The Collateral Source Rule and State-Provided Services

As discussed last month, most states adhere to the collateral source rule to preclude defendants in medical malpractice suits from presenting the jury with evidence that public benefits, such as state-provided special education and therapy, may be available to the plaintiff. Not all states have fallen in line with this general rule, however. In addition, state legislatures are often called upon to reduce or reshape the influence of the collateral source rule on those things juries may consider when awarding damages.

The Minority Approach

In Florida Physician's Insurance Reciprocal v. Stanley, 452 So.2d 514 (Fla. 1984), the Supreme Court of Florida held that the collateral source rule did not preclude the introduction of evidence relating to the availability of state-provided special education. Appeal was taken from judgment in favor of defendants in the medical malpractice action, brought by parents alleging that the defendants' negligence caused their child's retardation and cerebral palsy. The appellate court had found error in the trial court's decision to allow the defendant to cross-examine the plaintiff's expert about the existence of state-provided special education and therapy. The Florida Supreme Court reversed and reasoned that the collateral source rule should be limited to those benefits earned in some way by the plaintiff.

Building on this reasoning, the court found that “[g]overnmental or charitable benefits available to all citizens, regardless of wealth or status, should be admissible for the jury to consider in determining the reasonable cost of necessary future care.” Id. at 515.

In Washington v. Barnes Hospital, 897 S.W.2d 611 (Mo. 1995), the Missouri Supreme Court followed the approach of Florida Supreme Court. In Barnes, the plaintiff brought a medical malpractice suit for failure to diagnose her placental abruption, which caused permanent brain damage to the fetus. The trial court denied the defendants' request to introduce evidence of the availability of free, public special education and therapies. On appeal, the Missouri Supreme Court examined the underlying principles in support of the collateral source rule and rejected the following rationales: the benefit of the bargain; punishment of the tortfeasor; windfall for the plaintiff; protection of the plaintiff from uncertainty over whether public benefits will remain available; and the argument that the collateral source rule is needed to compensate the plaintiff for costs incurred in the form of legal fees and expenses. Id. The Missouri Supreme Court found these rationales inapplicable to free, state-provided special education and therapy. The court held that the evidence was admissible and that the plaintiffs are be entitled to “respond to this evidence with arguments of inadequacy, the risk of its continued availability, etc.” Id. at 621.

At least one court has stated that plaintiffs may open the door to the admission of evidence relating to the availability of state-provided educational services. The North Carolina Court of Appeals admitted evidence relating to public special education and therapy in response to testimony by the plaintiff that such services were not available in her area. Shuford v. McIntosh, 408 S.E.2d 747 (N.C. App. 1991).

Differences Among State Statutes Modifying the Collateral Source Rule

The tort reform movement has targeted the collateral source rule with varying results. Several state legislatures have enacted statutes that modify or abrogate the collateral source rule. However, there is little uniformity across the jurisdictions as to the manner in which each has modified the collateral source rule. Fifteen states have modified the collateral source rule by statute rendering evidence of collateral benefits admissible, in some form, at trial, to be considered by the trier of fact. These states include Alabama, Arizona, California, Delaware, Indiana, Iowa, Missouri, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Washington, and Wisconsin. Ala. Code ' 6-5-545 (2008); Ariz. Rev. Stat. Ann. ' 12-565 (2007); Cal. Civ. Code ' 3333.1 (2008); Del. Code Ann. tit. 18,
' 6862 (2008); Ind. Code ' 34-44-1-2 (2007); Iowa Code ' 668.14 (2008); Mo. Rev. Stat. ' 490.715 (2008); Ohio Rev. Code Ann. ” 2315.20, 2323.41 (2008); Okla. Stat. tit. 63, ' 1-1708.1D (2007); 40 Pa. Cons. Stat. ' 1303.508 (2007); R.I. Gen. Laws ' 9-19-34.1 (2007); S.D. Codified Laws 21-3-12 (2008); Tenn. Code Ann. ' 29-26-119 (2008); Wash. Rev. Code ' 7.70.080 (2008); Wis. Stat. ' 893.55 (2007). Some of these states permit a broad introduction of collateral source evidence. See Ala. Code Section 12-21-45 and 6-5-545.

However, the majority of the statutes modify the collateral source rule only in the context of medical malpractice actions. See, e.g., Ariz. Rev. Stat. Ann. ' 12-565 (2007); Cal. Civ. Code ' 3333.1 (2008); Del. Code Ann. tit. 18, ' 6862 (2008); Mass. Gen. Laws ch. 231, ' 60G (2008); Me. Rev. Stat. Ann. tit. 24, ' 2906 (2007); Neb. Rev. Stat. ' 44-2819 (2007); Okla. Stat. tit. 63, ' 1-1708.1D (2007); 40 Pa. Cons. Stat. ' 1303.508 (2007); R.I. Gen. Laws ' 9-19-34.1 (2007); S.D. Codified Laws ' 21-3-12 (2008); Utah Code Ann. 78-14-4.5 (2007); Wis. Stat. ' 893.55 (2007).

Language Is Critical: Modifying the Collateral Source Rule

If your state has enacted laws modifying the collateral source rule, you must determine if specific types of benefits ' for our discussion, state-provided special education and therapy ' are within the scope of the statute. In many states, statutes modifying the collateral source rule (common law) must be strictly construed. See, i.e., Ramirez v. Health Partners of Southern Arizona, 193 Ariz. 325, 329, 972 P.2d 658, 662 (1999) (statutes limiting common-law liability must be strictly construed). Understanding and interpreting the language of the statute is therefore critically important.

By example, the Alabama Legislature enacted statutes abrogating the collateral source rule in personal injury and medical malpractice cases. Section 12-21-45 of the Alabama Code states: “In all civil actions where damages for any medical or hospital expenses are claimed and are legally recoverable for personal injury or death, evidence that the plaintiff's medical or hospital expenses have been or will be paid or reimbursed shall be admissible as competent evidence. In such actions upon admission of evidence respecting reimbursement or payment of medical or hospital expenses, the plaintiff shall be entitled to introduce evidence of the cost of obtaining reimbursement or payment of medical or hospital expenses.” (Emphasis added).

Section 6-5-545 of the Alabama Code (1993) is similar, and applies to medical malpractice actions. Can “medical or hospital expenses” be distinguished from free public benefits, such as special education and therapy? If the statute uses the words “payment” or “paid,” a good argument exists that it does not apply to free state-provided in-kind benefits.

In-kind benefits such as special education and therapy provided by government and charitable organizations were addressed in Stanley v. United States Fidelity & Guaranty Co., 425 So.2d 608 (Fla. App. 1982), ctfd ques ans, quashed on other grounds Florida Physician's Ins. Reciprocal v. Stanley, 452 So. 2d 514 (Fla. 1984). In part, because the Florida statute addressed only evidence of “payments” to or for the benefit of the plaintiff, the statute was held inapplicable. The Florida statute required the damages assessed by medical malpractice verdicts to be reduced “by the total of all amounts paid to the claimant from all collateral sources which are available to him.” Sec. 768.50(1), Fla.Stat. (1981), repealed by Laws 1986, c. 86-160,
' 68, eff. July 1, 1986. But “collateral sources” were particularly defined “[f]or purposes of this section” to mean “any payments made to the claimant, or on his behalf, by or pursuant to” specified financial sources including, most arguably pertinent to this case, “public programs providing medical expenses, disability payments, or other similar benefits.” Sec. 768.50(2)(a), Fla.Stat. (1981) repealed by Laws 1986, c. 86-160, ' 68, eff. July 1, 1986. Stated the court,”The statute addresses only evidence of 'payments' to claimant or for his benefit; the statute does not address in-kind benefits that claimant may have received, such as medical treatment, special education, or therapy professionally administered to him either by volunteers or by paid staff of a governmental or charitable institution.” Stanley By & Through Stanley v. U.S. Fid. & Guar. Co., 425 So. 2d 608, 612 (Fla. Dist. Ct. App. 1982).

The case of Florida Physician's Ins. Reciprocal v. Stanley later overruled Stanley on other grounds, stating that although the statute was inapplicable, the admission of evidence concerning future governmental and charitable services did not violate the common-law collateral source rule. The Florida Supreme Court held that future governmental and charitable services were not collateral sources to begin with.

Practice Pointers

It is important to determine if special education and therapy are considered collateral sources in the state with jurisdiction over your client's case. Next, determine whether your state has enacted statutes modifying the collateral source rule. If so, read the statute carefully to see if you can argue that public education is either admissible or inadmissible. At the same time, you should see if any case law exists interpreting the scope of your state's statute.

Good arguments exist that special education should be inadmissible, or at least that its value should not be automatically deducted from the damage award. Allowing for the introduction of evidence relating to the availability of free, state-provided services and allowing for the reduction of the plaintiffs' damage award to reflect the value of the free services would effectively preclude the plaintiff from choosing to receive special education and therapy from a private provider because her damage award would not provide funds for private services. If the plaintiff is currently using free, state provided services but later determines that those services are inadequate, she will not have the option to use other private services.

If the court ultimately rules that evidence related to the availability of public education is inadmissible, a plaintiff may force the admittance of mitigation evidence by the defense, as we saw in Shuford v. McIntosh. Therefore, care must be taken by plaintiff's counsel not to unwittingly open the door to such testimony.

If the court rules that public education evidence is admissible, the jury should be free to find that the public education did not meet the plaintiff's needs. See Florida Physician's Ins. Reciprocal v. Stanley, 452 So.2d 514 (Fla. 1984). If evidence of state-provided public special education and therapy is deemed admissible, defense counsel should expect plaintiffs to present evidence demonstrating that the available public benefits are uncertain and inadequate.

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.

As discussed last month, most states adhere to the collateral source rule to preclude defendants in medical malpractice suits from presenting the jury with evidence that public benefits, such as state-provided special education and therapy, may be available to the plaintiff. Not all states have fallen in line with this general rule, however. In addition, state legislatures are often called upon to reduce or reshape the influence of the collateral source rule on those things juries may consider when awarding damages.

The Minority Approach

In Florida Physician's Insurance Reciprocal v. Stanley , 452 So.2d 514 (Fla. 1984), the Supreme Court of Florida held that the collateral source rule did not preclude the introduction of evidence relating to the availability of state-provided special education. Appeal was taken from judgment in favor of defendants in the medical malpractice action, brought by parents alleging that the defendants' negligence caused their child's retardation and cerebral palsy. The appellate court had found error in the trial court's decision to allow the defendant to cross-examine the plaintiff's expert about the existence of state-provided special education and therapy. The Florida Supreme Court reversed and reasoned that the collateral source rule should be limited to those benefits earned in some way by the plaintiff.

Building on this reasoning, the court found that “[g]overnmental or charitable benefits available to all citizens, regardless of wealth or status, should be admissible for the jury to consider in determining the reasonable cost of necessary future care.” Id. at 515.

In Washington v. Barnes Hospital , 897 S.W.2d 611 (Mo. 1995), the Missouri Supreme Court followed the approach of Florida Supreme Court. In Barnes, the plaintiff brought a medical malpractice suit for failure to diagnose her placental abruption, which caused permanent brain damage to the fetus. The trial court denied the defendants' request to introduce evidence of the availability of free, public special education and therapies. On appeal, the Missouri Supreme Court examined the underlying principles in support of the collateral source rule and rejected the following rationales: the benefit of the bargain; punishment of the tortfeasor; windfall for the plaintiff; protection of the plaintiff from uncertainty over whether public benefits will remain available; and the argument that the collateral source rule is needed to compensate the plaintiff for costs incurred in the form of legal fees and expenses. Id. The Missouri Supreme Court found these rationales inapplicable to free, state-provided special education and therapy. The court held that the evidence was admissible and that the plaintiffs are be entitled to “respond to this evidence with arguments of inadequacy, the risk of its continued availability, etc.” Id. at 621.

At least one court has stated that plaintiffs may open the door to the admission of evidence relating to the availability of state-provided educational services. The North Carolina Court of Appeals admitted evidence relating to public special education and therapy in response to testimony by the plaintiff that such services were not available in her area. Shuford v. McIntosh, 408 S.E.2d 747 (N.C. App. 1991).

Differences Among State Statutes Modifying the Collateral Source Rule

The tort reform movement has targeted the collateral source rule with varying results. Several state legislatures have enacted statutes that modify or abrogate the collateral source rule. However, there is little uniformity across the jurisdictions as to the manner in which each has modified the collateral source rule. Fifteen states have modified the collateral source rule by statute rendering evidence of collateral benefits admissible, in some form, at trial, to be considered by the trier of fact. These states include Alabama, Arizona, California, Delaware, Indiana, Iowa, Missouri, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Washington, and Wisconsin. Ala. Code ' 6-5-545 (2008); Ariz. Rev. Stat. Ann. ' 12-565 (2007); Cal. Civ. Code ' 3333.1 (2008); Del. Code Ann. tit. 18,
' 6862 (2008); Ind. Code ' 34-44-1-2 (2007); Iowa Code ' 668.14 (2008); Mo. Rev. Stat. ' 490.715 (2008); Ohio Rev. Code Ann. ” 2315.20, 2323.41 (2008); Okla. Stat. tit. 63, ' 1-1708.1D (2007); 40 Pa. Cons. Stat. ' 1303.508 (2007); R.I. Gen. Laws ' 9-19-34.1 (2007); S.D. Codified Laws 21-3-12 (2008); Tenn. Code Ann. ' 29-26-119 (2008); Wash. Rev. Code ' 7.70.080 (2008); Wis. Stat. ' 893.55 (2007). Some of these states permit a broad introduction of collateral source evidence. See Ala. Code Section 12-21-45 and 6-5-545.

However, the majority of the statutes modify the collateral source rule only in the context of medical malpractice actions. See, e.g., Ariz. Rev. Stat. Ann. ' 12-565 (2007); Cal. Civ. Code ' 3333.1 (2008); Del. Code Ann. tit. 18, ' 6862 (2008); Mass. Gen. Laws ch. 231, ' 60G (2008); Me. Rev. Stat. Ann. tit. 24, ' 2906 (2007); Neb. Rev. Stat. ' 44-2819 (2007); Okla. Stat. tit. 63, ' 1-1708.1D (2007); 40 Pa. Cons. Stat. ' 1303.508 (2007); R.I. Gen. Laws ' 9-19-34.1 (2007); S.D. Codified Laws ' 21-3-12 (2008); Utah Code Ann. 78-14-4.5 (2007); Wis. Stat. ' 893.55 (2007).

Language Is Critical: Modifying the Collateral Source Rule

If your state has enacted laws modifying the collateral source rule, you must determine if specific types of benefits ' for our discussion, state-provided special education and therapy ' are within the scope of the statute. In many states, statutes modifying the collateral source rule (common law) must be strictly construed. See, i.e., Ramirez v. Health Partners of Southern Arizona , 193 Ariz. 325, 329, 972 P.2d 658, 662 (1999) (statutes limiting common-law liability must be strictly construed). Understanding and interpreting the language of the statute is therefore critically important.

By example, the Alabama Legislature enacted statutes abrogating the collateral source rule in personal injury and medical malpractice cases. Section 12-21-45 of the Alabama Code states: “In all civil actions where damages for any medical or hospital expenses are claimed and are legally recoverable for personal injury or death, evidence that the plaintiff's medical or hospital expenses have been or will be paid or reimbursed shall be admissible as competent evidence. In such actions upon admission of evidence respecting reimbursement or payment of medical or hospital expenses, the plaintiff shall be entitled to introduce evidence of the cost of obtaining reimbursement or payment of medical or hospital expenses.” (Emphasis added).

Section 6-5-545 of the Alabama Code (1993) is similar, and applies to medical malpractice actions. Can “medical or hospital expenses” be distinguished from free public benefits, such as special education and therapy? If the statute uses the words “payment” or “paid,” a good argument exists that it does not apply to free state-provided in-kind benefits.

In-kind benefits such as special education and therapy provided by government and charitable organizations were addressed in Stanley v. United States Fidelity & Guaranty Co. , 425 So.2d 608 (Fla. App. 1982), ctfd ques ans, quashed on other grounds Florida Physician's Ins. Reciprocal v. Stanley , 452 So. 2d 514 (Fla. 1984). In part, because the Florida statute addressed only evidence of “payments” to or for the benefit of the plaintiff, the statute was held inapplicable. The Florida statute required the damages assessed by medical malpractice verdicts to be reduced “by the total of all amounts paid to the claimant from all collateral sources which are available to him.” Sec. 768.50(1), Fla.Stat. (1981), repealed by Laws 1986, c. 86-160,
' 68, eff. July 1, 1986. But “collateral sources” were particularly defined “[f]or purposes of this section” to mean “any payments made to the claimant, or on his behalf, by or pursuant to” specified financial sources including, most arguably pertinent to this case, “public programs providing medical expenses, disability payments, or other similar benefits.” Sec. 768.50(2)(a), Fla.Stat. (1981) repealed by Laws 1986, c. 86-160, ' 68, eff. July 1, 1986. Stated the court,”The statute addresses only evidence of 'payments' to claimant or for his benefit; the statute does not address in-kind benefits that claimant may have received, such as medical treatment, special education, or therapy professionally administered to him either by volunteers or by paid staff of a governmental or charitable institution.” Stanley By & Through Stanley v. U.S. Fid. & Guar. Co. , 425 So. 2d 608, 612 (Fla. Dist. Ct. App. 1982).

The case of Florida Physician's Ins. Reciprocal v. Stanley later overruled Stanley on other grounds, stating that although the statute was inapplicable, the admission of evidence concerning future governmental and charitable services did not violate the common-law collateral source rule. The Florida Supreme Court held that future governmental and charitable services were not collateral sources to begin with.

Practice Pointers

It is important to determine if special education and therapy are considered collateral sources in the state with jurisdiction over your client's case. Next, determine whether your state has enacted statutes modifying the collateral source rule. If so, read the statute carefully to see if you can argue that public education is either admissible or inadmissible. At the same time, you should see if any case law exists interpreting the scope of your state's statute.

Good arguments exist that special education should be inadmissible, or at least that its value should not be automatically deducted from the damage award. Allowing for the introduction of evidence relating to the availability of free, state-provided services and allowing for the reduction of the plaintiffs' damage award to reflect the value of the free services would effectively preclude the plaintiff from choosing to receive special education and therapy from a private provider because her damage award would not provide funds for private services. If the plaintiff is currently using free, state provided services but later determines that those services are inadequate, she will not have the option to use other private services.

If the court ultimately rules that evidence related to the availability of public education is inadmissible, a plaintiff may force the admittance of mitigation evidence by the defense, as we saw in Shuford v. McIntosh. Therefore, care must be taken by plaintiff's counsel not to unwittingly open the door to such testimony.

If the court rules that public education evidence is admissible, the jury should be free to find that the public education did not meet the plaintiff's needs. See Florida Physician's Ins. Reciprocal v. Stanley , 452 So.2d 514 (Fla. 1984). If evidence of state-provided public special education and therapy is deemed admissible, defense counsel should expect plaintiffs to present evidence demonstrating that the available public benefits are uncertain and inadequate.

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.