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§47.7 Collateral Source Rule

The Case: Steele v. Ft. Sanders Anesthesia Group, P.C. , 897 S.W.2d 270 (Tenn. Ct. App. 1995).

The Basic Facts: This is a medical malpractice case in which the defendants raised the issue of whether the trial court erred in admitting evidence of medical expenses paid by health insurance provided by plaintiffs' employer.

The Bottom Line:

  • "Defendant's third issue is: 'Did the court err when it failed to strike the evidence proving incurred medical expenses and future medical expenses of Thelmarine Steele since those expenses were/will be paid by the health insurance provided by the employer of plaintiffs and the proof of such expenses is barred by Tennessee Code Annotated, section 29-26-119?'" 897 S.W.2d at 281.
  • "At the time of trial, plaintiff Mrs. Steele's medical expenses were $500,809.90. From discovery depositions, defendant was made aware that these expenses had been partly paid by health insurance from both Mr. Steele and Mrs. Steele which was obtained through their employment and that both of the Steeles paid a portion of the premiums on their policies. Plaintiffs' expert economist testified that a health plan at Martin Marietta was part of Thelmarine Steele's earnings. The defendant moved, after the close of evidence, to strike the stipulated damages on grounds that Dr. Bohr had testified that these expenses were paid by insurance provided by Mrs. Steele's employer. The trial court allowed the reopening of the proof for the purpose of questioning Mr. Steele regarding whether or not the Steeles paid part of their insurance premium. This was within the discretion of the trial court even though the proof had been closed. Simpson v. Frontier Community Credit Union, 810 S.W.2d 147, 149 (Tenn. 1991). Following Mr. Steele's testimony, the trial court found that a portion of the insurance premiums were paid by plaintiffs. The trial judge then ruled that Tennessee Code Annotated section 29-26-119 did not apply since portions of the insurance were paid for by plaintiffs. Id. at 281-82.
  • "Defendant contends that Tennessee Code Annotated section 29-26-119 should be construed to prohibit introduction of medical expenses that were covered by insurance purchased in part by an employer. Defendant argues in the alternative that, at most, only a prorated introduction of these costs, based on the amount of premiums paid by the employer or employee, should be allowed." Id.
  • "Tennessee Code Annotated section 29-26-119 provides that medical expenses are included as recoverable damages in a medical malpractice claim:
    [O]nly to the extent that such costs are not paid or payable and such losses are not replaced, or indemnified in whole or in part, by insurance provided by an employer either governmental or private, by social security benefits, service benefit programs, unemployment benefits, or any other source except the assets of the claimants or of members of the claimants' immediate family and insurance purchased in whole or in part, privately and individually.
    Tenn. Code Ann. § 29-26-119 (1980)." Id.
  • "The plain language of the act clearly permits a plaintiff to introduce medical expenses when the plaintiff has paid part of the insurance premium." Id.
  • "The defendant's interpretation of the statute looks only to the exclusion of losses replaced 'by insurance provided by an employer,' without regard to the exception for 'insurance purchased in whole or in part' by the plaintiff, and such interpretation is not plausible." Id.
  • "The collateral source rule permits plaintiffs to prove and recover medical expenses, whether paid by insurance or not. Donnell v. Donnell, 220 Tenn. 169, 415 S.W.2d 127, 134 (1967). Tennessee Code Annotated section 29-26-119 is in derogation of the common law and is therefore to be strictly construed. Austin v. County of Shelby, 640 S.W.2d 852, 854 (Tenn. App. 1982) (citing Olsen v. Sharpe, 191 Tenn. 503, 235 S.W.2d 11 (1950)). The common law may not be altered any further by statute than the statute expressly declares and necessity requires. Davenport v. Chrysler Credit Corp., 818 S.W.2d 23, 28 (Tenn. App. 1991) (citing In re Deskins' Estates, 214 Tenn. 608, 611, 381 S.W.2d 921, 922 (1964); Linder v. Metropolitan Life Ins. Co., 148 Tenn. 236, 243-44, 255 S.W. 43, 45 (1923))." Id.
  • "Support for the trial court's construction of Tennessee Code Annotated section 29-26-119 is found in the legislative history. The original text of the act which became Tennessee Code Annotated section 29-26-119, in section 18, contained the words: 'By insurance, or governmental employment or service benefit programs or from any other source except the assets of the claimants or the members of the claimant's immediate family.' An amendment was proposed to strike the preceding language and insert the following: 'By insurance provided by an employer, either governmental or private, by Social Security benefits, service benefit programs, unemployment benefits, or any other source except the assets of claimant or the members of the claimant's immediate family and insurance purchased in whole or in part, privately and individually.'" Id.
  • "This amendment was proposed in the senate by Senator Edward Blank on Monday, 12 May 1975. The amendments were adopted and formed the present text of Tennessee Code Annotated section 29-26-119. Discussing the reason for the amendment, which was subsequently adopted, Senator Davis stated:
    Now, the next Amendment ... [that includes the exception for insurance purchased privately] ... we believe that it would be better to exclude some of these benefits that a person already can claim under unemployment or some other benefits, but if he pays part or partially for some of these benefits, for disability and otherwise, then he should be allowed to collect those, and that not be deducted from the settlement.
    H. Bill No. 1035, Tape Transcript, Tape S-116 (12 May 1975) (quoting Sen. Davis)." Id.
  • We are of the opinion from the legislative history that it is expressly intended that benefits paid by insurance partially purchased by an employee should not be excluded. Id.

Other Sources of Note: Tenn. Code Ann. § 29-26-119; Nance by Nance v. Westside Hosp., 750 S.W.2d 740, 743 (Tenn. 1988) (workers compensation benefits are excluded from statute's operation); Richardson v. Miller, 44 S.W.3d 1, 32 (Tenn. Ct. App. 2000) (if the collateral payor has subrogation rights, the collateral payments are excluded from the statute's general operation); Hughlett v. Shelby County Health Care Corp., 940 S.W.2d 571, 574 (Tenn. Ct. App. 1996) (where benefits carry a right of subrogation and a legal obligation on the part of the tort victim to repay the collateral source, the tort victim's losses have not been replaced or indemnified.;

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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.

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