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The Collateral Source Rule in North Carolina: Hairston v. Harward

The collateral source rule is a substantive rule concerning damages.  It prohibits a plaintiff’s recovery from being reduced by some source “collateral” to the defendant.  What this means is that a defendant is generally not permitted to introduce evidence that the plaintiff has received compensation for his or her injuries from some source independent from the tortfeasor. Evidence of payments from sources such as Plaintiff’s health and disability insurance, social security payments, and unemployment benefits are not admissible under the rule because they are all independent of the tortfeasor.

Opponents of the rule claim that if a plaintiff has already been compensated for his injury from another source, it is unfair and duplicative for the plaintiff to be able to seek such damages from the defendant.

Example of How the Collateral Source Rule Typically Works

Let’s say that Plaintiff Newman and Defendant Kramer are in a car wreck. Defendant Kramer ran a red light and slammed into Plaintiff Newman’s car.  Plaintiff Newman suffers $100,000 in damages and sues Defendant Kramer.  Prior to trial, Plaintiff Newman receives $15,000 in disability benefits for his time away from work due to injuries sustained in the wreck.

Defendant Kramer seeks to introduce evidence regarding the $15,000 Plaintiff Newman received in disability benefits in an attempt to have any judgment against him decreased by this amount.  Unfortunately for Defendant Kramer, the collateral source rule would bar the admission of any such evidence. The unemployment benefits would be from a source “independent” of Defendant/the tortfeasor.

Hairston v. Harward: A Recent NC Case Clarifying the Collateral Source Rule

In Hairston v. Harward, 371 N.C. 647 (2018), the Supreme Court of North Carolina addressed a new question under the collateral source rule:  whether payments made from underinsured motorist carriers are a “collateral source.” The plaintiff brought suit for injuries sustained in an automobile accident.  The plaintiff had underinsured coverage with a per person limit of $250,000.  The defendant was insured by State Farm with a per person liability limit of $100,000.  The plaintiff’s UIM carrier issued a check in the amount of $145,000, the full amount of UIM available after applicable credits. Plaintiff obtained a verdict against the defendant for $263,000.  The defendant sought to obtain a credit against the verdict in the amount of $145,000 (the payment made from the UIM carrier).  The plaintiff contended that evidence concerning the UIM payment should be barred under the collateral source rule, and that the verdict against defendant should not be reduced by that amount.

The Court agreed with Plaintiff; holding that payments received as the result of the purchase of underinsured motorist coverage should not be credited against an amount of judgment obtained against a tortfeasor.  In its decision, the Court cited public policy concerns, stating that allowing evidence of underinsured motorist coverage and counting the same as credit against a judgment, would likely discourage North Carolina citizens from purchasing such coverage, “a result that would have obvious deleterious consequences.”

Takeaways from the Hairston Decision: the Collateral Source Rule Going Forward

The Hairston decision makes it clear that the collateral source rule, and the underlying public policy reasons behind it, is alive and well in North Carolina.  In Hairston, the UIM insurer waived its subrogation rights against Defendant.  This was part of Defendant’s legal argument – that Plaintiff would receive a windfall with its judgment against him and would also receive underinsured motorist coverage payments from Plaintiff’s insurer.

The Court made clear that had Plaintiff’s insurer “refrained from waiving its subrogation rights and attempted to exert those rights against Defendant, the same protection against a windfall recovery would exist in this case.”

The Hairston decision shows that North Carolina courts continue to strongly enforce the collateral source rule, which may impact decisions made by insurers and also by the parties (whether or not to seek the admission of evidence of certain payments made to Plaintiff “independent” of the defendant and how to respond to such requests).

About the Author: Thomas Olik is an associate with Martineau King PLLC and focuses the majority of his practice representing individuals and businesses as insurance defense counsel in major injury lawsuits.  Comments and feedback are welcome.  Thomas can be contacted by email at [email protected]

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