The Collateral Source Rule and Section 2-1205

The Collateral Source Rule and Section 2-1205: A Look At Their Entangled Histories And How They Affect Damages In Illinois 

In 2008, the Illinois Supreme Court defined the collateral source rule in its landmark case, Wills v. Foster.  “Under the collateral source rule, benefits received by the injured party from a source wholly independent of, and collateral to, the tortfeasor will not diminish damages otherwise recoverable from the tortfeasor.” Wills v. Foster, 229 Ill. 2d 393, 399 (Ill. 2008).  The Court also provided a rationalization for the rule’s existence: “The justification for the collateral source rule is that the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons.” Id. at 396-397.

The general concept of the collateral source rule is longstanding in Illinois, dating back almost 150 years. In 1870, the Illinois Supreme Court heard a case called Pittsburg, C. & S. L. R. Co. v. Thompson, which involved a passenger who was injured while riding a train car owned by the defendant railroad company. Pittsburg, C. & S. L. R. Co. v. Thompson, 56 Ill. 138 (Ill. 1870).  At trial, the railroad company attempted to enter an instruction directing the jury to deduct from the damages the sum paid to the plaintiff by an accident insurance company.  The Supreme Court upheld the lower court’s decision denying the railroad company’s proposed instruction, stating “if such a sum was paid, it was not pro tanto a discharge of the railway company.” Id. at 143.  The Court thus held that insurance benefits received by the plaintiff for his injuries did not diminish the damages otherwise recoverable from the defendant.

Forty years after Pittsburg, the collateral source rule appeared again in Deel v. Heiligenstein.  This Supreme Court case also involved a railroad, but this time the plaintiff’s husband was killed by a train while walking home from a night of drinking at a saloon. Deel v. Heiligenstein, 244 Ill. 239 (Ill. 1910).  Plaintiff sued the saloon owner for her husband’s lost financial support. Id.  The Court held that the husband’s life insurance proceeds paid to plaintiff “would in nowise affect her right to recover for the injury to her means of support occasioned by reason of [her husband’s] death.” Id. at 242.

Fast forward to 1973, and we find the collateral source rule still alive and well. That year, the Third District Appellate Court held that “the general rule is that the tortfeasor cannot decrease his damages by the amount of hospitalization or medical insurance payments received by the injured party.” Bireline v. Espenscheid, 15 Ill. App. 3d 368, 370 (Ill. App. Ct. 3d Dist. 1973) (citing 22 Am.Jur.2d Damages, Sec. 210; Geisberger v. Quincy, 3 Ill. App. 3d 437 (Ill. App. Ct. 2d Dist. 1972); Grant v. Paluch, 61 Ill. App. 2d 247 (Ill. App. Ct. 1st Dist. 1965)).  The citation to the American Jurisprudence on Damages indicates the collateral source rule had become a commonly accepted rule at that time.

In 1976, the Illinois legislature enacted Section 2-1205 to offset the costs of malpractice actions by eliminating duplicative recoveries and essentially acting as an exception to the collateral source rule. See Perkey v. Portes-Jarol, 2013 IL App (2d) 120470, P93, 1 N.E.3d 5, 21 (Ill. App. Ct. 2d Dist. 2013).  This statute is still in effect today and it provides defendants with a post-judgment avenue for seeking deductions in plaintiffs’ recoveries.  There are two types of deductions available under 2-1205: (1) 50% of benefits which have been paid to the plaintiff by another person, insurance company, corporation or fund for lost wages or disability income related to the injury, and (2) 100% of the benefits paid to the plaintiff by another person, insurance company, corporation or fund for medical, hospital or nursing/caretaking charges related to the injury.  735 ILCS 5/2-1205.

Section 2-1205 also places five limitations on the allowed deductions: (1) the application must be made within 30 days, (2) the reduction shall not apply to the extent there is a right of recoupment through subrogation, trust agreement, lien or otherwise, (3) the reduction shall not reduce the judgment by more than 50% of the total amount of the judgment entered on the verdict, (4) the damages awarded shall be increased by the amount of any insurance premiums or direct costs paid by the plaintiff for such benefits in the 2 years prior to plaintiff’s injury or to be paid by plaintiff in the future, and (5) there shall be no reduction for charges paid for medical expenses which were directly attributable to the adjudged negligent acts or omissions of the defendants found liable.  735 ILCS 5/2-1205.

In 1979, the Supreme Court placed limits on the collateral source rule in Peterson v. Lou Bachrodt Chevrolet Co. In that case, the plaintiff sought to recover the reasonable value of free medical services provided to his son by a children’s hospital. Peterson v. Lou Bachrodt Chevrolet Co., 76 Ill. 2d 353 (Ill. 1979). The Court held that the plaintiff could not do so, explaining that “the policy behind the collateral-source rule simply is not applicable if the plaintiff has incurred no expense, obligation, or liability in obtaining the services for which he seeks compensation” pointing to the oft-cited justification that “the tortfeasor should not benefit from expenditures made by the injured party in procuring insurance.” Id. at 362-363.

Twenty-six years after Peterson, the Supreme Court took a new look at the collateral source rule in Arthur v. Catour, 216 Ill. 2d 72 (Ill. 2005).  In Arthur, the Court relied on the “reasonable-value” approach and held that the plaintiff was entitled to submit the full, reasonable value of her medical bills to the jury and was not limited to the reduced amount actually paid by her insurer. Id.  Although Arthur failed to discuss Peterson in its decision, it appeared to be in conflict with the Peterson ruling.

As mentioned above, the Supreme Court decided Wills in 2008.  In so doing, it made sure to resolve the apparent conflict between Peterson and Arthur.  The Wills court provided an in-depth analysis of the collateral source rule, and thoroughly discussed both Peterson and Arthur. Wills, 229 Ill. 2d 393.  Ultimately, the Court affirmed the Arthur holding and explicitly overruled Peterson. Id. at 415.  The Court also formally adopted the reasonable-value approach, and reasoned that any windfall involving the apportionment of damages should be awarded to the plaintiff rather than the defendant. Id. at 414-415, 420. Wills is still the presiding law today.

Since Wills, defendants have employed Section 2-1205 in an effort to combat the collateral source rule.  Recently, a conflict has arisen between two of the appellate courts regarding the application of Section 2-1205.  In Perkey v. Portes-Jarol, the Second District Appellate Court used a plain language analysis in its interpretation of second limitation under Section 2-1205. Perkey v. Portes-Jarol, 2013 IL App (2d) 120470, P93, 1 N.E.3d 5, 21 (Ill. App. Ct. 2d Dist. 2013).  As noted above, the second limitation states that the reduction “shall not apply to the extent that there is a right of recoupment through subrogation, trust agreement, lien, or otherwise.”  735 ILCS 5/2-1205 (emphasis added).  The plaintiff in Perkey argued that this limiting language meant there should be no reduction in the recovery if there was any right to recoupment by a third party. Id. The defendants argued, and Second District agreed, that the “to the extent that” language was not superfluous, and therefore plaintiff’s recovery was to be reduced by the amount of paid medical expenses not subject to recoupment by the third party. Id.

Three years later, the Fourth District Appellate Court chose not to follow the Perkey court’s analysis of Section 2-1205 in Miller v. Sarah Bush Lincoln Health Ctr. Instead, the Miller court held that medical bills “written off” by a third party are not “actually paid” to the medical provider or the plaintiff, thus the recovery cannot be reduced by this written off amount. Miller v. Sarah Bush Lincoln Health Ctr., 2016 IL App (4th) 150728, P21, 56 N.E.3d 599, 605 (Ill. App. Ct. 4th Dist. 2016). This deviation from Perkey could very well mean the applicability of Section 2-1205 is ripe for review by the Supreme Court.

In sum, practitioners should be aware that the collateral source rule has a long history in Illinois, and it continues to have a significant impact on the amount of damages plaintiffs can claim at trial. They should also be mindful of Section 2-1205, and how it can be used as a post-judgment sword against the collateral source rule.  And if the Supreme Court decides to hear a case on the recent issues with Section 2-1205, attorneys across the state should be sure to pay close attention.

Brendan Youngblood

Brendan Youngblood

Brendan Youngblood is an associate in the firm’s Chicago office. He concentrates his practice in civil litigation defense with an emphasis in medical malpractice