Nevada’s collateral source rule keeps a defendant from reducing what they owe you by pointing to insurance payments or other benefits you received from an outside source. In a personal injury case, the jury calculates your damages based on the full harm you suffered, and the defendant cannot tell them that your health insurer already paid part of your bills, that Social Security covered some of your lost income, or that a relative provided care for free. The Nevada Supreme Court set this out in Proctor v. Castelletti, holding that collateral source evidence is inadmissible “for any purpose.”1Justia Law. Proctor v. Castelletti
The rule has two sides. As a damages principle, it tells the jury to award the full value of your losses without deducting outside payments. As an evidence rule, it keeps those payments out of the courtroom entirely, because juries that hear about insurance tend to lower awards. Nevada treats the exclusion as per se: the defendant cannot bring the information in, and no balancing test lets a judge admit it in an ordinary personal injury trial.1Justia Law. Proctor v. Castelletti
What Counts as a Collateral Source
A collateral source is any payment or benefit that comes from someone independent of the defendant. The common ones in Nevada cases are:
- Private health insurance payments toward your medical bills.
- Government benefits, including Social Security disability, Medicare, and Medicaid.
- Workers’ compensation benefits paid through your employer’s coverage.
- Disability and accident insurance you purchased on your own.
- Gratuitous care, such as nursing, transportation, or household help a family member provided at no charge. The defendant still owes the market value of that help.
The test is independence. If the benefit came from a source unconnected to the person who caused your injuries, it qualifies, and the defendant cannot use it to shrink what they owe.
Medical Billing Write-Downs
The rule has its biggest dollar impact on the gap between what a provider bills and what an insurer actually pays. A hospital might bill $100,000 for treatment while accepting $40,000 from your insurer as full payment. That $60,000 write-down is a collateral source benefit under Nevada law, and you can present the full billed amount to the jury.
In Khoury v. Seastrand, the Nevada Supreme Court held that evidence of medical provider discounts and write-downs is “irrelevant to a jury’s determination of the reasonable value of the medical services and will likely lead to jury confusion.”2FindLaw. Khoury v. Seastrand (2016) The court reinforced this in McConnell v. Red Lion Hotels, Inc. (2023), confirming that insurance write-downs are collateral source benefits and the plaintiff is entitled to recover the full billed amount.
Defendants are not shut out entirely. They can hire billing experts to attack whether the billed amount reflects the reasonable value of the services, comparing charges against what other providers in the area charge and flagging duplicate billing or codes that overstate the complexity of a procedure. What they cannot do is show the jury the insurer’s negotiated rate and argue that number is what the treatment was really worth.
The Medical Malpractice Exception
The rule flips in professional negligence cases against healthcare providers. Under NRS 42.021, a defendant doctor, hospital, or other provider can introduce evidence of collateral benefits you received, including health insurance, Social Security, disability coverage, workers’ compensation, and any group health plan.3Nevada Legislature. Nevada Code Chapter 42 – Damages
If the defendant uses that option, you get to respond by showing the jury what you paid in premiums and contributions to earn the benefits. There is also a trade-off built into the statute: any collateral source whose benefits are introduced under NRS 42.021 loses the right to recover from you or to step into your shoes through subrogation. So a doctor who tells the jury that your health insurer paid $50,000 has just extinguished that insurer’s right to demand repayment from your settlement.3Nevada Legislature. Nevada Code Chapter 42 – Damages
What the Jury Never Hears in an Ordinary Case
Two other statutes reinforce the exclusion. NRS 48.135 keeps out evidence of whether a person carried liability insurance when the point is to prove negligence. NRS 48.115 bars evidence that someone paid or offered to pay medical expenses as proof of liability for the injury.4Nevada Legislature. Nevada Code Chapter 48 – Admissibility Generally
Together with the Proctor ban, these rules keep the whole insurance picture out of the trial. The jury evaluates the harm through the medical bills, testimony about pain and limitations, and evidence of lost income. They do not learn whether you had generous coverage or none, and they do not learn what the defendant’s liability policy will pay.
What May Still Come Out of Your Recovery
The collateral source rule protects the size of your award at trial. It does not always let you keep every dollar. After a verdict or settlement, several parties may have a legal right to be reimbursed from the proceeds.
Hospital Liens
Under NRS 108.590, a hospital that treated you for the injury has a lien on any judgment or settlement, up to the reasonable value of the care it provided. The hospital must file a notice of lien to enforce the right. The lien does not reach the attorney fees or litigation costs you incurred to obtain the recovery. If you might be eligible for Medicare, Medicaid, or another public program that could cover part of the bill, the hospital’s lien is capped at 55 percent of the charges it billed.5Nevada Legislature. Nevada Code Chapter 108 – Statutory Liens
Workers’ Compensation Offsets
When a workplace injury involves someone other than your employer, you can pursue a personal injury claim against that third party while also collecting workers’ compensation. Nevada does not let you keep both in full. Under NRS 616C.215, the workers’ comp insurer has a lien on the third-party recovery, and your total compensation entitlement is reduced by the damages you recover. You must notify the workers’ comp insurer within 15 days of receiving settlement proceeds and pay back what you owe.6Nevada Legislature. Nevada Revised Statutes 616C.215
Health Insurance Subrogation
Private health insurers often include subrogation clauses giving them a right to be reimbursed from your recovery for medical bills they paid. Nevada applies the made-whole doctrine as a default rule, meaning the insurer generally cannot collect until you have been fully compensated for your losses. That protection prevents an insurer from taking a share of a partial settlement that never covered all your damages.
Self-funded employer health plans governed by ERISA are treated differently. Federal law preempts state rules for those plans, so the made-whole doctrine and other state-law protections may not apply, and the plan’s contract language controls. Many self-funded plans pursue full reimbursement regardless of whether you were made whole. Medicare and Medicaid have their own federal reimbursement rights with serious consequences for failing to honor them. Identifying which type of plan paid your medical bills early in the case is one of the most practically important steps, because it determines how much of your award you actually keep.
Tax Treatment of What You Recover
Compensatory damages for physical injuries or physical sickness are generally excluded from federal income tax under 26 U.S.C. § 104(a)(2).7Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness The exclusion covers the full amount, including compensation for medical expenses, lost wages, and pain and suffering tied to the physical injury. If you previously deducted medical expenses related to the injury and received a tax benefit, you must include the corresponding portion of the settlement in income.8Internal Revenue Service. Settlements – Taxability
Punitive damages are always taxable, even when awarded alongside compensation for physical injuries. The IRS treats them as “other income.” Damages for emotional distress not connected to a physical injury are also taxable, except to the extent they reimburse you for medical care costs.8Internal Revenue Service. Settlements – Taxability A large settlement with a significant punitive component can create an unexpected tax bill, and how the settlement is allocated at the time of agreement can change what you owe.