compensated by a source other than the tortfeasor, and that the fault of the party causing the damage should not affect the other persons who owe him a duty in contract or by statute. It is said that this principle seems "so manifestly just" that few courts have found it necessary to set out any supporting analysis.
It is further stated: "What is true for recovery of payments for medical expenses applies equally to the recovery for other elements of damage. In addition to recovery for medical expenses, there is also recovery for emotional distress, loss of consortium, and destruction of personal property. The rule against double recovery does not justify a deduction from the damages awarded for any of these elements of damages because the prospect of recovery for some of them provides no offset against the recovery for others. Thus, in an action by an injured person, available collateral source payments should be disregarded in determining the amount of damages to be awarded for the defendant’s invasion of the plaintiff’s interests.
A number of decisions have discussed the rule and held that "[t]he rule requiring an offset for amounts received from collateral sources was eliminated when the state constitution was amended and F.S.A. 768.56 was adopted." A. L. Lewis Peanut Company v. President, Directors and Company of the Mutual Marine Insurance Company, 151 F. Supp. 859, 863. This rule has been abandoned by statute, Wright v. Elliott, 151 Fla. 766, 10 So. 2d 615, in an action for breach of warranty of a used automobile. Colt Industries Operating Corp. v. Frank L. Clements, 33 F. 3d 1297, 1300.
The original collateral source rule was first codified in Florida Statute section 768.56 in 1969. The rule underwent several changes in that statute before the present version became law in 1973 by Florida Laws 1973, chapter 73-313, section 1, which creates section 768.31(5), Florida Statutes (1973). More than seventy-five decisions in Florida have considered the collateral source rule in actions arising out of negligent acts and nearly all of these actions have applied the statute as drafted in 1973.
The Collateral Source Rule and its Applications to Personal Injury Law
Collateral source rule in Florida refers to the doctrine that an injured party may recover amounts paid for medical expenses from a Defendant despite having insurance pay for the bills. The theory is that the Defendant is not entitled to reduce the amount of damages owed based upon whether or not an injured party has insurance. Many times medical pay benefits are first paid to a policyholder by their own insurance company and provided back to the insurance company after the case is concluded. This happens regardless of whether the Plaintiff was at fault for causing the accident. When Medicare pays, or health insurance pays, or any other health related source pays either the full amount of a bill or a portion of the bill the Collateral Source Rule allows injured persons to recover the amounts they and their insurers have paid.
For instance, a Defendant may be liable for all medical expenses incurred caused by the Defendants negligent acts. If the injured person went to the doctor and owes a bill of $10,000.00 and the Defendant admits liability or is found liable for the full amount of $10,000.00 but the injured person only "owed" $5,000.00 because his or her insurance company paid $5,000.00 of the medical bills then under the statute cited above the injured person is still allowed to collect the full $10,000.00 experienced as a result of medical care.
In many personal injury cases the Defendant along with his or her attorney attempts to introduce into evidence the fact that the injured party owed medical bills. The purpose is to reduce the amount of damages the Plaintiff can collect using the argument that these medical bills that are owed are technically paid by a third party. This is called "collateral" and most cases in Florida do not require the admission of that third party payer data into evidence using the collateral source rule. If the Federal Government, under Medicare, pays for your medical expenses in whole or in part then the evidence can be introduced into court if they have a secured interest in the amount owed to them. Here, the Federal Government does not allow a Plaintiff to collect both items (or damages) from the person who is responsible for the harm and from the Federal Government.
When the Collateral Source Rule Doesn’t Apply
There are some limited exceptions to the collateral source rule that are in place under Florida law. One of those exceptions is found in section 768.76 of the Florida Statutes, the collateral source statute. Section 768.76 is focused on reducing the total damages that may be recovered rather than impacts whether past medical bills are admissible at trial (the collateral source rule generally applies to past medical bills). Regardless, section 768.76 shifts the liability for certain collateral sources to the juries.
Section 768.76(2) states: (2) In any action to which this section applies in which the plaintiff seeks damages for past medical expenses and the tortfeasor introduces evidence that the plaintiff has been paid or has agreed to be paid for such expenses in any form, evidence of the amount actually paid or agreed to be paid shall be admissible. The introduction of such evidence shall not exclude evidence regarding the full amount of damages otherwise recoverable. If the plaintiff has been paid or has agreed to be paid for such expenses by the collateral sources, the trial court shall reduce the amount of the judgment by all amounts paid or agreed to be paid from such collateral sources, reduced to present value.
There is a specific situation where section 768.76 does not apply. Section 768.76(4) states (4) This section does not apply to collateral sources of payment to the extent those payments or payments from like sources are recoverable in a cause of action by the injured person under ss. 395.1041(3)[13] and 395.0161[14] It is important to note that these statutes do not come up often but a modern example where they were discussed or cited is in Fodera v. Manchester, LLC, 2019 WL 6499034, 44 Fla. L. Weekly D2569, (Fla. 4th DCA Dec 04, 2019) (which was a slip and fall case on a commercial property).
On April 12, 2019, Fodera filed a Notice of Claim ("NOC") and demanded that Manchester pay her $29,999.99 to settle her premises-liability claim. She claimed that Manchester was liable under the doctrine of res ipsa loquitur due to her slip and fall while exiting the elevator at 128 S.W. 2nd Street in Miami ("the building"). On April 10, 2012, she fell on the floor, injuring her back. She had medical expenses of $2,900, an unpaid balance of $488 for an MRI and $1,200 for a steroid injection and physical therapy.
In Fodera, there was a question of whether the notices of claim (also known as proposals for settlement or offers of judgment) could be excluded because of a motor vehicle crash. It is interesting in Fodera that Fodera was involved in a car accident with a big rig that resulted in a head injury shortly after falling at the subject property. There was dispute on whether the NOC was for the construction accident or the car crash. The Fourth District found that "we reject the argument that all potential causes of action need to be lumped together as a single ‘claim’ when seeking a pre-suit settlement."
In Fodera, an "Insurer’s Lien Agreement" was introduced into evidence under section 768.76, the evidence code, and section 395.10501. The trial court denied Manchester’s motion in limine concerning Fodera’s medical expenses for treatment related to the building’s negligence. The court determined that section 395.0161(4) did not apply. Section 395.01561 is "Liens; application of proceeds of sale of hospital or clinic." This statute allows "a hospital licensed under chapter 395 or a facility licensed under chapter 395 or applicable federal law, or a person or entity having any right pursuant to this section, [] to bring a civil action to foreclose its lien for the amount of the hospital or facility’s lien."
In Fodera, the Fourth District Court of Appeal upheld the trial court’s decision finding that Fodera’s medical expenses related to the premises liability claim were admissible and not subject to the 395.10501(3) exclusion. The exclusion applied to the hospital. After considering the appellate arguments, the Fourth District affirmed the trial court’s decision that the collateral source rule applied.
Key Case Law Matters
A leading case on the collateral source rule is Smith v. Deposit Guarantee Bank, 507 So.2d 1080 (Fla. 1987). The Florida Supreme Court found that a "wrongdoer should not be entitled to a partial set-off of the court-awarded damages simply because the victim has been fortunate enough to have purchased several insurance policies partially or totally covering the particular loss." Id. at 1083. Dampier v. United States Fidelity and Guaranty Co., 487 So.2d 1055 (Fla. 5th DCA 1986), was the first case to apply the amendment to the collateral source rule statute and the first case to recognize that Section 768.76 did not limit the scope of admissible collateral source payments to those which result from a "prepayment," but instead encompassed a broader class of payments encompassing collateral sources which "arise out of the tortious result." Id. at 1057. In Chmielewski v. City Products Corp., 1 F.3d 10 (11th Cir.1993) , the Eleventh Circuit held that Section 768.76, using the statute’s own language, should be applied in a federal diversity action tried in United States District Court sitting in Florida, notwithstanding the absence of any reference to federal district courts in the text of the statute. Id. at 15. In Van Duizen v. Vegetation Manipulation Air, Inc., 773 So.2d 1119 (Fla. 4th DCA 2000), the court upheld a trial court’s application of an employer-paid insurance benefit offset to a judgment and to a jury verdict, holding that the collateral source set-off statute applied equally to all payments from collateral sources to the victim, regardless of whether the payment was a direct payment to the victim, or a wrongdoer reimbursement. Id. at 1123. The court also found that the collateral source set-off statute permits the reduction of the verdict by only those amounts for which the plaintiff has not become liable. Id.
Why Collateral Rule Issues Matter to Plaintiffs and Defendants
The implications for the parties are clear; plaintiffs generally oppose any reduction of their award of damages by the collateral source amount and defendants do not want to pay twice for the same thing. But the issues are more complicated than that. For example, while a defendant may have paid twice (to the provider and the plaintiff) for a medical expense, the defendant may have purchased subrogation rights from the collateral source. The subrogation rights would allow the defendant to seek reimbursement or a credit against any future medical bills.
Another important consideration arises when an insurance company pays the medical expenses directly to its insured’s medical provider as opposed to reimbursing the insured after the fact. In these cases, the provider of the services is required to take any collateral source payments into account by reducing its charges to the insured by the amount that has been paid or agreed to be paid. This is true even if the plaintiff does not submit a verified statement by the plaintiff or the plaintiff’s insurer that the plaintiff will not seek payment for all or part of the medical expenses from the collateral source.
Additionally, there can be a difference in applicability based on the type of collateral source. For example, under the Affordable Care Act ("ACA") applicable only to healthcare providers participating in Medicare Advantage Organizations contracted under Part C, tripartite agreements between the providers and insurers fall under entirely different rules. Under those agreements, a Medicare Advantage plan must accept the network rate agreed to between the providers and the insurance company, regardless of whether the fees billed are higher than the network rate. Thus, the collateral source is the network rate, and not any amount claimed and/or collected by the provider, irrespective of the terms of the contract.
Controversies and Critiques of the Collateral Source Rule
Controversies and Criticism
Given that the rule impacts a potential defendant’s economic exposure, it has earned its share of critics and controversies. As previously mentioned, critics have focused on the potential for double recovery, unnecessary litigation into collateral sources, and the balancing of collateral source benefits in relation to damages resulting from medical negligence.
Florida Supreme Court Justice Kenneth Bell addressed the collateral source rule in his concurrence and dissent in Beems v. Se. Hosp. District #1, 948 So. 2d 712, 717 (Fla. 2006) (citing Goleas v. City of Coloma, 67 Cal.Rptr. 201 (Cal.Ct.App. 1968) (in limiting the damages award to amounts necessary to reimburse third-party providers instead of the amounts charged by them, no double recovery occurred for the same item of property)). It is noted that Florida’s Medical Malpractice Act includes numerous provisions that limit or cap the amount of fees that may be charged by various healthcare providers. These include Florida Statutes §456.057(7) (limitations on attorney’s fees in medical negligence actions); §456.55 (limitation of cost of submitted medical charges to 75% of amounts allowable under applicable medical fee schedule); §627.736(5) (personal injury protection fee schedule); and §766.56(1)(a) (maximum fees for medical expert testimony charged at the hourly fee schedule for personal injury protection work).
These limitations and caps have courted criticism across the board on both sides of the litigation aisle. For plaintiffs, these would, in practical effect, reduce the amounts the patient-claimant would receive on some component of an award while reducing the means for a claimant to pay attorneys and expert witnesses in a medical negligence action. For defendants, the benefits of the collateral source rule remain without concern for exposure to additional costs for necessary medical care because of the statutory limitations and caps. The viability of this argument has only gained intensity in light of the Supreme Court of Florida’s decision in Estate of McCall v. United State, which significantly restricted who can recover benefits and the amount of recovery. The court struck down Florida Statute §440.11(1) which provided caps on the recovery a claimant could obtain for the death of a loved one in a medical negligence action. Justices Bell and Lewis would have instead reached the issue on whether the collateral source rule should apply.
In 2001, George Mason University School of Law Professor such, Professor John Baker published an article entitled "Collateral Source Rule and the Availability of Medical Malpractice Insurance" and refuted the effect of the effect of the collateral source rule in raising the cost of insurance premiums as unsubstantiated. In the article, Professor Baker analyzed the available studies on this point and noted that most did not consider the correlation between the quality of the medical care provided and resulting malpractice claims, whether an insurer had found its target market for policies, inflationary pressures, and the correlation between poor medical care and medical negligence litigation else were omitted. A 2002 American Enterprise Institute publication by Ian D. Fuchs entitled "The Art and Craft of Medical Malpractice Tort Reform: A Case Study of the Physician Insurer Inter-Company (PIIC)" also reached this same conclusion after review of the available literature on the impact of the collateral source rule.
Future Implications
The future application of the collateral source rule in Florida remains uncertain. Several proposals to reform the rule have been considered in the legislature in the past, ranging from the modest to the radical. On the modest end, discussions have included requiring individuals injured by another to pursue subrogation claims (claims by an insurer against the wrongdoer). On the radical end, the Florida Supreme Court has been called upon to alter the rule in a way that would more closely align it with collateral source doctrine from other jurisdictions, such as the collateral source doctrine applicable in the federal courts.
The modest proposals have met some resistance both from legislative insiders and even among those who may be hurt the most by the rule. Specifically , subrogation claims are absent in many first-party medical insurance policies and therefore could leave persons without full coverage for medical bills incurred.
Some outside groups have called upon the Florida Supreme Court to take up the question in an upcoming case. In particular, public interest groups have pushed for a rejection of the rule in light of its history and at a time when more and more Florida citizens carry little to no insurance on the roads, making the rule an illusory benefit for a large number of Floridians that purchase little insurance and see their costs rise.
Finally, legal scholars have proposed further changes such as a complete abandonment of the rule or a modification to address overreaching insurance costs from insurance companies, similar to the rationale raised in GEICO Gen. Ins. Co. v. Pérez, 377 So. 2d 685 (Fla. 3d DCA 1979), which focused on the detrimental effect to Florida citizens who carry low limits policies.