What is the collateral source rule?
The collateral source rule says the person who hurt you does not get to pay less just because your own health insurance, sick pay or another outside source already covered some of your losses. The Texas Supreme Court says the rule precludes any reduction in a wrongdoer's liability for benefits the plaintiff received from someone else.
Last checked November 9, 2026 · Official sources (5)
How does the collateral source rule work? An example
Example: after a slip at a grocery store, your health insurer pays $6,000 of your $10,000 in medical bills. Without the rule, the store's insurer could argue it owes only the $4,000 you paid yourself. With the rule, the store is still responsible for the medical loss it caused; your insurer's payment is not its discount. Your health plan may then ask to be repaid from your settlement. These numbers are made up to show the idea.
Why does the collateral source rule matter to you?
It protects the value of insurance you paid for. The Texas Supreme Court put it plainly: insurance payments to or for a plaintiff are not credited to damages awarded against the defendant.
It does not mean you keep everything twice. Health plans, Medicare and others often have repayment rights, so the money that comes in may have to go partly back out. Ask any plan that paid your bills for its repayment amount in writing before you settle.
How does the rule work in Texas and Arizona?
| State | Key rule |
|---|---|
| Texas | Recovery of medical expenses is limited to the amount actually paid or incurred. The Texas Supreme Court refused to treat an insurer's negotiated discount on billed charges as a collateral benefit. So a $10,000 bill your insurer settled for $6,000 may count as $6,000. |
| Arizona | The rule is well established in Arizona tort law. |
Collateral source rule vs. subrogation
The collateral source rule decides what the at-fault side owes you. Subrogation decides whether your insurer can get back what it paid, usually out of your recovery. They often work together: the rule keeps the claim at full value, and subrogation shares part of it with the plan that paid first.
A third term people mix in is a medical lien: a hospital's or provider's legal claim against your recovery for an unpaid bill. Unlike your health plan's repayment right, a lien can exist even when no insurance paid anything.
Questions
Does the collateral source rule let me collect twice?
Not usually in practice. Health plans and government programs often have repayment rights against your settlement.
Does Texas follow the collateral source rule?
Yes, but Texas limits medical expense recovery to amounts actually paid or incurred.
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See if I’m owed moneySources (5)
- Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011), checked 2026-11-09. “the rule precludes any reduction in a tort-feasor's liability because of benefits received by the plaintiff from someone else”
- Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011), checked 2026-11-09. “Thus, for example, insurance payments to or for a plaintiff are not credited to damages awarded against the defendant.”
- Tex. Civ. Prac. & Rem. Code § 41.0105, checked 2026-11-09. “recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.”
- Lopez v. Safeway Stores, Inc., 212 Ariz. 198 (App. 2006), checked 2026-11-09. “The collateral source rule is well established in Arizona tort law.”
- Haygood v. De Escabedo, 356 S.W.3d 390 (Tex. 2011), checked 2026-11-09. “Haygood contends that an adjustment in billed medical charges required by an insurer is a collateral benefit covered by the rule. We disagree.”