The Abrogation of the Collateral Source Rule in Arkansas
By Julia Capella
Disclaimer: The views expressed in this post are those of the author and do not necessarily reflect the views of the Journal, the William H. Bowen School of Law, or UA Little Rock.
In the last year, the Arkansas legislature enacted Act 28 that significantly alters the operation of the collateral source rule in personal injury litigation. Act 28, signed into law on February 11, 2025, permits defendants to introduce evidence of payments plaintiffs have received from insurance or other collateral sources and authorizes courts to reduce damage awards accordingly. H.B. 1204, 95th Gen. Assemb., Reg. Sess. (Ark. 2025). Codified at Ark. Code Ann. § 16-64-120, the statute limits past medical expenses to “those costs actually paid by or on behalf of the plaintiff or that remain unpaid and for which the plaintiff or any third party is legally responsible.” This statutory change represents a significant departure from long-standing tort principles that historically required defendants to bear full responsibility for the harm they caused, regardless of a plaintiff’s independent sources of compensation. See Jerry Cox, Why Family Council Opposes H.B. 1204, the Bill Limiting Recovery of Damages for Injuries, Family Council (February 5, 2025), https://familycouncil.org/?p=30440; [no author], Arkansas Law Curtails Collateral Source Rule, Legal Update, MGC Law: Legal Update & Insights (August 13, 2025), https://www.mgclaw.com/news/legal-update-arkansas-law-curtails-collateral-source-rule. This change is not confined to Arkansas, but is part of a broader national effort to curb the recovery of “phantom damages,” amounts billed for medical services that exceed what providers ultimately accept as full payment, through ongoing tort reform across the United States. See American Tort Reform Association, Collateral Source, ATRA, https://atra.org/issue/collateral-source/ (last visited Mar. 19, 2026); Lara Farrar, House advances tort reform bill that would impact medical payouts in personal injury cases, Arkansas Times (Jan. 29, 2025).
By limiting the rule’s application, Arkansas has reallocated financial responsibility among plaintiffs, defendants, and insurers, raising questions about fairness, deterrence, and the compensatory purpose of tort law. Although Act 28 reflects a broader tort-reform movement designed to reduce liability exposure, it also marks a substantial shift in how personal injury claims will be valued and litigated within the state.
The collateral source rule originates from common law and first appeared in the U.S. Supreme Court case Monticello v. Mollison, where the Supreme Court held that a defendant should not benefit from the plaintiff’s foresight in obtaining insurance. 58 U.S. 152, 15 L. Ed. 68 (1854). At its core, the collateral source rule embodies a normative judgment about responsibility: when a defendant causes harm, the defendant, not the injured party and not a third-party insurer, should bear the financial consequences of that harm. See Cox, supra.
This rule has long been recognized as a foundational doctrine of American tort law. The rule rests on two primary rationales. First, it ensures that defendants are held fully accountable for the harm they cause, rather than receiving a windfall because the plaintiff planned ahead or was otherwise fortunate. See Cox, supra; [no author], New Arkansas Law Limits Medical Expense Compensation: What Injury Victims Need to Know, Little Rock Injury Blog, Reed Firm (October 13, 2025), https://reedfirm.com/new-arkansas-law-limits-medical-expense-compensation-what-injury-victims-need-to-know/. Second, it reinforces deterrence by requiring tortfeasors to internalize the full cost of their misconduct. New Arkansas Law Limits Medical Expense Compensation: What Injury Victims Need to Know, supra. Opponents of Act 28 heavily relied on these principles, arguing that limiting recovery undermines the traditional notion that injured parties should be “made whole.” Cox, supra; Chad Gallagher, Chad Gallagher: Against HB 1204, Talk Business & Politics (February 2, 2025), https://talkbusiness.net/2025/02/chad-gallagher-against-hb-1204/.
Under the traditional collateral source rule, evidence of collateral payments is inadmissible, and damages are calculated based on the reasonable value of the medical services or losses incurred. For example, if a hospital bills $100,000 for treatment following an accident, a plaintiff may recover the reasonable value of medical care, even if an insurer ultimately negotiates the bill down to $50,000. The defendant remains liable for the full harm caused, and the benefit of the reduced payment occurs to the plaintiff rather than the tortfeasor.
Ark. Code Ann. § 16-64-120 significantly narrows the collateral source rule’s application in Arkansas. The statute limits recovery of past medical expenses in personal injury actions to amounts actually paid or owed, rather than amounts billed. Ark. Code Ann. § 16-64-120. The statute expressly allows defendants to introduce evidence of collateral source payments, and authorizes courts to reduce damage awards by sums already compensated through insurance or other sources. Arkansas Law Curtails Collateral Source Rule, supra.
Proponents of the legislation argue that it aligns damage awards more closely with economic reality. They contend that allowing recovery of billed but unpaid medical expenses creates a windfall to the plaintiff, placing them in a better position than if the injury had not occurred, and thereby undermines the rightful position principle. See Farrar, supra. According to supporters, allowing plaintiffs to recover billed but unpaid medical expenses artificially inflates verdicts and imposes unfair costs on defendants and insurers. Arkansas Law Curtails Collateral Source Rule, supra.
Critics, in contrast, contend that the statute disproportionately harms insured plaintiffs and shifts the financial benefit of negotiated insurance rates from injured parties to defendants. For instance, if a hospital bills $100,000 but accepts $50,000 from an insurer as full payment, the plaintiff may now recover only $50,000, despite having paid insurance premiums to secure that coverage. See Cox, supra; New Arkansas Law Limits Medical Expense Compensation: What Injury Victims Need to Know, supra.
Additionally, opponents argue that the law effectively subsidizes negligent defendants and insurance companies at the expense of injured individuals. Gallagher, supra. By reducing defendants’ financial exposure based on collateral payments, the law shifts a portion of the cost of injury away from negligent actors and onto plaintiffs and their insurers. See [no author], Arkansas HB 1204: What the New ‘Collateral Source’ Law Means for Your Injury Claim, Shamieh Law (last visited March 10, 2026), https://shamiehlaw.com/faqs/arkansas-hb-1204-what-the-new-collateral-source-law-means-for-your-injury-claim/ . This shift raises concerns about whether the new regime undermines the compensatory and deterrent goals of tort law, particularly in cases involving serious injuries and substantial medical treatment.
In addition to its impact on damages, the admission of collateral source evidence, often beginning in discovery, now increasingly sought by defendants in discovery pursuant to Act 28, raises concerns about jury bias and trial fairness. Allowing jurors to hear evidence of insurance payments may influence their perceptions of a plaintiff’s need for compensation or a defendant’s culpability, even if the courts attempt to limit the evidence’s use. Farrar, supra. Jurors may conclude that the plaintiff has already been “made whole,” reducing their willingness to award full damages, or the harm may feel less concrete, which could subconsciously lessen the perceived need to hold the defendant fully accountable. See New Arkansas Law Limits Medical Expense Compensation: What Injury Victims Need to Know, supra. This represents a significant shift from the evidentiary protections embedded in the collateral source rule by permitting the introduction of collateral source evidence that was traditionally excluded, thereby allowing jurors to consider third-party payments when assessing damages.
For generations, the collateral source rule operated as a cornerstone of tort law, reflecting the principle that defendants should bear the full responsibility for the harm they cause. Arkansas’s 2025 legislation marks a clear move away from that tradition by limiting recoverable medical damages and permitting reductions based on collateral source payments. Whether this reform meaningfully enhances fairness or instead undermines plaintiff compensation and deterrence remains the subject of ongoing debate. What is clear, however, is that Act 28 significantly alters the balance between plaintiffs’ rights and defendants’ liabilities in Arkansas personal injury litigation.