Author: Brent J. Cobb

The “Collateral Source Rule” & How it Can Cost (or Make) You Thousands – Part I

Imagine you are a defendant sued because you negligently injured someone in Louisiana.  In the accident, the plaintiff received extensive medical treatment. The health insurer paid $50,000 for medical costs even though the doctors billed $150,000 for the plaintiff’s care. The plaintiff was only out-of-pocket $500 for his health insurance deductible. What amount should you have to pay: $150,000, $50,000, or only $500?

The answer to this question is not so simple. You will certainly have to pay more than the plaintiff’s deductible, that much is clear. But whether you are required to pay the medical providers’ full rate of $150,000, the insurer’s discounted rate of $50,000, or some other amount for the medical services provided is a more complicated issue.

This blog is broken down in a two-part series. This installment will address the background of the collateral source rule and the public policy behind the rule.

What is the Collateral Source Rule?

The collateral source rule provides that a tortfeasor is generally not entitled to a credit for payments made to a plaintiff through “collateral sources,” i.e., sources not provided by the defendant. Under this rule, a tortfeasor’s exposure for damages should be the same regardless of whether or not the plaintiff purchased health insurance.

The collateral source rule permits the plaintiff to recover medical expenses in excess of the amounts actually paid by the plaintiff or their insurer. Critics therefore assert that the rule provides a “windfall” to the plaintiff that violates the goal of Louisiana tort law, namely to make the victim “whole.”  As applied, the rule can make the victim more than whole.

Origins of the Collateral Source Rule

To understand the collateral source rule, it helps to look at its origins. The rule in the United States at least dates back to the 1854 case The Propeller Monticello v. Mollison, 58 U.S. (17 How.) 152, 15 L.Ed. 68 (1854). In Propeller Monticello, two ships wrecked and one sank. The insurer of the ship that sank paid for the loss. The owner of the at fault ship asserted that the plaintiff had been fully compensated by the insurer’s payment and that it was therefore not obligated to pay for the damage. In rejecting this argument, the Propeller Monticello Court held the defendant was not a party to the insurance contract and could not reduce exposure by citing to the insurance available to the plaintiff.

Policies Behind the Collateral Source Rule

In Dep’t of Transp. & Dev. v. Kansas City S. Ry. Co., 846 So. 2d 734 (La. 5/20/03), the Louisiana Supreme Court detailed the public policy concerns that support the collateral source rule. According to the court, the policies in favor of the rule include:

i.  Fairness– a defendant should not gain an advantage from benefits provided to the plaintiff independent of any act of the defendant;

ii.  Deterrence– the rule provides a deterrence to negligent conduct; and,

iii.  Promotion of Insurance– victims could be dissuaded from purchasing insurance if that act could affect tort recovery.

So, how much do you owe: $50,000, $150,000, or some other amount? We’ll tell you in Part II of this blog.

The Rise of the Drones

Drones play an increasing role in modern life; all indications are that this role will increase, maybe to disturbing levels. The popularity and availability of drones have sky-rocketed in recent years. As with most new technologies, the development of the law to regulate this technology lags behind. To their credit, the DOT and FAA have been pro-active in developing regulations. This article will address some of these regulations and the expected development of future regulations.

Initially, the FAA prohibited the use of drones in the commercial industry. Gradually, the FAA granted exemptions to certain companies for the commercial use of drones. These exemptions permitted these companies to use drones for:

(i)                  the movie and video industry;

(ii)                real estate photography;

(iii)               agricultural monitoring;

(iv)              aerial surveying;

(v)                delivery of medical supplies in rural areas; and,

(vi)              inspecting flare stacks

Applying for exemptions can be costly and the outcome is not guaranteed. However with growing commercial demand, the FAA has gradually loosened its restrictions and granted more exemptions.

The FAA and DOT finalized the first operational rules for routine commercial use of drones which took effect in August 2016. These regulations are available at: The issuance of these regulations is projected to generate $82 billion for the U.S. economy and create more than 100,000 jobs over the next ten years.

While these regulations are fairly comprehensive, they prohibit the use of drones beyond the line of sight of the operator over unprotected persons on the ground. Further, there are limitations on size and when drones can be flown. Based on these restrictions, plans to use drones for delivery services will likely have to wait. However, the FAA is permitting companies to apply for waivers, available if companies demonstrate that the proposed flight will be conducted safely. Even if a drone flight is permitted, air traffic control authorization is required if the flight is in controlled airspace. Requests for waivers and authorization must be applied for on the FAA’s online portal located at

The FAA is trying to balance the benefits of drone use with its mission to protect public safety. The FAA also provides all drone users with recommended privacy guidelines and is set to issue new guidance to local and state governments on drone privacy concerns.

The White House announced that the FAA is currently working on developing regulations to permit the safe and beneficial use of drones over crowds. As part of this development, the FAA launched an Unmanned Aircraft Safety Team and a Drone Advisory Committee.

We expect the FAA to allow a more expansive use of drones in the years to come. Like it or not, the drones are here and are not going away; they are rising.

Too Much Money and No One to Give it to- The Cy Pres Doctrine

What happens when someone leaves money in a will to a charity that has closed its doors by the time the will is probated? In this strange circumstance, a court may apply the “cy pres doctrine” to answer this question. Cy pres is a French term which loosely translates to mean “as near as possible.” In modern litigation, cy pres is not only used to distribute charitable donations, but also to distribute millions of dollars left over in class action settlements.

In the example above, a court may use cy pres to transfer the donated money to a charity similar to the one that had shut down. In class actions, there are often funds left over when not enough people register to receive money under a settlement. In this situation, the court will use cy pres to decide where this money goes; but that decision is a tricky one. Courts will sometimes direct these funds to a governmental entity loosely related to what the lawsuit was about. Other times these funds will go to a charity. Whatever the choice, there are usually complaints.

In one case, a nationwide class of AOL customers agreed to a settlement in a class action filed in California. Even though class members lived all over the country, the cy pres funds went to a legal aid office in Los Angeles, where the judge’s husband served as a director. This raised some eyebrows.

In another case, Kellogg’s settled a class action filed because its advertisements claimed that frosted mini-wheats improved kids’ brain power, which -sadly- turned out not to be true. Those cy pres funds initially went to a charity designed to feed the poor. However, the court later ruled that the funds should have gone to a group that protected the public from false advertising.

As more and more cases like these garnered attention, rules were passed as to how to distribute these funds. Generally, these rules require some connection between the issues in the lawsuit and the mission of the group that gets the funds. While the United States Supreme Court has yet to address these issues, Chief Justice Roberts recently indicated that the Court may be ready to put its stamp on cy pres.

We may be “as near as possible” to some clarity in the murky law of cy pres.

The Supreme Court “Cleans Up” the Liability of Merchants for Slip-and-Falls Caused by Independent Contractors

In Thompson v. Winn-Dixie Montogomery, Inc., et al., 2015-C-0477, – So.3d —, the Louisiana Supreme Court recently held that a merchant is not solidarily liable for “slip and fall” damages caused by the actions of an independent contractor, a janitorial services company. Additionally, the Thompson Court addressed the best practices for an appeals court to raise an issue “sua sponte,” i.e, on its own.

Business as Usual?

Louisiana has updated its corporate laws by adopting legislation modeled off the Model Business Corporation Act (“MBCA”). The new set of laws is named “The Louisiana Business Corporation Act” and will replace Louisiana’s Business Corporation Law, which was enacted in 1968. The change occurred on May 30, 2014 when the Governor signed HB319 into law as Act 328. The new provisions will go into effect on January 1, 2015.

Modern Problems: Paternity in a New Age

Can a child have more than one father? Yes, according to Louisiana law which allows for “dual paternity.”

Louisiana’s “family law” has undergone many changes in an attempt to react to the challenges presented by new medical technology and a breakdown of the traditional family structure. The recent Supreme Court decision in Derek Alan Pociask v. Kera Mosely is the latest effort to address these “modern problems.”

“Cash Balance” Retirement Plan Bounces

The Louisiana Supreme Court recently held that the enactment of the “Cash Balance Plan” was unconstitutional. See The Retired State Employees, Association et. al v. The State of Louisiana et. al., 2013-0499, – So.3d -. The Cash Balance Plan is a 401-k style retirement plan that was to be put in place for state employees, including teachers, hired after July 1, 2014.

The key issues in The Retired State Employees litigation were: 1) whether the Cash Balance Plan was a new retirement plan or merely a modification of an existing retirement plan; and 2) whether the Cash Balance Plan had an “actuarial cost.” If the Cash Balance Plan was a new plan or had an actuarial cost, a two-thirds vote would be required to pass the legislation rather than a mere majority of votes under Louisiana Constitution Article X, § 29(F).

Volunteer Firemen “On the Hook” in Louisiana

The Louisiana Supreme Court recently held that the workers’ compensation tort immunity provided by LSA-R.S. 23:1032 does not apply to suits by one volunteer fireman against another volunteer. See Champagne v. American Alternative Insurance Corp., 12-1697 (La. 3/19/13), — So.3d —. LSA-R.S. 23:1036 provides that workers’ compensation is the sole and exclusive remedy provided to a volunteer fireman against a fire company. Champagne clarified that this immunity does not similarly apply to claims for personal injury brought by one volunteer fireman against another.

Sentencing Juveniles in Louisiana after Miller v. Alabama

The Louisiana Supreme Court recently held that a district court must reconsider a case involving a seventeen year old who was sentenced to life in prison without the possibility of parole for second degree murder under a mandated penalty provision of a statute. See State of Louisiana v. Darrius R. Williams, 12-1723 (La. 03/08/13), –So.3d—. The defendant’s application for review to the Louisiana Supreme Court was pending when, Miller v. Alabama, 567 U.S. ___, 132 S.Ct. 2455, 183 L.Ed.2d 407 (2012), was decided by the United States Supreme Court.

Case on a Wire – Last Minute Fax Filing

The Louisiana Supreme Court recently held that a request for service of process made by facsimile filing within ninety days from the filing of the petition, but not perfected until after the ninety days has passed, is a timely request for service of process under LSA-C.C.P. art. 1201. See Brenda Morales and Jerson Rodriguez v. State of Louisiana Through the Board of Supervisors of LSU Through Earl K. Long Medical Center, 12-2301 (La. 1/11/13), –So.3d—.