## Facts

- Michael Arambula was injured in a June 1996 rear-end collision caused by Phyllis Hauser Wells, who admitted fault.
- Michael worked for a closely held family corporation in which his brother held a majority ownership interest; Michael held a minority interest.
- During Michael’s injury-related absence from work, the family corporation continued paying his regular salary ($2,800 per week).
- Michael presented no evidence of any agreement or legally enforceable obligation to reimburse the employer for the continued salary; he testified only that his brother “wished” to be repaid.
- Michael sued for negligence and sought, among other damages, about $50,000 in lost earnings; his wife Diane sought loss of consortium.
- Before trial, the court excluded lost-earnings evidence and instructed the jury not to award lost earnings because wages were paid without any repayment requirement.
- The jury awarded Michael $54,334 on his personal-injury claim and awarded Diane nothing on her consortium claim.

## Issues

1. Whether the collateral source rule applies to gratuitous wage-continuation payments made by a family-owned employer (effectively funded by relatives), permitting recovery of lost earnings from the tortfeasor despite continued salary and no repayment obligation.
2. Whether the trial court erred by excluding lost-earnings evidence and instructing the jury not to award lost earnings based on the wage payments.
3. Whether any error was prejudicial and, if so, the proper appellate disposition.

## Decision

- The Court of Appeal held the collateral source rule applies to gratuitous payments, including money paid to cover lost wages by family or friends assisting an injured person.
- The trial court erred by barring evidence of lost earnings and by instructing the jury it could not award lost earnings due to the employer’s gratuitous wage payments.
- The error was prejudicial because lost earnings were a substantial claimed element of damages.
- The judgment as to Michael was reversed and the matter remanded for a new trial limited to Michael’s damages, including lost earnings.

## Legal Principles

- Under California’s collateral source rule, a tortfeasor’s liability is not reduced because the plaintiff received compensation from a source independent of the tortfeasor.
- Gratuitous payments intended to aid an injured person— including wage-replacement payments made without an enforceable repayment obligation—are treated as collateral sources.
- Evidence and instructions that prevent a jury from awarding otherwise recoverable lost earnings, solely because a third party voluntarily continued the plaintiff’s pay, misapply the collateral source rule and constitute reversible error when prejudicial.

## Conclusion

The court ruled that voluntary wage-continuation payments made to help an injured employee, even when paid through a family-owned employer and not subject to repayment, do not offset a tortfeasor’s responsibility for lost-earnings damages; excluding such damages and instructing the jury to award none required a damages retrial.


Arambula v. Wells, 72 Cal. App. 4th 1006, 85 Cal. Rptr. 2d 584 (Ct. App. 1999)