1 Damages For Personal Injury: Collateral Benefits (1997) Consultation Paper No 147. The associated area of recoupment of NHS costs from tortfeasors was considered in the earlier paper, Damages For Personal Injury: Medical Nursing And Other Expenses (1997) Consultation Paper No 144. For examination of the substantive rules in a specific context see R Lewis ‘The Overlap Between Damages For Personal Injury And Work Related Benefits’ (1998) 27 ILJ (forthcoming).

2 Academic writing upon the law of tort is overwhelmingly biased towards the issue of liability rather than quantum, an emphasis which does not reflect the importance of assessment of damages to practitioners and litigants. However, the collateral source problem is considered in a handful of UK articles, almost all critical of the waste resulting from failures to deduct from damages: see G Ganz ‘Mitigation Of Damages By Benefits Received’ (1962) 25 MLR 559; H McGregor ‘Compensation Versus Punishment In Damages Awards’ (1965) 28 MLR 629; P S Atiyah ‘Collateral Benefits Again’ (1969) 32 MLR 397; J P Casey ‘Damages And Social Security Benefits’ (1972) JR 22; D W Williams ‘State-Financed Benefits In Personal Injury Cases’ (1974) 37 MLR 281; P J Davies ‘State Benefits And Accident Compensation’ (1982) JSWL 152. The most significant contribution is that of Fleming, J. G. ‘The Collateral Source Rule and Loss Allocation in Tort’ (1966) 54 Cal LR 1478 and ‘Collateral Benefits’ in International Encyclopedia Of Comparative Law vol XI Google Scholar, ch 11. Textbook writers also devote little attention to the rule. But see Ogus, A The Law of Damages (London: Butterworths, 1973) pp 218–230 Google Scholar; Cane, P Atiyah's Accidents Compensation And The Law (London: Butterworths, 5th edn, 1993) ch 15 Google Scholar; Burrows, A Remedies for Torts and Breach of Contract (London: Butterworths, 2nd edn, 1994) pp 121–135 Google Scholar.

3 Consumers Association Managing At Home - A Which Campaign Report (1978) and Simkins, J and Tickner, V (eds) Whose Benefit? An Examination Of The Existing System Of Cash Benefits And Related Provision For Intrinsically Handicapped Adults And Their Families (London: Economist Intelligence Unit, 1978)Google Scholar.

4 In the USA it was found that the average plaintiff injured in a road accident received $1.40 for each $1 of pecuniary loss. This was partly because 79% of plaintiffs had at least one collateral source of payment in addition to damages. See the All Industry Research Advisory Committee Automobile Injuries And Their Compensation In the United States (1979). Of those traffic victims in the USA who are successful in tort claims it has been suggested that two thirds of their total recovery comes from sources other than the tortfeasor: see O'Connell, J The Injury Industry (New York: Commerce Clearing House Inc, 1971) ch 4, p 29 Google Scholar. This was confirmed in an empirical study by D R Hensler et al Compensation For Accidental Injuries In The United States (1991).

5 Cane above n 2 pp 322–330.

6 Above n 1 para 4.25.

7 In the USA the rule has been defined by the 2nd Restatement of Torts (1977) s 920 A(2) as: ‘Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable.’

8 The test is easier to formulate than to apply according to in Asquith LJ in Shearman v Folland (1950) 1 KB 43.

9 There is potential for confusion here because the word ‘collateral’ is often used to mean compensation from an additional source, whether or not it is to be deducted.

10 [1963] 1 QB 750 at 759.

11 The limited value of such an approach was acknowledged by Lord Bridge in Hussain v New Taplow Paper Mills [1988] 1 AC 514 at 528.

12 Similarly, see the criticism of Payne v Railway Executive (1952) 1 KB 26, Judd v Hammersmith Hospitals (1960) 1 All ER 607 in (1960) 76 LQR 347, and SirDixon, Owen in The National Insurance Co of New Zealand v Espagne (1961) 105 CLR 569 at 572Google Scholar, followed by the several pages of trenchant criticism of causation given by Windeyer J at 590 et seq.

13 Redpath v Belfast and County Down Railway (1947) NI 167 at 172.

14 Bradburn v Great Western Railway Co (1874) LR 10 Exch 1.

15 Report Of The Royal Commission On Civil Liability And Compensation For Personal Injury (1978, Cmnd 7054) vol 1 Google Scholar, ch 13.

16 For example, in Bews v Scottish Hydro Electric (1992) SLT 749 at 751 cumulation of benefit was allowed partly because it was held that it ‘was not his death which triggered the payment … [but] the exercise of the defenders discretion to make it’. In Longden v British Coal (1995) PIQR Q 48 Roch LJ considered an incapacity pension to result not from the accident but from the contributions paid by the accident victim.

17 Mills v Hassall (1983) ICR 330; cf Wilson v National Coal Board (1981) SLT 67 and Colledge v Bass Mitchells & Butler (1988) 1 All ER 536.

18 Harper, F. V. and James, F. Law Of Torts (Boston: Little Brown & Co, 1956) vol 2, p 1348 Google Scholar.

19 Lord Oliver in Hodgson v Trapp (1989) 3 All ER 807 at 826; similarly, Lord Bridge at 819.

20 Eg Lord Griffiths in Dews v National Coal Board (1988) AC 1 at 12; Lord Goddard in British Transport Commission v Gourley (1956) AC 185 at 206.

21 Eg Cane above n 2 at 323: ‘… in modem conditions, “public money” is not just money which is actually collected by the State in the form of taxes or social security contributions. Tort damages too are, for all practical purposes, paid out of public money, since they are mostly financed by… insurance premiums which are paid by a very large proportion of the public.’

22 Ibid. Similarly, Harris, D Remedies In Contract And Tort (London: Weidenfeld and Nicolson, 1988) p 295 Google Scholar: ‘Double compensation from public sources is inefficient, and, when resources are limited, is unfair to the many accident victims whose only support is means-tested …’ Sugarman, S Doing Away With Personal Injury Law (New York: Quorum, 1989) p 174 Google Scholar recognises that the common law system operates on the principle that tort payments are ‘primary’ and others ‘secondary’, but that this results in wasteful duplication of payment. He supports abolition of the collateral source rule: ‘From the viewpoint of administrative efficiency, having tort law serve only in a backup (that is, secondary) role, paying for losses that are otherwise uncompensated, is far more sensible.’

23 If we deny him the extra moneys we may discourage such prudence and, for example, reduce the incentive for buying first party insurance even though this distribution of risk is of benefit to the wider community. It also seems unfair that the prudent insured should receive the same total compensation as the spendthrift who has shown no concern about obtaining protection from the risk involved.

24 Thus Asquith LJ in Shearman v Folland [1950] 2 KB 43 at 46 objected to deducting private insurance moneys from damages: ‘If the wrongdoer were entitled to set off what the plaintiff was entitled to recoup or had recovered under his policy, he would in effect be depriving the plaintiff of all benefit from the premiums paid by the latter and appropriating that benefit to himself.’ In Parry v Cleaver (1970) AC 1 Lord Reid similarly implied that the plaintiff would have wasted the money spent on paying premiums which had he not done so, would still have been ‘in his possession at the time of the accident grossed up at compound interest’.

25 For example, the plaintiff may be required to take out life insurance as a condition of his obtaining a mortgage, and accident insurance may be part of a package bought when taking a holiday or when arranging for the comprehensive insurance of a motor vehicle. Often, plaintiffs are unaware of the extent to which they are insured.

26 Consultation Paper Collateral Benefits (1997) para 4.42.

27 J G Fleming ‘Collateral Benefits’ above n 2 chs 11–14.

28 K Bushe emphasises the value of fringe benefits from the perspective of a labour economist in ‘A Single Guiding Rule For Damages Awards In The Presence Of Collateral Benefits’ (1995) 25 HKLJ 51.

29 Report Of The Departmental Committee On Alternative Remedies (1946, Cmnd 6860), chaired by Sir Walter Monckton, para 32.

30 Ogus, A et al The Law of Social Security (London: Butterworths, 4th edn, 1995) pp 26 and 40Google Scholar.

31 Sugarman, S Doing Away With Personal Injury Law above n 22 p 79 Google Scholar.

32 Schwartz, G T ‘A National Health Care Program: What Its Effect Would Be On American Tort Law And Malpractice Law’ (1994) 79 Cornell LR 1339 at 1346Google ScholarPubMed. Similarly, life insurance is exempt from the wide deduction principle proposed by the American Law Institute Enterprise Responsibility For Personal Injury (1991) vol 2, ch 6.

33 Atyiah above n 2 at 403: ‘To argue that he has “paid for” his insurance payments is beside the point when it is not the insurance payments which are in issue. It might be more pertinent to ask if he has “paid” for his right to a tort action, to which of course there can only be one answer.’ Similarly, P Cane Atiyah's Accidents Compensation And The Law above n 2 at 324.

34 McGregor, H ‘Compensation Versus Punishment in Damages Awards’ (1965) 28 MLR 629 at 636Google Scholar. Similarly, see Fleming, J G ‘The Collateral Source Rule And Loss Allocation In Tort’ (1966) 54 Cal LR 1478 at 1500Google Scholar, and the anonymous notes in (1949) 63 Harv LR 330 at 332 and (1964) 77 Harv LR 741 at 751.

35 Note (1964) 77 Harv LR 741 at 751.

36 J G Fleming ‘Social Insurance And Tort Liability’ (1952) 27 NYULR 537 at 555: ‘He gambles a very small proportion of his premium on the chance of a windfall in excess of indemnity.’ Diplock LJ in Browning v War Office (1963) 1 QB 750 at 769: ‘An accident insurance policy is a contract to pay a sum of money on a contingency; it is in the nature of a wager.’

37 Clarke, M A The Law of Insurance Contracts (London: Lloyd's of London Press, 2nd edn, 1994) para 4.2CGoogle Scholar; Buds, J Modern Insurance Law (London: Sweet and Maxwell, 3rd edn, 1993) ch 3Google Scholar. By contrast, one writer asserts that the gamble justifies the retention of the collateral source rule because that rule is designed to shield the insurance gamble from the tort system of resolving personal injury claims. In that way the gaming relationship between an insurer and its insured remains untainted. See Flynn, M ‘Private Medical Insurance And The Collateral Source Rule: A Good Bet?’ (1990) Tol LR 39 at 66Google Scholar.

38 Bradburn v Great Western Railway Co (1874) LR 10 Exch 1.

39 Dalby v India & London Life Assurance Co (1854) 10 CB 365 (life); Theobald v The Railway Passengers Assurance Co (1854) 10 Ex 45 at 53 (personal accident).

40 Derham, S R Subrogation In Insurance Law (Sydney: Law Book Co, 1985) p 31 Google Scholar notes that in non-indemnity insurance the insured is entitled to recover upon proof of the occurrence of the event insured against, whereas under an indemnity policy proof of actual pecuniary loss is also required. See further Birds above n 37 at 272; M A Clarke above n 37 at para 31–3A.

41 S Kimball and K Davis ‘The Extension Of Insurance Subrogation’ (1962) Michigan LR 841 argue that the distinction is untenable. R Hasson ‘Subrogation In Insurance Law - A Critical Evaluation’ (1985) 5 OJLS 416 at 418 similarly offers strong criticism: ‘… in the Alice-In-Wonderland world of insurance, life insurance contracts and accident insurance contracts were held not to be contracts of indemnity, despite the fact that it is clearly the intention of purchasers of these contracts to indemnity either their families (in the event of death) or, in the event of accident, to compensate themselves for their lost earnings. Why the loss of property should be treated differently from a loss of an arm, when both result in economic losses to the person who sustains them has never been explained.’ See also Mitchell, C The Law Of Subrogation (Oxford: Clarendon Press, 1994) p 75 Google Scholar. The Law Commission Consultation Paper Collateral Benefits (1997) paras 2.110 and 5.29 regard the distinction between indemnity and non-indemnity as puzzling and difficult. It suggests that there is as much reason to give subrogation rights in the one case as the other, and canvasses the possibility of removing all such rights so as to justify more easily the full deduction of benefits from damages.

42 Consultation Paper Collateral Benefits (1997) para 4.60.

43 According to the Pearson Commission above n 15 vol 2 Google Scholar, table 107, only one third of the damages awarded in tort are for pecuniary losses. However, the percentage of pecuniary loss rises in proportion to the severity of the injury.

44 See the forceful criticism in Cane, P Tort Law And Economic Interests (Oxford: Clarendon Press, 2nd edn, 1996) p 436 Google Scholar.

45 Andrews LCJ in Redpath v Belfast and County Down Railway [1947] NI167 at 170. Similarly, according to the Scottish Law Commission, deduction ‘might discourage philanthropy and, in effect, divert these payments from their intended object’. Damages For Personal Injuries: Report On (1) Admissibility Of Claims For Services: (2) Admissible Deductions (1978) Report No 51, para 58.

46 (1970) AC 1at 14.

47 Lord Bridge in Hodgson v Trapp (1989) 1 AC 807 at 822.

48 Pearson Commission above n 15, para 504, Scottish Law Commission above n 45 para 62. The Law Commission Consultation Paper Collateral Benefits (1997) para 4.80 suggests that a wider principle of deduction might be adopted, but it continues to make an exception ‘where the provider of the collateral benefit has a right (by contract or by operation of law) to recover the benefit…’

49 For example, the British Rail sick pay scheme used to contain the following clause: ‘In respect of absence due to an accident or injury occurring either on or off duty, sick pay under these arrangements will be paid as a loan which will be repayable to British Rail in the event of the member of the staff involved in such occurrence recovering damages from a third party or British Rail, or compensation from the Criminal Injuries Compensation board or any other body set up for a similar purpose.’

50 Personal Injury Compensation: How Much Is Enough? (Law Com No 225, 1994) ch 11 and table 1102. Under-compensation also occurred because of losses and expenses not anticipated at the time of the settlement.

51 Harris, D et al Compensation And Support For Illness And Injury (Oxford: Clarendon Press 1984) p 91 Google Scholar. It is very difficult to analyse the effect of the defence upon the level of settlement because the parties do not agree whether and to what extent contributory negligence is a factor in the final settlement. A more recent study by the Law Commission found at feast 12% of recipients of damages awards considered that the defence had been relevant in reducing their payments. See Law Com No 225 above n 50, table 407. In a survey confined to serious injuries - worth at least £150,000 or more - although there were clear indications that the defence was used in only 9% of cases, it featured in negotiations in other cases without its effect being clear: Cornes, P Coping With Catastrophic Injury (Edinburgh: Disability Management Research Group, University of Edinburgh 1993) p 22 Google Scholar.

52 For details see Structured Settlements And Interim And Provisional Damages (Law Com No 224, 1994) Part II and the Consultation Paper No 125 (1992) paras 2.91-2.18. The discount rate has recently been the subject of litigation, and awaits determination by the House of Lords: see Wells v Wells (1997) PIQR Q1.

53 Harper and James above n 18 at 1354 state: ‘… the double recovery result in the accident insurance cases is hard indeed to justify on principle though perhaps it has done little harm in practice for, as practical claims men know, the beneficiary of an accident policy is usually willing to settle his tort claim for less than he otherwise would.’

54 D A Goldsmith ‘A Survey Of The Collateral Source Rule: The Effects Of Tort Reform And Impact On Multistate Litigation’ (1988) 53 J Air L 799 at 802; American Law Institute Enterprise Responsibility For Personal Injury (1991) vol 2, p 164 Google Scholar. The Institute suggested that the plaintiff should be able to recover legal costs as a separate head of damage, thus removing the justification for the cumulation of benefits.

55 Luntz, H Assessment of Damages for Personal Injury and Death (Sydney: Butterworths, 3rd edn, 1990) para 8.1.10Google Scholar.

56 Consultation Paper Collateral Benefits (1997) para 4.10.

57 Above n 15, ch 13.

58 [1970] AC 1.

59 Consultation Paper Collateral Benefits (1997) paras 2.104-2.109; similarly see Ogus above n 2 at 227.

60 J O'Connell argues that term insurance cannot be justified on the ground of investment and therefore ought to be brought into account in ‘A Proposal To Abolish Contributory And Comparative Fault, With Compensatory Savings By Also Abolishing The Collateral Source Rule’ (1979) 3 Univ Illinois Law Forum 591.

61 Atiyah, P S ‘What Now?’ in Allen, D et al (eds) Accident Compensation After Pearson (London: Sweet and Maxwell, 1979) p 227 at 248Google Scholar.

62 The Disablement Income Group opposed the Pearson Commission proposals to improve the tort system because they would make ‘an elite group even more elite’ (The Times, 25 July 1978).

63 K D Cooper ‘A Collateral Benefits Principle’ (1971) 49 Can BR 501 at 531.

64 Above n 41 at 871. See further Hasson above n 41.

65 R C Horn Subrogation in Insurance Theory and Practice (1964).

66 Derham above n 40 at 153, citing Horn above n 65 at 173.

67 Meyer found that subrogation in motor claims for property damage amounted to 8% of the losses, and in marine insurance it was as high as 14%. However, these were the only two areas where subrogation played any significant role: see Meyer, O ‘Subrogation Rights And Recoveries Arising Out Of First Party Contracts’ (1973) 9 The Forum 83 Google Scholar.

68 Lewis, R ‘Insurers’ Agreements Not To Enforce Strict Legal Rights: Bargaining with Government and in the Shadow of the Law’ (1985) 48 MLR 275 Google Scholar.

69 In these countries providers of collateral benefits are given extensive subrogation rights. However, they enforce these largely through bulk recovery agreements whereby liability insurers agree in advance to pay a percentage of all claims under a certain amount from particular collateral benefit providers. This avoids litigating individual cases and makes subrogation administratively workable and financially acceptable: see W Pfenningstorf and Gifford, D A Comparative Study Of Liability Law And Compensation In Ten Countries And The USA (Oak Brook, Illinois: Insurance Research Council 1991) p 134 Google Scholar. The Law Commission recognises that the conclusion of bulk agreements in this country would be complicated and costly and lead to a myriad of arrangements between individual employers, first party insurers, and pension funds on the one hand, and liability insurers on the other: see the Consultation Paper Collateral Benefits (1997) para 5.19.

70 Clarke above n 37 para 31-7B1.

71 Above n 2 at 342, citing the Report of the NHS Scrutiny Programme The Collection Of Fees By Health Authorities Under The Road Traffic Act 1972 (London: DHSS, 1985)Google Scholar.

72 Hasson above n 41 at 425 illustrates this by referring to the commercial situation where both landlord and tenant may carry first party insurance for the leased property which is also covered in the third party liability policies protecting those who supply the tenant with goods or carry out repairs on the property. Overlaps arise because potential plaintiffs insure against the possibility of damage irrespective of whether they may be able to pursue a tort action to obtain compensation, whilst defendants also insure the same loss against their tortious liability.

73 See Law Commission Consultation Paper Collateral Benefits (1997) paras 2.84-2.90.

74 The claim failed in Metropolitan Police District Receiver v Croydon Corporation (1957) 2 QB 154. The case is criticised by the Law Commission which considers the possibility of overturning it and creating a new statutory right of recoupment for providers of collateral benefits: see Consultation Paper Collateral Benefits (1997) paras 5.4 et seq. The action per quod sevitium amisit was abolished by the Administration Of Justice Act 1982. See further McGregor above n 2 at 639, and Cooper above n 63 at 523.

75 Although this device seems not to be employed today, it was used in Dennis v LPTB (1948) 1 All ER 779 and contemplated by Goddard W in Allen v Waters & Co (1935) 1 KB 200 at 215. The Law Commission doubted whether the court has power to impose conditions on the award of damages in its Report On Personal Injury Litigation-Assessment Of Damages (Law Corn No 56, 1973) para 141.

76 Hunt v Severs [1994] 2 AC 350.

77 Matthews, P and Lunney, M ‘A Tortfeasor's Lot Is Not A Happy One’ (1995) 58 MLR 395Google Scholar.

78 Burrows, A The Law Of Restitution (London: Butterworths 1993) p 218 Google Scholar and the Law Commission Consultation Paper Collateral Benefits (1997) para 5.22. For an application of the principle see the Law Commission Consultation Paper No 144 Damages For Personal Injury: Medical, Nursing And Other Expenses (1996) at para 3.21: ‘To grant the NHS a right in tort to recover from the tortfeasor damages to cover its care costs caused by the tort, may be said to be contrary to the normal negligence principles that pure economic loss is irrecoverable. However, the restitutionary principle of unjust enrichment arguably supports such a right for the NHS.’

79 Mitchell, C The Law of Subrogation (Oxford: Clarendon Press, 1994) p 9 Google Scholar et seq.

80 G Williams ‘The Aims Of The Law Of Tort’ (1951) 4 CLP 137.

81 Yates v Whyte (1838) 4 Bing NC 272 at 283.

82 Harper, F. V. and James, F. Law of Torts above n 18 vol 2, p 1344 Google Scholar.

83 See further Cane above n 2 at 363–369. The arguments based on the wider economic perspective of market deterrence are summarised at pp 374–394 and are not repeated here.

84 The Pearson Commission estimated that insurers dealt with 88% of tort claims and paid 94% of the total damages: above n 15, vol 2 Google Scholar, para 509.

85 Protected no-claims bonuses are widely available for motor insurance, and most employers are rated not according to their actual experience of accidents, but only according to the general classification of the type of work they do: P S Atiyah ‘Accident Prevention And Variable Premium Rates For Work Connected Accidents’ (1975) 4 Ind LJ89.

86 Diplock LJ in Browning v War Office (1963) 1 QB 750 at 764 deliberately used the word defendant ‘rather than applying… so emotive a label as “wrongdoer” or even “tortfeasor”, for the emotions with which these latter expressions are charged tend… to obscure… the realities of the situation in the modem world.’

87 Elliott, D W and Street, H Road Accidents (Baltimore: Penguin 1968) p 243 Google ScholarPubMed.

88 See Diplock LJ's forceful criticism to this effect in Browning v War Office (1963) 1 QB 750 at 764.

89 Consultation Paper Collateral Benefits (1997) para 4.17.

90 Lloyd-Bostock, S ‘Commonsense Morality And Accident Compensation’ in Farrington, D P et al Psychology, Law And Legal Process (London: Mcmillen, 1979), and Harris above n 22, ch 4Google Scholar.

91 Lister v Romford Ice Co [1957] AC 555 has been subverted by a private agreement between insurers and employers organisations that subrogation will not be used. Lewis above n 68 at 281.

92 Consultation Paper Collateral Benefits (1997) para 4.80. This is subject to two provisos: if a benefit is paid for a particular loss it should be deducted only from the corresponding part of the damages award; and there should be no deduction if the provider of the benefit has a right to recover the value of the benefit from the plaintiff.