The Colorado Supreme Court clarified one of the applications of the collateral source rule in its recent ruling of Ferrellgas, Inc. v. Yeiser, Case No. 08SC997, (Colo. Feb. 28, 2011).
The collateral source rule is a hard to understand rule about when payments from a collateral source can, or cannot, be set-off from an award made to a plaintiff. In civil actions, C.R.S. Section 13-21-111.6 applies. In general, a court will reduce the amount of an award by the amount that the injured party received from a collateral source unless it is an amount paid as a benefit as a result of a contract entered into by the injured person. For example, this would usually means that an award for damages for an injury would not be reduced by the amount of health insurance paid to the injured party.
Enter Subrogation Rights
While the collateral source rule usually prevents reduction of an award by the amount paid by insurance, a subrogation right changes this.
In the Ferrellgas matter, the injured party had received over $212,000 in insurance proceeds. The insurer therefore obtained subrogation rights to recover the $212,000. With its rights, the insurer settled the full $212,000 subrogation claim for around $172,000. At trial, the jury awarded around $339,000 in damages and the question arose as to what should be set-off from the award because of the settlement of the subrogation claim.
The trial court concluded that the full $212,000 should be set-off from the award of $339,000. The appeals court disagreed and held that only the $172,000 should be set-off from the award because that was all that was actually paid. However, the Colorado Supreme Court held that the trial court had been correct—the full $212,000 should be set-off from the award because it was the full amount of the subrogation claim (the amount paid by the insurer) even if the amount paid to settle that subrogation claim had been less than the amount of the claim.
Statutory Offer and the Award of Costs
This analysis also affected the issue of whether the defendant could collect costs incurred after its statutory settlement offer. Usually, the prevailing party is awarded their costs at the end of the case Colorado Rule of Civil Procedure 54(d). Under CRS 13-17-202, a party can serve an offer of settlement on the other side, and if the award of damages at trial is less than what was offered, the party serving the statutory offer is entitled to recover their costs incurred after the offer. The statute sets up the possibility that a party who would otherwise have to pay costs might be able to recover their own costs if they make a decent offer which is rejected before trial.
In Ferrellgas, Ferrellgas made an offer of $197,000. While the award at trial was around $339,000, it was only an award of $127,000 after the subrogation amount was removed. Since $127,000 is less than the $197,000 offered, Ferrellgas was entitled to its costs incurred after the offer.