The Collateral Source Rule in Texas

Long part of the common law of Texas and many other jurisdictions, the collateral source rule precludes any reduction in a tortfeasor’s liability because of benefits received by the plaintiff from someone else–a collateral source. See Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011) (medical expenses paid or incurred); see also Maddux v. Reid, 2015 Tex. App. LEXIS 6245 (Tex. App.- Waco, June 18, 2015), citing, See Haygood v. De Escabedo, 356 S.W.3d 390, 394 (Tex. 2011) (reaffirming collateral source rule as it relates to insurance for auto accidents and payment of property damage).  The collateral source rule reflects “the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor.”   See Haygood v. De Escabedo, 356 S.W.3d 390, 395 (Tex. 2011), citing, Restatement (Second) of Torts Section 920A(2). The collateral source rule does have limitations in Texas.

In  Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011) and Daughters of Charity Health Services of Waco v. Linnstaedter, 226 S.W.3d 409, 412 (Tex. 2007), the Supreme Court of Texas clarified the interaction of the collateral source rule and Section 41.0105 of the Texas Civil Practice and Remedies Code that was enacted against a backdrop of healthcare pricing and the collateral source rule. As noted by the Supreme Court of Texas, charges for health care, are now driven by government regulation and negotiations with private insurers. A two tiered structure has evolved: “list” or “full” rates sometimes charged to uninsured patients, but frequently uncollected, and reimbursement rates for patients covered by government and private insurance.  See Haygood v. De Escabedo, 356 S.W.3d 390, 393 (Tex. 2011).  Many healthcare providers bill at the list price and submit evidence under Section 18.001 of the Texas Civil Practice and Remedies Code (an affidavit that an amount charged for a service was reasonable at the time and place that the service was provided) that the charges were reasonable. What is not shown and what was at issue in Haygood was the subsequent adjustments to the insurance bills pursuant to the insurance policy or negotiated rate that the patient would not be responsible for under any circumstance.

Haygood argued that these adjustments were collateral benefits covered by the collateral source rule and did not reduce the liability of the tortfeasor. De Escabedo argued that to allow recovery of the full medical charges billed by the hospital rather than the reduced amount paid by their insurance carrier would be a windfall as the hospital would not have a claim for the full amounts against the patients and as a result, they should not have a claim against the tortfeasor. Noting that there was a split on this issue in other jurisdictions, the Supreme Court of Texas held that the common law collateral source rule does not allow recovery as damages of medical expenses a health care provider is not entitled to charge. Further, Section 41.0105 of the Texas Civil Practice and Remedies Code’s language stating that “In addition to any other limitation under the law, recovery of medical or health care expenses is limited to the amount actually paid or occurred by or on behalf of claimant” means expenses that have been or will be paid, and excludes the difference between such amounts and charges the service provider bills but has no right to be paid.  See Haygood v. De Escabedo, 356 S.W.3d 390, 397 (Tex. 2011).

The collateral source rule is a just policy decision in Texas and prevents the tortfeasor from benefiting from and receiving a windfall because a plaintiff maintains insurance or other collateral source. The opinions in this blog are solely the author’s and any comments, suggestions or replies should be sent to john@jrjoneslaw.com.

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