Collateral Source Rule Legal Definition:

A tortfeasor is not allowed to deduct from the amount he or she would be held to pay to the victim of the tort, any goods, services or money received by that victim from other 'collateral' sources as a result of the tort (eg. insurance benefits).

Related Terms: Double Dipping , Double Recovery

The rule of tort law originated in the United States in 1854.1

Justice Tobriner of the Supreme Court of California summarized the law as follows in Helfend v. Southern California Rapid Transit:

"(I)f an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor .... (T)his doctrine ... is known as the collateral source rule."

"Although the collateral source rule remains generally accepted in the United States, nevertheless many other jurisdictions have restricted or repealed it."

Writing in the Minnesota Law Review, University of California law school dean and professor Richard Maxwell used these words:

"The collateral source rule has been defined as the judicial refusal to credit to the benefit of the wrongdoer money or services received in reparation of the injury caused which emanates from sources other than the wrongdoer."

Even in the United States, the discretion has been taken out of the hands of the courts as in most states:

"... legislation provides for the deduction of an array of different benefits. In 1987, only 45 states applied the rule, and of those, only 17 applied it without exception."2

In Canada, consider these words of Judge White of the Provincial Court of Saskatchewan in Kahsai v. Hitachi Canadian Industries Ltd.:

"The collateral source rule was developed in 1854 by the Supreme Court of the United States. This rule required that the Defendant bear the full cost of the injury that he or she caused to the Plaintiff, regardless of any compensation the Plaintiff receives from an independent or collateral source. This rule extended to wage benefits.

"Canadian Courts have not followed this practice. Canadian Courts have adopted the view that to permit a Plaintiff to keep both collateral benefits together with a sum representing wages would not be logically consistent with the basic principle of compensation for actual loss. Some Canadian Courts have concluded that collateral benefits should be deducted on the theory that to permit a Plaintiff to keep both lost wage compensation together with other benefits funded by the employer, such as wage continuation payments, sick leave benefits or WCB (workers' compensation benefits) , would be tantamount to allowing the Plaintiff to recover twice the amount that he or she was actually entitled to.

"The issue of whether WCB ought to be deducted is not settled in Canada."

The common law collateral source rule can be displaced by statute. For example, §267.8(1) of the Ontario Insurance Act (2012):

"In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by the following amounts:

"1. All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for statutory accident benefits in respect of the income loss and loss of earning capacity.

"2. All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan.

"3. All payments in respect of the incident that the plaintiff has received before the trial of the action under a sick leave plan arising by reason of the plaintiff’s occupation or employment."

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