The South Carolina Supreme Court on Single Party Collateral Source Payments

The South Carolina Supreme Court, released an opinion on March 19, 2025, clarifying what types of payments are, and are not, considered collateral sources. In Gipson v. Coffey & McKenzie, P.A., Op. No. 28270 (March 19, 2025), the Court held that a defendant is entitled to an offset credit for payments they have already made to a plaintiff for damages.

In this case, Gipson sold a piece of real estate and hired the law firm Coffey & McKenzie to handle the closing. The sale generated $10,036 in proceeds for Gipson. After the sale, a hacker accessed Gipson’s email account and, using an email address nearly identical to Gipson’s, sent fraudulent wiring instructions to Coffey & McKenzie, instructing the firm to transfer the proceeds to a bank account in California. Coffey & McKenzie discovered the fraud but was only able to recover $1,516.89 from the hacker’s bank account – the recouped money was returned to Gipson.

Gipson sued the law firm for negligence, seeking to recover the lost proceeds. A jury awarded him the entire $10,036. After the verdict, the law firm moved to have the $1,516.89 recovered and returned to Gipson credited against the judgment. The trial court denied the motion; the appellate court affirmed.

“The question in this case is, when the wrongdoer returns some of the money to the wronged party, may the wronged party still seek to recover the entire amount as damages from the wrongdoer?” The South Carolina Supreme Court held that they may not.

In South Carolina, a wrongdoer is obligated to make an injured party whole, whatever that amount is. The collateral source rule operates to prevent the wrongdoer from pointing to payments made to the injured party, independent of the wrongdoer, and arguing that they are entitled to a credit for those payments. The policy behind this rule is that a wrongdoer shouldn’t benefit from the injured party’s contracts or from the generosity of others who might help them. Classic examples include insurance payouts, employment benefits, charitable donations, or government assistance. Notably, these sources are unconnected to the wrongdoer.

The Court, here, disagreed that Coffey & McKenzie’s payment to Gipson was collateral for two key reasons. First, by not granting Coffey & McKenzie the credit, the trial judge was effectively allowing Gipson to double recover for his injuries. The purpose of damages in negligence cases is to make the plaintiff whole – to put them in the position they would have been in had the incident not occurred. By denying Coffey & McKenzie’s motion to offset, the trial court effectively granted Gipson a windfall.

Second, the funds were returned by Coffey & McKenzie itself – the very party alleged to be the wrongdoer. A payment made by the wrongdoer directly to the injured party can never be considered “collateral.” The law firm wasn’t taking advantage of any third-party payments to Gipson. Alternatively, even if one viewed the source of the funds as the hacker’s bank account, the hacker would be considered a joint tortfeasor in this scenario. Payments from joint tortfeasors also fall outside the collateral source rule.

This ruling provides important clarification on South Carolina’s application of the collateral source rule for first-party payors. For defendants, this case serves as a reminder to analyze the source of any payments received by a plaintiff before trial. If the payment came from the defendant, this case states that the defendant must be credited those amounts toward any judgment to prevent the plaintiff from double recovering. This case also highlights the importance of cybersecurity for law firms and other businesses handling client funds – failing to properly detect fraud may result in liability for any of the client’s money lost in the cyberattack.