In 1993, a personal injury case was resolved that stemmed from a car-school bus crash in which more than 30 people filed claims against the school bus driver and her insurance company for negligence resulting in an automobile accident. The plaintiff received the financial award in a structured settlement.

A Personal Injury Case

While operating a school bus for Charles City County, the defendant ran a stop sign and struck the plaintiff’s vehicle. Defendant claimed that the sun prevented her from seeing the stop sign. Defendant had identified and retained a meteorologist to testify in support of this claim at trial. Defendant did not admit liability.

Plaintiff sustained a number of serious injuries as a result of this crash:

• Injury to her colon, jejunum and kidneys. These injuries required urgent surgical repairs, including a reversible colostomy. The colostomy was reversed in a later surgery.
• A non-displaced fracture of the vertebra at C2, which necessitated spending three months wearing an inflexible cervical collar.
• Fractures of the left first rib, the right third, fourth, sixth and seventh ribs.
• Fracture of the right wrist. This fracture required extensive recovery and repair. The wrist was initially placed in a cast and external fixation. After these injuries healed, it was necessary to perform surgery by opening the wrist and including placement of internal fixation. A second surgical procedure was needed to stabilize and repair the wrist. This extensive procedure (4 hours long) was performed using only local anesthetic because the cervical fracture prohibited general anesthesia.

During her recovery, plaintiff required the sue of wrist splints and extensive physical therapy. By the time of the settlement of this matter plaintiff had returned to her secretarial work and to her normal life activities. Yet plaintiff remained at risk of developing traumatic arthritis in the wrist and the formation of abdominal adhesions.

Calculated damages from the crash were calculated at $65,918 for medical bills, $17,492 for lost wages, and future medical expenses estimated to cost $10,000.

Plaintiff accepted a structured settlement as follows:

• $350,000 cash
• Future payments of $1,000 per month for life and guaranteed for 30 years
• Five periodic payments amounting to $140,000

The settlement had a guaranteed payout of $850,000 and was expected to pay the plaintiff $935,000 over her life expectancy. Note: $850,000 in 1993 dollars is the equivalent of $1,446,210.01 in 2017 dollars.

Structured Settlements

Financial settlements from personal injury cases can be paid either in a single lump sum or in a “structured settlement.” A structured settlement pays the amount of the settlement with periodic payments on an established schedule.

Because the terms of a structured settlement are fully negotiable, each structured settlement may be different from others. Some of these plans pay an initial lump sum and regular equal payments. Some are like the structure in this case, in which there is a combination of lump sum payments and regular equal payments. Sometimes the lump sum payments are scheduled according to future needs. For example, these payments may be scheduled to coincide with one’s retirement, or with a child entering college, or to be available at the time one anticipates that a child might be getting married, or even to be available to help a child start a business.

Every plaintiff awarded a settlement in a civil case has different needs and goals compared to others. For this reason, it is unwise to make blanket assumptions and generalizations about the type of settlement payment schedule that is best for any individual.

            Advantages

Structured settlements offer a number of advantages over lump sum payments for some plaintiffs. These include:

• A structured settlement may provide some tax benefits. In general, settlements from a personal injury legal action are not taxable. There are some exceptions, however. Any part of the settlement that is identified as “punitive damages” is taxable. In addition, any “interest” that is earned on the settlement is also taxable. For this reason, you will want to choose between a lump sum payment and a structured settlement with an eye to the effect of your choice on your tax liabilities during the payment period. This decision should be carefully considered in the light of the advice of your attorney and your accountant and/or financial planner.
• A structured settlement assures the plaintiff of a steady and reliable income throughout the terms stated in the settlement. This may be desirable for a plaintiff whose source of income has been cut off or reduced.
• On the other hand, any lump sum settlement amount can be readily converted to an annuity fund that will pay an established amount each year. With the structured settlement, the term of the payments may be established based on a percentage of the total amount of the settlement. Converting the lump sum settlement to an annuity may (or may not) allow you to extend smaller payments over a longer period of time. Further, a good financial planner can help you create a distribution schedule that will provide additional funds timed to coincide with future events.
• Your choice of a structured settlement may result in the insurance company required to pay the settlement placing the funds in an annuity that will be managed by an insurance company or bank. In most states, these funds are protected by state insurance laws if the bank or insurance company should become insolvent.
• As noted above, a structured settlement can be created that will pay part of the funds in a lump sum to pay treatment bills or other debts. The remainder can then be placed into an annuity.
• Some of the settlement amount can be set aside for future medical costs in the event that future advances offer a way to improve the condition of the plaintiff and her/his quality of life. Although this can be accomplished with a lump sum distribution, as well, by setting aside the funds.
• Sometimes a structured settlement offers incentives in negotiating the amount of the settlement.
• Structured payments of protected funds may be desirable to some plaintiffs who have no experience managing large sums of money.

     Disadvantages

There are also some potential drawbacks of structured settlements.

• A structured settlement can be a disadvantage in terms of tax liability when some parts of the settlement are taxable by either the Federal or State tax laws.
• In a time of rapid inflation or of economic uncertainties of any kind, the plaintiff may be concerned about how these changes will affect both the total fund available and the amount of the regular payments (making them inadequate).
• A structured settlement may apply a smaller (or greater) cost to the insurance company paying the settlement. It will be important that your attorney have this information when negotiating the settlement.
• Some plaintiffs have discovered that a structured settlement denies them access to the money if it should be needed for an unexpected emergency.

Conclusion

The case above offers an example of how structured settlements can be designed to anticipate and provide for future needs as well as providing regular and reliable payments of a fixed amount. The structured settlement in this case incorporated immediate needs, an ongoing regular and reliable income, and additional lump sums later in the payment schedule to allow for future needs.

Your attorney should understand your needs and your fears about access to these funds before negotiating a settlement in your personal injury case. A structured settlement may be the best option for you, but it may not be the best option for someone else. Part of your attorney’s job is to protect you at the time of settlement and in the future. Negotiating an appropriate settlement amount is the first step in reaching a settlement. The second step is for your attorney to ensure that the money will be protected so that it is available to meet your needs.

At Altizer Law, P.C., Bettina and her team understand the importance of negotiating for payment terms that are best for each client. We have been trusted to protect our clients and their financial needs for more than 25 years. Call us when you need an attorney to protect you and your interests at every step.