Collateral Source Rule and Conservatorships

The Collateral Source Rule comes up most often in personal injury lawsuits. Let's say you have auto insurance and you are in an accident that is not your fault. The person who hit you (i.e., the "tortfeasor") is liable for the full amount of the damages he or she cause you. The fact that you have insurance that would pay the claim does not reduce what the tortfeasor would owe. The insurance is a "collateral source" of funds to compensate your for your damages, and the person who hit you cannot benefit from your diligence in maintaining insurance.

What does this have to do with conervatorships, or anything under the Probate Code for that matter? The so-called Collateral Source Rule has been stretched to include such things as government benefits payments. In Conservatorship of McQueen, 2011 Cal.App.Lexis 38, The First District Court of Appeals upheld the Alameda County Superior Court holding that Ida McQueen's SSI and Medi-Cal benefits were a collateral source, and that they should not be considered in determining the measure of damages in a breach of trust action. Ida McQueen received means-based government benefits. She was a life beneficiary of a testamentary trust established by her father that included a house as a trust asset. The defendants sold the house and distributed the proceeds to various family members and paid some expenses of the administration of the estate of Ida McQueen's father.

At trial, the defendants argued that if they distributed the proceeds of the sale to Ida McQueen, she would lose her SSI and Medi-Cal benefits, and so could never benefit from the sale of the house. In other words, she can have the benefits, or the sale proceeds, but not both. Since she is already getting the benefits, they should be allowed to keep the sale proceeds. The jury found the defendants liable for improperly selling the house and taking the proceeds. The court ordered that the defendants repay a portion of the sales proceeds to Ida McQueen as damages.

The appeals court upheld this verdict, finding that the SSI and Medi-Cal benefits were a collateral source of funds for Ida McQueen, and so should not be taken into consideration when measuring damages. The wrongdoers here should not benefit from their improper sale of the house because Ida McQueen is receiving benefits, which would be replaced by the sales proceeds. Ida could establish a special needs trust to place the proceeds in, and retain her benefits. Medi-Cal has a lien on the trust assets and can receive an amount equal to the benefits they have paid to Ida McQueen when she dies. This is analogous to the auto insurance-personal injury scenario above because a personal injury plaintiff who receives insurance money and damages from the defendant can be made to compensate the insurer and so avoid a double recovery.

The overall policy is that wrongdoers cannot benefit from their wrongs because the plaintiff has other sources of recovery for the damages caused by the wrongdoers. The court here has made clear that this extends to government benefits.