The Collateral Source Rule As a Rule of Evidence

By Ralph F. Holmes

As a rule of damages, the collateral source rule has long been the law of this state: damages may not be mitigated on account of payments received by a plaintiff from sources other than the defendant. Application of this rule was upheld in the case of Moulton v. Groveton Paper Co. The Moulton court set forth the rationale behind the collateral source rule as follows:

[A] tort-feasor should not be allowed to escape the consequences of his wrongful act merely because his victim has received a benefit from a collateral source which would constitute a windfall to the defendant wrongdoer . . . In many instances the plaintiff has paid for these benefits in the form of insurance premiums or concessions in the wages he received because of such fringe benefits. If such considerations are not present and the payments are gratuitous, it is maintained that the maker of these payments did not intend to relieve the tort-feasor of any liability, but rather to aid the plaintiff by doing him a favor.

The collateral source rule also has an evidentiary component: evidence of the receipt of collateral benefits is generally inadmissible at trial if offered by a defendant to prove that a plaintiff has had a motive for not returning to work or exaggerating his or her injuries. Although the New Hampshire Supreme Court has not yet spoken on this aspect of the collateral source rule, New Hampshire trial courts routinely exclude this evidence, a practice which is supported by the great weight of authority from other jurisdictions. The reported case law adopts either (1) a strict exclusionary approach that bars admission of the evidence whenever offered to prove a plaintiff has malingered, or (2) a limited approach that permits admission of the evidence on this issue only if there is a strong independent showing that the plaintiff has exaggerated his or her injuries.

Strict Exclusionary Rule

The most compelling source of authority for the collateral source rule as a strict exclusionary rule of evidence comes from the United States Supreme Court. In Eichel v. New York Central R.R., the Supreme Court held that the collateral source rule operated as a complete bar to a defendant's attempt to introduce evidence of a plaintiff's receipt of a disability pension. The defendant offered evidence that the plaintiff was receiving $190 a month in disability pension payments under the Railroad Retirement Act. The evidence was offered in part to impeach the testimony of the plaintiff as to his motive for not returning to work. The trial court excluded the evidence and the Court of Appeals for the Second Circuit reversed, holding that the evidence was admissible to show a motive for the plaintiff's not continuing to work. The Supreme Court rejected the appellate court's rationale. The Court stated:

In our view the likelihood of misuse by the jury clearly outweighs the value of this evidence. Insofar as the evidence bears on the issue of malingering, there will generally be other evidence having more probative value and involving less likelihood of prejudice than the receipt of a disability pension.

The Court went on to note:

[E]vidence of collateral benefits is readily subject to misuse by a jury . . . It has long been recognized that evidence showing that the defendant is insured creates a substantial likelihood of misuse. Similarly, we must recognize that the petitioner's receipt of collateral source insurance benefits involves a substantial likelihood of prejudicial impact.

State courts have relied upon Eichel in upholding a strict exclusionary rule against the admission of collateral source evidence. In Brumley v. Federal Barge Lines, Inc., the defendant attempted to admit evidence of retirement and pension benefits "for the limited purpose of demonstrating [plaintiff's] motivation to retire at the age of 65." The Illinois Court of Appeals held that the evidence was inadmissible, stating that the reasoning in Eichel is compelling and reflects "a strong policy against the admissibility of this kind of collateral source evidence . . ." The court went on to state:

The same policy considerations that warrant the exclusion of disability benefits apply equally to the present controversy. The possibility of prejudice resulting from the admission of social security and retirement benefits is readily apparent. The jury could easily confuse the purpose for which such evidence was admitted.

In Reinan v. Pacific Motor Trucking Co., an Oregon case, the Oregon Supreme Court also adopted a strict exclusionary rule, holding that the admission of evidence of collateral benefits constitutes reversible error. The court cited Eichel for the proposition that the likelihood of misuse by the jury clearly outweighs the value of this type of evidence.

In Cook v. Eney, the Florida Court of Appeals also adopted this exclusionary rule. In Cook, the trial court allowed defense counsel to question the plaintiff regarding his receipt of social security and workmens' compensation benefits to impeach him on the question of his motivation to return to work. Citing Eichel, the appellate court reversed and remanded the case for a new trial.

An Alabama case, Gribble v. Cox, is also on-point. In Gribble the trial court allowed the defendants to present evidence of collateral payments received by the plaintiff to demonstrate plaintiff's motive for exaggerating the extent of his disability. On appeal, the Alabama Supreme Court reversed the verdict for defendants, finding the admission of this evidence to be clear error by the trial court.

Based on the case law set forth above, a rule of strict exclusion is necessary to effectuate the policies underlying the collateral source rule.As set forth in the cited cases, the likelihood of misuse of this evidence by the jury clearly outweighs any potential probative value.

Limited Exclusionary Rule

Several courts have allowed the admission of evidence of collateral benefits in defined, limited circumstances. The leading case is Hrnjak v. Graymar, Inc.. In Hrnjak, the California trial court ruled that evidence of collateral benefits was admissible on the issue of plaintiff's motives in seeking medical help and his credibility as a witness. The California Supreme Court reversed, noting the inevitable prejudicial impact such evidence is likely to have on the jury's deliberations. The Court stated:

The potentially prejudicial impact of evidence that a personal injury plaintiff received collateral insurance payments varies little from case to case. Even with cautionary instructions, there is substantial potential that the jurors will take the evidence into account in assessing the damages to be awarded to an injured plaintiff. Thus, introduction of the evidence on a limited admissibility theory creates the danger of circumventing the salutary policies underlying the Collateral Source Rule. Admission despite such ominous potential shall be permitted only upon persuasive showing that the evidence sought to be introduced is of substantial probative value . . .

When the evidence of collateral insurance receipts is offered to indicate that plaintiff is a malingerer, there is additional prejudice likely in permitting him to be characterized as "a grasping [person] who [is] building up a lawsuit."

The court held that before a trial court may admit collateral source evidence, the trial court must examine all the relevant facts in the case. These facts in Hrnjak were identified as the amount of the plaintiff's out-of-pocket medical expenses, his past and future earning capacity, the seriousness of his injuries and their prognosis, and the length of his absence from work. The court held that the trial court, after considering these facts, was required to satisfy itself that the evidence of collateral source receipts established a strong inference that the plaintiff was motivated to continue in the sick role by the insurance receipts rather than by the actual disabling extent of his injuries. The court noted that mere evidence of collateral source benefits is insufficient to satisfy this standard, as it is unfair to infer that a plaintiff is a malingerer, merely because he or she has received collateral payments. Therefore, some other independent evidence of malingering is necessary in order to admit collateral source testimony. If a defendant fails to make a sufficient showing on this issue, the prejudicial impact of collateral source evidence renders it inadmissible.

The Hrnjak court found that the defendants in that case had failed to make the requisite showing, since the evidence was admitted solely on the issue of plaintiff's motive, without any independent evidence of malingering. Thus, the court reversed and remanded for a new trial.

This authority indicates that, even under a more liberal rule, the Court must engage in a weighing process to determine if a sufficient independent foundation exists to admit the collateral source evidence. Only if there is compelling evidence indicating that the plaintiff is malingering is this evidence allowed to be admitted.