Absence of Coverage

P v. D Company for damages. While in D Company's employ, P was directing the backing up of a D Company truck that "jerked back" and crushed P's arm against a loading dock. At trial,P's attorney asks P on direct examination whether he received any workers' compensation benefits. D objects. During D's case-in-chief, D's attorney asks W, the president of D Company, whether D Company is insured for claims such as these. P objects. In each case the answer would be "no." How should the court rule?

In an age in which workers' compensation liability insurance is widely assumed to exist, is the rule excluding evidence of lack of insurance unfair to those who do not have such coverage?

In this case, both P and D seek to introduce evidence of lack of insurance in order to counter an assumption that such insurance exists. In P's case, he is concerned that the jury will think that he has already been paid workers' compensation benefits, when in fact he has waived them in order to sue. In D's case, the company is concerned that the jury will assume that any damages assessed against D will be paid by a faceless insurance company and therefore come in with a high verdict.

Strict application of the rule would exclude any mention of the presence or absence of coverage. This ostrich-like approach may create more problems than it solves.

The rule against evidence of insurance is one aspect of the "collateral source rule," which developed out of late nineteenth century tort law occasioned by the growing number of cases involving accidents in the workplace. See Seller, The Collateral Source Rule and Personal Injury Damages: The Irrelevant Principle and the Functional Approach, 58 Ky. L.J. 36, 38 (1969). The question is whether the collateral source rule and the evidentiary exclusion of insurance coverage or noncoverage have outlasted the social and economic conditions that precipitated their development. Seller argues that the increase in insurance and social benefit payments for injuries makes the rule obsolete.

There are three factual settings in which the issue of insurance or lack of it may arise in a civil trial. The first situation is where the defendant seeks to introduce proof that the plaintiff has received medical or other payments under either an insurance policy or workers' compensation from the employer or from another "collateral" source. In this situation, the goal of the defense is to show that the plaintiff has not been economically harmed as severely as claimed because these collateral payments have, in effect, mitigated the actual monetary damages sustained. Until recently, nearly all states prohibited the defendant from introducing such evidence.

The collateral source rule has been defended on the ground that a wrongful defendant should not benefit from the fact that the plaintiff has prudently acquired insurance because that would allow the defendant to receive a windfall from his immoral and wrongful actions. This argument reflects a view that the defendant should pay for harm that he has caused because he was a "wrongdoer." Also, many early cases employing the collateral source rule were brought by victims of industrial accidents. "People paid their medical bills out of private funds as savings, or a member of the family paid for them. Recovery of such sums from the defendant was justified as a recovery for 'out-of-pocket' loss, and the phrase was accurate." Seller, supra, at 39. In such cases, evidence of these collateral sources for payment of medical bills was excluded because it was irrelevant to the question of liability and the amount of damages it would take to make the injured party whole, including expenses paid by the injured party or his family. Given the choice of perhaps overcompensating the individual plaintiff for his injuries or providing the defendant with a windfall, the law favored the injured party and, in effect, punished the defendant.

This justification for the collateral source rule seems to be at odds with the modern trend in tort law toward allocating risk and compensating victims irrespective of fault. Today liability insurance is available to all who wish to procure it. Insurance is available not only for liability, but also to cover medical bills, loss of earnings while incapacitated, and other damages that might accrue from an accident; social insurance, which may cover many accident-related expenses, is more prevalent. Few individuals are not somehow covered by medical insurance or a social benefit policy that will, in some way, pay all or a portion of the victim's expenses and, perhaps, lost wages as well. Therefore, collateral source payments (other than a loan or gift by a family member) are no longer irrelevant to the issue of what damages it will take to make the plaintiff whole.

A second justification for the rule against allowing evidence of insurance in particular and for the collateral source rule in general is based on a concern of prejudice on the issue of liability. Some courts fear that if evidence of collateral source payments were allowed, the jury would be more apt to find for the defendant on liability and not merely reduce the damages. "Most courts now recognize that the introduction of evidence of collateral source benefits can affect not only the question of damages, but the issue of liability as well." Seller, supra, at 55. The United States Supreme Court has cautioned trial courts in their use of collateral source evidence on the grounds that the jury is prone to misuse it if allowed in. See Eichel v. New York Central R.R. Co., 375 U.S. 253, 255 (1963) (the likelihood of misuse by the jury of evidence of disability payments to the plaintiff clearly outweighs any probative value of the evidence). Critics, however, contend that this is speculation and that it is hard to predict how a jury would use the evidence, especially when carefully instructed by the court. In Goldstein v. Gontarz, 364 Mass. 800, 813 (1979), the case on which Problem III-16 is based, the Massachusetts Supreme Court said that it is wrong for courts to base a rule on what it thinks a jury will assume.

There has been some erosion of the collateral source rule in recent years. For example, many states now permit evidence of collateral source payments in medical malpractice trials to combat what were perceived to be the high awards in such cases. Additionally, some states allow evidence of collateral income for the purpose of showing a plaintiff lost no time from work because of an alleged injury or to prove a motive for malingering.

The second situation in which evidence of insurance may arise is when the plaintiff seeks to introduce evidence that the defendant is insured for the loss. The third situation is simply the flip-side of the second--the defendant attempts to show that he has no insurance. The almost universal view of jurists is that such evidence tends to cause juries to decide cases emotionally rather than rationally, and that insurance or the lack of it has little, if any, probative value and is simply irrelevant. See Goldstein v. Gontarz, 364 Mass. 800, 809 (1979), citing King v. Starr, 43 Wash. 2d 115, 119-121 (1953); Socony Vacuum Oil Co. v. Marvin, 313 Mich. 528, 538-540 (1946); McCormick, Evidence (2d ed.) § 201, pp.481-482 (1972); Appleman, Insurance Law and Practice § 12838 (1962). The concern is that if the plaintiff shows the defendant has insurance and is thus adequately protected from financial liability for the accident, a jury will bring in a verdict (perhaps exaggerated in amount) for the plaintiff because the insurance company, which can afford it, will pay rather than the defendant. Goldstein v. Gontarz, supra, at 808.

In the first part of Problem III-16 and Goldstein v. Gontarz, 364 Mass. 800 (1974), we have the obverse of the flip-side. In Goldstein, in his opening statement, plaintiff's attorney stated that plaintiff did not take workers' compensation benefits and that the only way he could assert his rights was in court. This was also elicited on direct examination of the plaintiff, and plaintiff's counsel repeated this suggestion in his closing statement. The court held that the repeated reference to lack of workers' compensation was designed to prejudice the jury and ordered a new trial. The court stated, "Exposing juries to such information is condemned because it is not itself probative of any relevant proposition and is taken to lead to undeserved verdicts for plaintiffs and exaggerated awards which juries will readily land on faceless insurance companies supposedly paid for taking the risk." 364 Mass. at 808.

Wouldn't the same reasoning apply to D Company's reference to the effect that there is no insurance coverage for the accident? Juries are apt to misuse this evidence by deciding for the defendant simply because he cannot afford to pay the damages resulting from the accident. "Such statements are tantamount to a plea of poverty, not only irrelevant but prejudicial in that they might influence juries toward giving defendants compassionate but strictly unmerited relief from personal liability." Id. at 809. Consequently, D Company's reference that there is no insurance protection for the loss is impermissible and constitutes reversible error if found to have prejudiced the jury.

Despite the Goldstein court's reversal of the award for plaintiff, Justice Kaplan's opinion in that case suggests that today a more flexible approach to evidence of insurance coverage should be adopted, especially where a defendant does not have insurance and a jury is likely to assume he does:

We are aware that the rules against introduction of matters of insurance coverage or the like have come under attack. Critics point out that, except as they guard against more or less explicit appeals to juries based simply on the presence or absence of coverage, the rules are not very effective in keeping the subject away from the triers.

It is not possible to set up secure bulkheads against hints about insurance, especially as some information concerning it may be admissible as probative of a relevant proposition, say "control" or credibility of a particular witness. When the information is thus relevant, it may still be excluded on the ground that its prejudicial effect outweighs its probative value, but such judgments are delicate and may invite appeal. Again, even when the trial record is barren of any mention of the censored subjects, they may insinuate themselves into the case through casual assumptions about the prevalence of liability insurance or the availability of workmen's compensation. It is sometimes said that jurors are so prone to assume that workmen's compensation has been received for industrial accidents that a plaintiff who has not in fact received an award should be entitled to have that information given to the jurors in order to right the balance in their minds. On similar reasoning, if it be true that jurors assume that defendants generally carry liability insurance, then they should be told when a given defendant is not in fact covered. Cf. 29 Am. Jur. 2d, Evidence, § 405 (1967). In this view, even the amounts of the awards or the dollar limits of the liability insurance might also be candidates for disclosure.

Id. at 812.

Professor McCormick agrees. He is one of the most outspoken critics of the traditional rule. His criticism is based both on the absence of theoretical justification for the rule and on the practical point that such evidence often is insinuated to the jury anyhow. McCormick, Evidence § 201, at 981 (2d ed.).

Despite the academic criticism, in virtually all jurisdictions such evidence is inadmissible. However, in practice courts tend to reverse only if the references to insurance were flagrant and the trial court failed to cure with instructions. For example, in Woodward v. Wilbur, 54 R.I. 60, 63-64 (1963), the Rhode Island Supreme Court held it was within the sound discretion of the trial judge to allow the plaintiff to cross-examine the defense's expert witness to elicit the fact that the witness worked for insurance companies. Recently, Rhode Island has continued the trend of leaving the casual reference to a judge's discretion. In Cochrane v. Dube, 114 R.I. 149, 152-153 (1975), the Rhode Island Supreme Court held "that the mere mention of insurance in the course of a trial is not per se a ground for passing the case." The more flexible approach adopted by the Rhode Island Supreme Court in recent years has edged its law closer to a Rule 403 approach. Under a Rule 403 approach, the admissibility of evidence of insurance would depend on a weighing of its probativeness and its prejudicial quality. This approach delegates more power and discretion to the trial court than does Rule 411. Under Rule 411, a judge may feel compelled to declare a mistrial any time a reference to insurance is made by either counsel, despite the fact that Rule 103(a) provides that "error may not be predicated upon a ruling which admits or excludes evidence unless a substantial right of the party is affected." Under a Rule 403 approach, a trial court could exclude the evidence if the judge finds it to be either irrelevant or highly prejudicial, but otherwise permit it. Only repeated, flagrant references would warrant a mistrial.

Under a Rule 403 approach, which would permit evidence of insurance or the lack of it in some cases, there is the problem of how the evidence should be admitted. In Goldstein v. Gontarz, Justice Kaplan suggested:

What emerges from consideration of the decisions and the critical writing is that attention to a procedure for advance deliberation may prove helpful. When it appears that the question of the mention of coverage will arise in a serious way, counsel where feasible should consult beforehand with the judge as to how the matter should be handled. Such discussions may well take place at pre-trial conference.... In many cases, minimizing or excluding reference to the subject during trial, and neutralizing any effect on the jury by a proper charge, will be a sound course. In some cases the better course may be to have the facts as to coverage frankly disclosed to the jury, again with appropriate commentary. Preferably the disclosure, as well as the commentary, should be by the judge. Unannounced unilateral forays by counsel in the course of trial, as in the present case, are perilous and should be avoided.

364 Mass. at 814.

Rhode Island adopted an alternative formulation of Rule 411 incorporating this approach:

RIRE 411. Liability Insurance

Evidence that a person was or was not insured against liability is not admissible upon the issue whether he acted negligently or otherwise wrongfully. This rule does not require the exclusion of evidence of insurance against liability when offered for another purpose, such as proof of agency, ownership, or control, bias or prejudice of a witness, or when the court determines that in the interest of justice evidence of insurance or lack of insurance should be permitted. A party intending to offer evidence of insurance or the lack of it should make an offer of proof of such evidence out of the hearing of the jury. If the court determines that such evidence should be disclosed, in the exercise of its discretion the court may direct that such evidence be disclosed to the jury by the court or by the parties in a manner best calculated to serve the interest of justice and avoid prejudice, confusion and waste of time.