Will My Settlement Award Be Affected if My Insurance Covers Part of My Costs?

If you’ve been injured due to someone else’s negligence, like in a car accident, a slip and fall, or medical malpractice, you may be entitled to a personal injury settlement. 

Many injury victims understandably wonder, however, “If my insurance already covered some of my medical bills or lost wages, will that reduce the amount I receive from my settlement?”

The short answer is: Maybe. 

Whether your settlement will be affected depends on a legal principle called the collateral source rule, how your state applies it, the nature of your insurance coverage, and the terms of your settlement.

At Morgan & Morgan, we help clients navigate these complex questions every day. If you have questions about your personal injury claim, contact us anytime for a free case evaluation.

First, the Basics: What a Settlement Covers

Before diving into how insurance affects your payout, it’s helpful to understand what a personal injury settlement typically covers. In most cases, a settlement is designed to compensate you for:

• Medical expenses (hospital bills, rehab, surgeries, prescriptions, etc.)
• Lost wages due to time missed from work
• Loss of future earning potential
• Pain and suffering
• Emotional distress
• Loss of consortium (loss of companionship in serious injury cases)
• Property damage
   

These costs fall into two categories:

1. Economic damages, which are quantifiable costs like bills and wages.
2. Non-economic damages, such as pain and suffering.
   
    

What Is the Collateral Source Rule?

The collateral source rule is a legal doctrine that prevents the party who caused your injury (the defendant) from reducing their financial liability just because you received compensation from another source, like your own insurance.

Let’s break that down into simpler terms.

If your health insurance covered your $10,000 hospital bill, the defendant still has to pay you the full $10,000 in a settlement. They don’t get a discount just because you had the foresight to carry insurance.

The rule exists for two reasons:

1. To avoid giving negligent parties a break. They shouldn’t benefit from the fact that you were insured.
2. To protect your rights. You paid premiums for your insurance, so the benefit of that coverage should go to you, not the person who hurt you.
    

But here’s the catch: not every state applies the collateral source rule the same way. Some allow evidence of insurance payments to be considered during settlement or trial; others prohibit it altogether.

How States Handle Insurance Payments in Settlements

States That Apply the Collateral Source Rule Strictly

In these states, the at-fault party cannot use your insurance payments to reduce the amount they owe you. Even if your medical bills have already been paid by your health insurance, you can still recover the full amount in a settlement or court award.

This includes New York, California, and Florida (with some exceptions).

States That Allow Offsets

Other states have modified or repealed the collateral source rule, meaning the court may allow the defendant to reduce the amount of damages they have to pay by the amount you’ve already received from an insurance company.

This includes Indiana, Colorado, and Ohio.

Some states apply a hybrid approach, allowing offsets only in certain types of cases (like medical malpractice) or only when the insurance is publicly funded (like Medicaid or Medicare).

Health Insurance and Subrogation

Even if your settlement isn’t directly reduced by insurance payments, there’s another factor to consider: subrogation.

Subrogation is your health insurance company’s right to be reimbursed for the medical bills it paid on your behalf if you recover money from the at-fault party.

Here’s an example of how it works:

1. You get injured and go to the hospital.
2. Your health insurance pays the $20,000 bill.
3. You later receive a $100,000 settlement from the person who caused your injury.
4. Your insurance provider may place a lien on your settlement, asking to be repaid the $20,000 they covered.

This can reduce your net settlement, the amount you actually take home after medical bills, attorney’s fees, and other costs are paid.

Some government programs like Medicare, Medicaid, or Veterans Affairs are also legally entitled to be repaid through subrogation if they paid for your injury treatment.

What About Auto Insurance?

If you were injured in a car accident, you might have received compensation from:

• Your own Personal Injury Protection (PIP) insurance,
• MedPay coverage, or
• Uninsured/Underinsured Motorist (UM/UIM) coverage.

The rules here depend heavily on your state’s auto insurance laws. For example, in no-fault states like Florida or Michigan, your PIP insurer covers your injuries up to a certain amount, no matter who was at fault. You may only sue for additional damages if your injuries exceed a “serious injury” threshold.

In at-fault states, you can sue the other driver, and your insurance payouts may or may not affect your total recovery depending on whether the collateral source rule applies.

Subrogation still applies here, too. Your auto insurer may seek reimbursement from your settlement if they paid out benefits before fault was established.

Worker’s Compensation Cases

If you were hurt on the job, workers’ compensation likely covered your medical care and lost wages. But if a third party (like a subcontractor or product manufacturer) was responsible for your injury, you may be able to file a personal injury claim against them.

In this situation, your employer’s workers’ comp insurer may have a lien on any third-party settlement you receive. That means part of your payout could go toward reimbursing the insurer.

Can I Keep My Entire Settlement?

Whether you can keep your entire settlement depends on several factors, including:

• Your state laws
• The type of insurance that paid your bills
• Whether your insurance company asserts a lien
• How your attorney negotiates those liens
  
   

In many cases, your attorney can negotiate lien amounts down, especially if:

• Your settlement is not enough to cover all damages.
• You have ongoing medical needs.
• The insurance policy has language allowing reductions under certain circumstances.
  
   

Can the Insurance Company Take My Whole Settlement?

No. They can’t take your entire settlement. At most, they can recover the portion they paid for your treatment, and only if they assert their right to subrogation or a lien.

Do I Have to Tell the Court or Insurance Company if My Bills Were Already Paid?

That depends on your state’s laws. In states where the collateral source rule is waived, insurance payments may be disclosed during settlement talks or at trial. Your attorney will know how to handle this strategically.

What if My Settlement Is Less Than My Medical Bills?

In some cases, your lawyer can negotiate reduced liens so that you still receive some compensation. This is common in serious injury cases or when coverage limits are low.

Morgan & Morgan Can Help Maximize Settlements

Getting injured is hard enough. Worrying about how your insurance coverage might affect your settlement shouldn't add to the burden. While insurance payments can play a role in your final payout, whether through offsets or subrogation, they don’t automatically wipe out your right to compensation.

The key is having a legal team who knows the rules in your state, understands how to negotiate with insurers, and is committed to fighting for every dollar you deserve.

At Morgan & Morgan, we’ve recovered billions for injury victims nationwide. If you have questions about how insurance might affect your settlement or if you just want someone to review your case, we’re here for you.

Contact us today for a free case evaluation.