The Collateral Source Rule

One of the more subtle but key underpinnings of the tort law system for compensating people for accidents is the collateral source rule. 

While it is somewhat more involved, the basic idea is that when your own insurance covers you for an injury, for example, for medical bills, or to replace your damaged car or house, or paying you disability payments when you lose income for a period of time, that you can sue for the full amount of the harm without deducting insurance covered losses.

Closely related are the doctrines that say that medical providers have a lien against what you recover in a lawsuit to recover damages that they paid for, and the right of an insurer to bring a lawsuit, called a subrogation claim, against someone whose tortious actions gave rise to the insurance claim to get back what it paid to the insured for that loss, if the insured doesn't sue.

As a practical matter, subrogation claims are uncommon and the lawyers who usually defend insureds who are sued hate bringing them, because the dollar amounts are often modest and they are loss motivated to bring them (and have less of the relevant information in many cases) than an insured who actually suffered the loss.

In substance, a very large share of personal injury and property damage tort cases are cases where the defense lawyers and defense judgment are paid for by one insurance company, and where the medical expenses and property damage claims were mostly paid by another another insurance company or credit extending medical provider with a lien on what was paid for those damages, and where a large share of the non-economic damages awarded go towards paying a contingent fee of the Plaintiff's attorney.

The system provides rough justice, but the benefits of this convoluted system that arises from the collateral source rule, over the system that would evolve without it, are dubious. 

A variety of reforms have been proposed and tried to rework this arrangement, but they're beyond the scope of this post.