Tennessee Collateral Source Rule – Status of the pending proposed 2013 Tennessee legislation to abolish the collateral source rule in Tennessee.

The Tennessee legislature is considering many interesting pieces of legislation in the 2013 legislative session.  One bill that is of great interest to Tennessee attorneys as well as anyone handling Tennessee personal injury claims is SB 1184/HB 0978.  The bill is aptly named the “Phantom Damages Elimination Act”.  This bill would effectively abolish the collateral source rule in Tennessee. 

The collateral source rule prevents a defendant from introducing evidence that the injured plaintiff received payments from any other source to try to reduce or mitigate the damages sustained by the plaintiff.  The Tennessee Court of Appeals in Fye v. Kennedy, 991 S.W. 2d 754, 763 (Tenn. Ct. App. 1998) stated that:

An injured party's right to recover his or her “reasonable and necessary expenses” must be viewed in connection with the collateral source rule:

Normally, of course, in an action for damages in tort, the fact that the plaintiff has received payments from a collateral source, other than the defendant, is not admissible in evidence and does not reduce or mitigate the defendant's liability.

See also John Day’s detailed discussion of the collateral source rule on his blog for a more detailed discussion of the collateral source rule. 

Proposed SB 1184/HB 0978 would effectively eliminate the collateral source rule in Tennessee.  In fact, the language in the bill would only allow a plaintiff in a personal injury or wrongful death case to recover economic damages for medical and other costs of medical care for:

Insurance Policy – Knowledge of individual signing insurance application

Brief Summary:  T.C.A. § 56-7-135 is a new Tennessee statute that provides a rebuttable presumption that any applicant or party to an insurance contract or application expresses understanding and accepts all the terms of the contract with the signature.  Further, the signature creates a rebuttable presumption that all insureds have accepted and understood the terms of the insurance contract.

Analysis:  The Tennessee legislature adopted a new statute governing the knowledge of an individual who signs an insurance application or contract.  T.C.A. § 56-7-135 was adopted by Public Chapter No. 913 and was signed by Governor Bill Haslam on May 10, 2012 (the effective date of the statute).  T.C.A. § 56-7-135 provides as follows: 

(a) The signature of an applicant for or party to an insurance contract on an application, amendment, or other document stating the type, amount, or terms and conditions of coverage, shall create a rebuttable presumption that the statements provided by the person bind all insureds under the contract and that the person signing such document has read, understands, and accepts the contents of such document.

(b) The payment of premium for an insurance contract, or amendment thereto, by an insured shall create a rebuttable presumption that the coverage provided has been accepted by all insureds under the contract.

As a result, this bill creates a rebuttable presumption that by signing an application, amendment or other insurance document:

            1) The statements provided by the signor are binding on all insureds;

            2) The person signing the document has read the documen...

Uninsured Motorist – Offset of uninsured motorist coverage with workers’ compensation benefits paid

Brief Summary:  Insurance policy language is important to determine if an insurance company is entitled to an offset of uninsured motorist coverage for workers compensation benefits paid.  If the policy contains non-specific offset language as opposed to “reduced by” language, then it must first prove that its payment would parallel a payment from another source before claiming an offset.  Generally, the uninsured motorist carrier is entitled to an offset from policy limits payable, rather than the judgment award, when it proves the total workers’ compensation offset and the UM policy limits, together, are greater than the judgment awarded to the insured.

Analysis:  The Tennessee Court of Appeals decided an interesting case which considered when an insurance company can claim an offset of uninsured motorist coverage by the amount of workers’ compensation benefits paid to its insured.  The Robert Mears v. Kendra M. Williams, W2011-02499-COA-R3-CV, 2012 WL 2832960 (filed July 11, 2012) decision addressed some long standing questions that had developed in light of the 2001 decision of State Farm Insurance Company v. Schubert, 2001 WL 584208 (Tenn. Ct. App. May 31, 2001).

In the Mears case the workers’ compensation payments totaled approximately $110,000.00.  The State Farm uninsured motorist policy limits were $250,000.00.  The total jury verdict at trial was $225,000.00.  As a result, the question was whether State Farm was entitled to an offset against plaintiff’s recovered damages for the loss or expense paid under workers’ compensation law or whether the offset should be applied to the amount of coverage payable under the uninsured motorist policy.  The State Farm uninsured motorist policy provision states:

Any loss or expense paid or payable under any workers’ compensation law, disability benefits law or any similar law will not be paid for again as damages under these (uninsured motorist) coverages. 

The trial court denied State Farm the ability to offset for the workers’ compensation benefits paid to the plaintiff from the policy limits.  The trial court relied on the Schubert deci...