Virginia Supreme Court: Collateral Source Rule Can Apply To Contract Cases

In Dominion Resources, Inc. v. Alstom Power, Inc., the U.S. District Court for the District of Connecticut certified the following question to the Virginia Supreme Court: “Does Virginia law apply the collateral source rule to a breach of contract action where the plaintiff has been reimbursed by an insurer for the full amount it seeks in damages from the defendant?” The underlying case involved a boiler accident at a power facility that injured or killed several workers, who then sued Dominion. The boiler was operated under a contract between Dominion and Alstom. Dominion settled those claims, and was reimbursed from Alstom’s insurers as well as Dominion’s own insurer. Per the contract, the insurers of Dominion and Alstom agreed not to sue each other. So Dominion sued Alstom to recover the monies paid by Dominion’s insurer, with the idea that it could reimburse the insurer and “improve its loss history . . . and reduce its premiums for future insurance policies.” Alston argued that the suit was barred as double recovery, and the collateral source rule did not apply in contract actions. The Court, in a unanimous opinion by Justice Mims, held that the rationales supporting the use of the collateral source rule in tort actions equally supported its use in contract actions, but that courts had to determine on a case-by-case basis whether the parties’ expectations, in light of those rationales, supported the rule’s application in a given case. The majority approvingly cited to a 2004 decision from the Court of Appeals of Arizona, which applied the collateral source rule in the contract context, noting that its reasoning echoed the principles of the rule’s application to tort as held in Virginia back in 1877. The Court further stated that while collateral recovery would potentially permit double recovery to a plaintiff like Dominion, that was preferable to a defendant being able to escape full liability for the damages from its breach. A link to the opinion is here.