Special Education and the Collateral Source Rule

It is often said that the fastest way to a mistrial is to mention the word “insurance” in front of the jury. This maxim refers to the collateral source rule, a central part of American medical malpractice litigation since the Civil War. But what about the words “public benefits” or “special education”? May these be brought up in court during a medical malpractice case?

Public Special Education And Therapy ' 'Collateral Sources'?

Medical negligence can cause physical and mental disabilities in infants, children and adults, and state-provided special education and therapy may be sought as a result. Education and therapy are often necessary when medical error causes injuries and brain damage to newborns and young children. The ages of these plaintiffs and the enormous cost of providing them with special education until they reach adulthood make the application of the collateral source rule to free, state-provided special education and therapy a crucial factor in determining the amount of the plaintiff's recovery for economic damages.

As set forth in section 920A(2) of the Restatement (Second) of Torts, the collateral source rule provides that, “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.” The rule has been described as an “established exception to the general rule that damages in negligence actions must be compensatory.” 25 C.J.S. Damages ' 172 (2002).

Opponents of the collateral source rule argue that a prohibition on introduction of collateral sources means that an injured party may, in theory, be “overcompensated” for the injury by receiving benefits for the same injury from two different sources: the collateral source and the defendant. Those in favor of the collateral source rule argue that payments by collateral sources are gratuitous or result from some pre-existing payment or action by the plaintiff. Although the award of the full value of damages and collateral source receipts may result in overcompensation, it is argued that this windfall should benefit the injured party and not the guilty tortfeasor.

Even though the collateral source rule is entrenched in common law, in response to recent criticism, the trend is to restrict it, if not abolish it. Most of the courts that have considered whether the collateral source rule should be applied to the availability of free public special education have held that it applies; therefore, evidence of such benefits is precluded. Even when courts have refused to apply the collateral source rule to educational benefits, they have recognized that plaintiffs are free to present evidence as to the inadequacy or uncertainty of future public education and therapy to controvert the defendant's evidence.

How do different states implement the collateral source rule? And what legislative and judicial actions have these jurisdictions taken to restrict the rule as it applies to publicly available special education and therapy?

The Majority Approach

The Supreme Court of Connecticut, in Healy v. White, 378 A.2d 540 (Conn. 1977), was the first to address the application of the collateral source rule to state-provided special education and therapy. In Healy, the plaintiffs sought recovery for injuries their son sustained as a result of the defendant's negligence. The plaintiffs introduced evidence that special education at a private school was required, along with evidence on what it would cost. After a verdict for the plaintiff, the defendant appealed and argued that the plaintiffs might not incur the full amount of the damages because all or part of the special education services would be provided by the municipality. The Connecticut Supreme Court held that such evidence “would not be relevant because Connecticut follows the majority rule in this country regarding collateral sources.”

The question was also addressed in Northern Trust Co. v. County of Cook, 135 Ill. App. 3d 329 (Ill. App. 1985). There, a medical malpractice action was brought on behalf of a profoundly mentally handicapped child against county-employed physicians. The trial court refused to admit evidence of the availability of state-provided services for handicapped children, and the defendant appealed. Based on the uncertainty of the future state-provided services, the court of appeals affirmed the trial court's decision to exclude from evidence the existence of free, state-provided special education and therapy.

Ensor v. Wilson, 519 So. 2d 1244 (Ala. 1978), was a medical malpractice suit brought by parents of a child who suffered from brain damage and retardation against the obstetrician. The Alabama Supreme Court refused to allow the defendant to refer to special education and therapy available to the child from the government. On appeal, the defendants argued they were entitled to introduce evidence that Alabama and federal laws conferred an absolute right on the child to receive special education and related services, which would reduce the child's future financial needs. The state's high court pointed to the general proposition that evidence of benefits conferred on the plaintiff from collateral sources “is not relevant, its existence renders neither more probable nor less probable any material fact in the case …. ” 519 So. 2d 1244, 1266 (quoting 22 AM. JUR. 2D Damages ' 206 (1988)). In affirming the trial court's exclusion, the Alabama Supreme Court relied in part on Healy, and found no reason to distinguish special education and therapy from other government services that courts had found were covered by the collateral source rule. Id. at 1267. The Alabama Supreme Court, in Williston v. Ard, 611 So. 2d 274 (Ala. 1992), more recently reaffirmed the Enson decision in another medical malpractice action.

The Supreme Court of North Carolina, in Cates v. Wilson, 361 S.E.2d 734 (N.C. 1987), laid out several commonly cited reasons for applying the collateral source rule to state-provided services. There, the court affirmed the reversal of a trial court's decision to allow testimony about the existence of state-provided special education and therapy in a medical malpractice action. During the trial, the defendant's expert testified that the plaintiff's local public school “provided excellent training for mentally and physically handicapped persons until age 22.” Id. at 740. The defendant's expert also testified that, under North Carolina law, special education was available to all, and that while there could be no guarantee of continued availability, public funding for special education had been “reliable.” Id. at 737. Responding, the North Carolina Supreme Court listed several reasons for applying the collateral source rule. First, if the collateral source rule were not applied, the “compensatory goal underlying our tort system” would be thwarted because the plaintiff would be forced “to depend on public coffers.” Id. at 738. The court felt the plaintiff should not be denied the opportunity of using private care. It cited to an article in the Kentucky Law Journal for the proposition that the plaintiff should be able to recover the cost of future medical services, since he is likely to prefer private care, and it is his “right” to have it. See Sedler, The Collateral Source Rule and Personal Injury Damages: The Irrelevant Principle and the Functional Approach (Part II), 58 Ky.L.J. 161 (1970). The court then reasoned that the lack of certainty as to the future availability of public resources made mitigating damages premised on the continued existence of public benefits unwise. 361 S.E.2d 734, 738 (N.C. 1987). The court concluded “as between defendants who tortiously inflict injury and innocent taxpayers who fund [these special education programs] … we think it better that the loss fall on the tortfeasor.” Id. at 739.

Next month, we will see how the minority of jurisdictions views the collateral source rule as applied to state-provided services and at how legislatures are altering the common law.

Ashley Reitz Peinhardt is a staff attorney in the Birmingham, AL, office of Hare Wynn Newell & Newton LLP. She concentrates her practice on complex litigation, breach of contract, catastrophic injuries, wrongful death, medical malpractice, and class actions.

It is often said that the fastest way to a mistrial is to mention the word “insurance” in front of the jury. This maxim refers to the collateral source rule, a central part of American medical malpractice litigation since the Civil War. But what about the words “public benefits” or “special education”? May these be brought up in court during a medical malpractice case?

Public Special Education And Therapy ' 'Collateral Sources'?

Medical negligence can cause physical and mental disabilities in infants, children and adults, and state-provided special education and therapy may be sought as a result. Education and therapy are often necessary when medical error causes injuries and brain damage to newborns and young children. The ages of these plaintiffs and the enormous cost of providing them with special education until they reach adulthood make the application of the collateral source rule to free, state-provided special education and therapy a crucial factor in determining the amount of the plaintiff's recovery for economic damages.

As set forth in section 920A(2) of the Restatement (Second) of Torts, the collateral source rule provides that, “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.” The rule has been described as an “established exception to the general rule that damages in negligence actions must be compensatory.” 25 C.J.S. Damages ' 172 (2002).

Opponents of the collateral source rule argue that a prohibition on introduction of collateral sources means that an injured party may, in theory, be “overcompensated” for the injury by receiving benefits for the same injury from two different sources: the collateral source and the defendant. Those in favor of the collateral source rule argue that payments by collateral sources are gratuitous or result from some pre-existing payment or action by the plaintiff. Although the award of the full value of damages and collateral source receipts may result in overcompensation, it is argued that this windfall should benefit the injured party and not the guilty tortfeasor.

Even though the collateral source rule is entrenched in common law, in response to recent criticism, the trend is to restrict it, if not abolish it. Most of the courts that have considered whether the collateral source rule should be applied to the availability of free public special education have held that it applies; therefore, evidence of such benefits is precluded. Even when courts have refused to apply the collateral source rule to educational benefits, they have recognized that plaintiffs are free to present evidence as to the inadequacy or uncertainty of future public education and therapy to controvert the defendant's evidence.

How do different states implement the collateral source rule? And what legislative and judicial actions have these jurisdictions taken to restrict the rule as it applies to publicly available special education and therapy?

The Majority Approach

The Supreme Court of Connecticut, in Healy v. White , 378 A.2d 540 (Conn. 1977), was the first to address the application of the collateral source rule to state-provided special education and therapy. In Healy, the plaintiffs sought recovery for injuries their son sustained as a result of the defendant's negligence. The plaintiffs introduced evidence that special education at a private school was required, along with evidence on what it would cost. After a verdict for the plaintiff, the defendant appealed and argued that the plaintiffs might not incur the full amount of the damages because all or part of the special education services would be provided by the municipality. The Connecticut Supreme Court held that such evidence “would not be relevant because Connecticut follows the majority rule in this country regarding collateral sources.”

The question was also addressed in Northern Trust Co. v. County of Cook , 135 Ill. App. 3d 329 (Ill. App. 1985). There, a medical malpractice action was brought on behalf of a profoundly mentally handicapped child against county-employed physicians. The trial court refused to admit evidence of the availability of state-provided services for handicapped children, and the defendant appealed. Based on the uncertainty of the future state-provided services, the court of appeals affirmed the trial court's decision to exclude from evidence the existence of free, state-provided special education and therapy.

Ensor v. Wilson , 519 So. 2d 1244 (Ala. 1978), was a medical malpractice suit brought by parents of a child who suffered from brain damage and retardation against the obstetrician. The Alabama Supreme Court refused to allow the defendant to refer to special education and therapy available to the child from the government. On appeal, the defendants argued they were entitled to introduce evidence that Alabama and federal laws conferred an absolute right on the child to receive special education and related services, which would reduce the child's future financial needs. The state's high court pointed to the general proposition that evidence of benefits conferred on the plaintiff from collateral sources “is not relevant, its existence renders neither more probable nor less probable any material fact in the case …. ” 519 So. 2d 1244, 1266 (quoting 22 AM. JUR. 2D Damages ' 206 (1988)). In affirming the trial court's exclusion, the Alabama Supreme Court relied in part on Healy, and found no reason to distinguish special education and therapy from other government services that courts had found were covered by the collateral source rule. Id. at 1267. The Alabama Supreme Court, in Williston v. Ard , 611 So. 2d 274 (Ala. 1992), more recently reaffirmed the Enson decision in another medical malpractice action.

The Supreme Court of North Carolina, in Cates v. Wilson , 361 S.E.2d 734 (N.C. 1987), laid out several commonly cited reasons for applying the collateral source rule to state-provided services. There, the court affirmed the reversal of a trial court's decision to allow testimony about the existence of state-provided special education and therapy in a medical malpractice action. During the trial, the defendant's expert testified that the plaintiff's local public school “provided excellent training for mentally and physically handicapped persons until age 22.” Id. at 740. The defendant's expert also testified that, under North Carolina law, special education was available to all, and that while there could be no guarantee of continued availability, public funding for special education had been “reliable.” Id. at 737. Responding, the North Carolina Supreme Court listed several reasons for applying the collateral source rule. First, if the collateral source rule were not applied, the “compensatory goal underlying our tort system” would be thwarted because the plaintiff would be forced “to depend on public coffers.” Id. at 738. The court felt the plaintiff should not be denied the opportunity of using private care. It cited to an article in the Kentucky Law Journal for the proposition that the plaintiff should be able to recover the cost of future medical services, since he is likely to prefer private care, and it is his “right” to have it. See Sedler, The Collateral Source Rule and Personal Injury Damages: The Irrelevant Principle and the Functional Approach (Part II), 58 Ky.L.J. 161 (1970). The court then reasoned that the lack of certainty as to the future availability of public resources made mitigating damages premised on the continued existence of public benefits unwise. 361 S.E.2d 734, 738 (N.C. 1987). The court concluded “as between defendants who tortiously inflict injury and innocent taxpayers who fund [these special education programs] … we think it better that the loss fall on the tortfeasor.” Id. at 739.

Next month, we will see how the minority of jurisdictions views the collateral source rule as applied to state-provided services and at how legislatures are altering the common law.

Ashley Reitz Peinhardt is a staff attorney in the Birmingham, AL, office of Hare Wynn Newell & Newton LLP. She concentrates her practice on complex litigation, breach of contract, catastrophic injuries, wrongful death, medical malpractice, and class actions.