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California has held that the rule applies to governmental entities as well as to all other tortfeasors. (Muskopf v. Corning Hospital Dist. (1961) 55 Cal.2d 211, 221 [11 Cal.Rptr. 89, 359 P.2d 457].) 


The court held in Johnson v. State of California (1968) 69 Cal.2d 782, 791-792 [73 Cal.Rptr. 240, 447 P.2d 352], that a public entity must, under Government Code sections 825 to 825.6, indemnify and defend its employees against civil liability, except in cases of conduct outside the scope of employment or acts performed with actual fraud, corruption, or malice. 


If the court were to conclude that the collateral source rule cannot apply to public entities, the court would be forced to reach one of three equally implausible results: (1) Since the public entity is immune from the rule and enjoys a deduction in damages, but the driver possesses no such immunity, the driver must bear the cost of the extra damages equivalent to the collateral source increment, despite our rule in Johnson. (2) Since the public entity is immune from the rule and enjoys a deduction in damages, the driver would initially bear the cost of the extra damages equivalent ...

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