§23.3 Collateral Source Rule

The Case: Fye v. Kennedy , 991 S.W.2d 754 (Tenn. Ct. App. 1998), perm app. denied, (Dec. 21, 1998).

The Basic Facts: This is a wrongful death case arising out of a automobile accident. After a jury verdict in favor of the plaintiffs, defendants appealed. Plaintiffs also raised the issue on appeal of whether "the trial court improperly applied the collateral source rule in determining the amount of damages to which plaintiff was entitled." 991 S.W.2d at 756.

The Bottom Line:

  • "An injured party's right to recover his or her "reasonable and necessary expenses" must be viewed in connection with the collateral source rule:
    Normally, of course, in an action for damages in tort, the fact that the plaintiff has received payments from a collateral source, other than the defendant, is not admissible in evidence and does not reduce or mitigate the defendant's liability.
    Donnell v. Donnell , [415 S.W.2d 127, 134 (Tenn. 1967) ]. See also Steele v. Ft. Sanders Anesthesia Group, P.C. , 897 S.W.2d 270, 282 [(Tenn. Ct. App. 1994) Id. at 763.
  • "The subject before us is addressed in [Restatement (Second) Of Torts] (1977) § 920A, which we adopt:
    § 920A. Effect of Payments Made to Injured Party

    (1) A payment made by a tortfeasor or by a person acting for him to a person whom he has injured is credited against his tort liability, as are payments made by another who is, or believes he is, subject to the same tort liability.

    (2) 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.
    Emphasis added. Subsection (2) of § 920A is explained in the comments:
    b. Benefits from collateral sources. Payments made or benefits conferred by other sources are known as collateral-source benefits. They do not have the effect of reducing the recovery against the defendant. The injured party's net loss may have been reduced correspondingly, and to the extent that the defendant is required to pay the total amount there may be a double compensation for a part of the plaintiff's injury. But it is the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor.... If the benefit was a gift to the plaintiff from a third party or established for him by law, he should not be deprived of the advantage that it confers. The law does not differentiate between the nature of the benefits, so long as they did not come from the defendant or a person acting for him. One way of stating this conclusion is to say that it is the tortfeasor's responsibility to compensate for all harm that he causes, not confined to the net loss that the injured party receives....

    Perhaps there is an element of punishment of the wrongdoer involved. (See § 901). Perhaps also this is regarded as a means of helping to make the compensation more nearly compensatory to the 764 injured party. (Cf. § 914A, Comment b).

    c. The rule that collateral benefits are not subtracted from the plaintiff's recovery applies to the following types of benefits:

    (3) Gratuities. This applies to cash gratuities and to the rendering of services. Thus the fact that the doctor did not charge for his services or the plaintiff was treated in a veterans hospital does not prevent his recovery for the reasonable value of the services.

    (4) Social legislation benefits. Social security benefits, welfare payments, pensions under special retirement acts, all are subject to the collateral-source rule."
    Id . at 763-64.
  • "In Bennett v. Haley , [512, 208 S.E.2d 302 (Ga. Ct. App. 1974)], the Georgia Court of Appeals, quoting verbatim from 22 Am.Jur.2d Damages § 570 (1988), emphasized that gratuitous benefits are covered by the collateral source rule:
    [A]s a general rule, the fact that the plaintiff received gratuitous medical care, continued salary or wage payments, proceeds from insurance policies, or welfare and pension benefits, will not be taken into account in computing damages.
    208 S.E.2d at 310 . To the same effect is Mitchell v. Moore , 406 So.2d 347, 351 (Ala. 1981) .

    In Banks v. Crowner , 694 P.2d 101 (Wyo. 1985), the Supreme Court of Wyoming, relying upon the above-quoted section of the [Restatement], held that even assuming bills from a Veteran's Administration facility were for treatment 'rendered gratuitously,' an injured party suing in tort would be entitled to prove 'the reasonable value of the medical services necessary to treat the injury.' Id. at 105." Id. at 764.
  • "In Tennessee, the focus has always been on the 'reasonable' value of 'necessary' services rendered. A plaintiff must prove that the services rendered were 'necessary' to treat the injury or condition in question; and, even if the services were necessary, that the charges in question were 'reasonable.' The collateral source rule precludes a defendant from attempting to prove that a 'reasonable' charge for a 'necessary' service actually rendered, has been, or will be, paid by another-not the defendant or someone acting on his or her behalf-or has been forgiven, or that the service has been gratuitously rendered. However, a defendant is permitted to introduce relevant evidence regarding necessity, reasonableness, and whether a claimed service was actually rendered." Id.
  • "The theory underlying the collateral source rule is that a tortfeasor should be responsible for 'all harm that he [or she] causes.' § 920A, Comment b. In applying the collateral source rule and the theory underlying it, there is no reason to differentiate between a payment from a collateral source and a gratuity from a collateral source. In either event, there is a benefit to the injured party that 'should not be shifted so as to become a windfall for the tortfeasor.'" Id.

  • "In the instant case, the Kennedys tacitly concede that six months of intensive care hospitalization was 'necessary.' There is no suggestion that the hospital bill for $748,384.08 is other than 'reasonable.' Therefore, it is clear that the bill is for services actually rendered, that it represents charges for 'necessary' treatment, and that it is in a 'reasonable' amount. The jury was entitled to this evidence. It was not entitled to know that the bill had been partially forgiven." Id.

Other Sources of Note: Tenn. Code Ann. § 29-26-119; Patterson v. Dunn, No. 02A01-9710-CV-00256, 1999 WL 398083 (Tenn. Ct. App. June 16, 1999) (holding funeral expenses not paid for by decedent's estate were recoverable in wrongful death case); Steele v. Ft. Sanders Anesthesia Group, P.C., 897 S.W.2d 270 (Tenn. Ct. App. 1995) (explaining statute abrogating collateral source rule in medical malpractice cases and holding plaintiff could introduce medical expenses where plaintiff paid part of the insurance premium); Skoretz v. Cowden, 707 S.W.2d 529 (Tenn. Ct. App. 1985), perm. appeal denied (Feb. 24, 1986) (holding evidence that plaintiff received his regular pay during time off due to injuries was inadmissible).

After an accident, many injury victims and their families want more information on the accident and their legal rights. Consequently, many of them have found their way to these pages. While we are happy you are here, please understand Day on Torts: Leading Cases in Tennessee Tort Law was written to be a quick, invaluable reference for Tennessee tort lawyers. While the book provides the leading case for more than 300 tort law subjects and thousands of related case citations, it is not a substitute for personalized legal advice from a qualified lawyer.

Rather than researching these legal issues alone, we urge you to contact one of our award-winning lawyers who can sit down with you, review your case, answer your questions and clearly explain your rights and your options in a no-cost, no-obligation consultation. Our experienced attorneys handle all personal injury and wrongful death cases on a contingency basis, so we only get paid if we win. If for any reason you are unable to come to our office, we will gladly come to you.

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The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

To order a copy of the book, visit www.dayontortsbook.com. John also blogs regularly on key issues for tort lawyers. To subscribe to the Day on Torts blog, visit www.dayontorts.com.

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