New Mexico Supreme Court Discusses Application Of Collateral Source Rule

Court Discusses Application Of Collateral Source Rule: New Mexico does not allow duplication of damages or double recovery for injuries received. The rule prohibiting double recovery is founded on the principle that a claimant is only entitled to one payment of its loss and that an injured party should not be allowed to recover more than once for the same wrong. This is because the purpose of compensatory damages is to make the injured party whole by compensating it for losses. Accordingly, where there are different theories of recovery and liability is found on each, but the relief requested was the same, namely compensatory damages, the injured party is entitled to only one compensatory damage award. When a plaintiff’s compensatory damages award is fully or partially satisfied, the plaintiff’s right to recover the same damages is extinguished to the extent of the satisfaction, regardless of the theories upon which the respective claims for relief are based.

Collateral Source Rule

The collateral source rule is an exception to the general prohibition of double recovery. The collateral source rule provides that compensation received from a collateral source does not operate to reduce damages recoverable from a wrongdoer. In other words, if a plaintiff is compensated for injuries by any source unaffiliated with the defendant, the defendant must still pay damages, even if this means that the plaintiff recovers twice. For example, public assistance and social security constitute benefits from a collateral source, and they are not subject to offset from an award of damages. The proceeds of an insurance policy procured for the benefit of a plaintiff is another common collateral source. By excluding compensation provided by a collateral source from the same damages recoverable from a wrongdoer, the rule thereby allows the ultimate burden of compensating the plaintiff to fall on the defendant, rather than on blameless but generous parties.

The collateral source rule extends only to prejudgment settlements and does not extend to the postjudgment payment made by an adjudicated wrongdoer in satisfaction of its liability. A defendant who settles with a plaintiff before liability is adjudicated does so voluntarily and forgoes the chance of gaining a better outcome at trial. After adjudication, a defendant’s payment is no longer voluntary but made in satisfaction of a legal judgment and with full knowledge of the extent of the defendant’s liability.

In the case the New Mexico Supreme Court was deciding, after the plaintiff’s home sustained water damage in a hailstorm, he asked his insurer Allstate to cover the loss; consequently, Steamatic was hired to perform water abatement and mold remediation services. Plaintiff claimed that the mold was not remediated properly and that he developed a severe and permanent lung condition as a result. Plaintiff’s claim against Allstate was for breach of contract and his claim against Steamatic was for negligence. Although Plaintiff asserted different theories of liability against each defendant, Plaintiff sought the same compensatory damages from both Allstate and Steamatic.

The New Mexico Supreme Court stated in its Opinion filed on June 22, 2023: “We reaffirm that a jointly liable defendant is not a collateral source … We likewise reaffirm that a severally liable defendant is not a collateral source when it is allocated responsibility for paying the same damages allocated to another defendant. As we have repeatedly emphasized, a plaintiff is entitled to a single recovery for the same compensatory damages, regardless of the theory upon which liability is based … Typically, a severally liable defendant will not be responsible for the same damages as another defendant, because “[l]iability for proportionate fault is a liability for a distinct part of the damages and not for the same damages that may be apportioned to others” … Steamatic became responsible for paying the same damages allocated to Allstate due to an overlapping damages award in the final judgment and amended final judgment. In this situation, Allstate’s satisfaction of the duplicative portion of the damages award extinguished Plaintiff’s right to recover those same damages from Steamatic.”

Source Gonzagowski v. Steamatic of Albuquerque, Inc., No. S-1-SC-38872.

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