Texas Personal Injury Law Blog

For many years now, Texas has observed what’s called “The Collateral Source Rule.” In plain language the rule means that if you are injured by the negligence of someone else, then the person who harmed you should not get the benefit of any insurance or other sources that you have purchased in order to protect yourself. For example, if you are hit by a drunk driver and you incur $10,000.00 in medical expenses, the collateral source rule says that the drunk driver should be responsible for the full $10,000.00, even though you may have had health insurance or some other “collateral source” that helped you cover all of your medical expenses. The reasoning behind this is pretty simple – you made the choice to protect yourself through health insurance or other sources, and you likely paid a substantial amount in premiums for that coverage. Therefore, the drunk driver should not benefit from the coverage that you paid for to reduce the $10,000.00 that he is rightfully responsible for paying. After all, the law doesn’t allow you to have the drunk driver pay for all the health insurance premiums that you’ve paid for that coverage! 

Now, by reading the example above, it may sound like you get to pocket an extra $8,000.00 or so by receiving the $10,000.00 from the drunk driver and also having your health insurance company pay a portion of the medical bills. What actually happens is that your health insurance will contact you and demand that you pay them back for the medical bills that they initially paid. This is called their “Right to Subrogation.” In most cases, the law requires that you pay the health insurance company back, even if that would result in leaving you without one cent from the lawsuit that you went through the hassle of pursuing. If you refuse to pay your health insurance company back, then they will sue you . . . so that is a nightmare that you do not want to get into.  With health insurance companies staking a large claim on most personal injury recoveries, attorneys are left with the difficult task of trying to obtain a recovery which will both reimburse the health insurance company and compensate the client for all of the pain and hardship that they have been through at the hands of this negligent person (the drunk driver in our example above). That is where attorneys have the hardest work cut out for them – it is our job to tell your story to the jury and make the jury understand just exactly how much you’ve been through at the hands of this drunk driver. In addition to your medical expenses, the attorney will ask for your lost wages, compensation for your pain and suffering, money to cover your future medical expenses, and compensation for any disfigurement that you may have suffered. In personal injury cases, the law does not allow us to ask the jury to make the drunk driver pay for your attorney’s fees. What’s more, the law does not allow us to tell the jury that you are going to have to pay your health insurance company back!

So, why have I given all of this background? Well, without all of the background, then what I’m about to tell you about our beloved government here in Texas wouldn’t make much sense. So here goes –

Remember our discussion of the Collateral Source Rule? Well, one of the few breaks that Plaintiffs have traditionally had in Texas is the ability to recover (and keep) that small amount of money between what your health care provider charged you (the $10,000.00 in the example above) and the amount that your health insurance company actually paid out (the $8,000.00 in our example above). Since most health insurance companies have a negotiated rate with your doctor, they typically do not pay the full amount that your doctor has charged. What this meant for Plaintiffs is that they could keep that small difference in money. So, going back to our example, the drunk driver would pay you the full $10,000.00 charged for your medical bills, you would have to pay your health insurance company back the $8,000.00 that they paid out, and you could keep the $2,000.00 that was remaining. That $2,000.00 can then be used to cover some of those other expenses, such as your court costs, attorney’s fees, the out of pocked medical expenses that you personally paid, and all of the expenses that you incurred in trying to get that drunk driver to pay for what he or she has done to you.

In 2003, the Texas Legislature passed a new statute that made it unclear whether you could still get that small difference between what was charged by the medical providers and what your health insurance company paid (the $2,000.00 in our example). This became a big debate in the legal community and was known as the “Paid or Incurred” debate. To make a long story (somewhat) short, the Texas Legislature passed a bill that would clarify that statute and reinforce that plaintiffs were still entitled to that small difference in money. To our Legislature’s credit, the bill passed with flying colors — only two members of the entire Legislature voted against the bill. Sounds reasonable, right? Well, not to our Governor! Rick Perry vetoed the bill! Our Governor singlehandedly took away that small benefit (the $2,000.00 from our example above) that the Texas citizens have traditionally received under the Collateral Source Rule. If you would like to take a look at the history of this bill and Governor Perry’s veto of the bill, you can check out the Texas Legislature Online .