Structured Settlements: Policy Limits

Structured Settlements: Policy Limits

Fifth in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment: Policy Limits

May 17, 2019 – People and businesses buy liability insurance to protect against personal or corporate financial loss when lawsuits are brought against them.

Resolving lawsuits can be problematic enough under the best of circumstances. But when accidents are severe enough and/or the liability limits too low to adequately compensate the plaintiff for their loss, the challenge is magnified.

Structured settlements can play a vital role in those situations where the accepted value of the case exceeds the policy limits.

Enhanced Value at No Additional Cost

For starters, structured settlements increase the overall value of a personal injury settlement at no additional cost by increasing the total payout on a tax-advantaged basis.

Structured settlement payments flow tax-free to the plaintiff if damages are on account of personal, physical injury or sickness and tax-deferred if the alleged injuries are non-physical in nature.

Lawsuits anticipating recovery for future wage loss, future medical care or future pain and suffering are ideal candidates for structured settlements. By tying the demand to the payout in future terms instead of its present value, payments made over time better address the plaintiff’s concerns.

Insured Protection

Insurance which exists to compensate victims for covered losses can prove inadequate once the limits are exhausted. Absent a sufficient umbrella policy, an insured’s personal or business assets often become exposed.

It’s conceivable that a policy limits case can be structured in such a way that attorney fees, liens and the plaintiff’s immediate cash needs are met up front, with the remainder paid out over time on a tax-advantaged basis.

Example: A $1,000,000 policy limits case might be structured with $500,000 paid up front while the other $500,000 is used to generate $1,000,000 over time. In this instance, the $1,000,000 limits case becomes a settlement worth $1,500,000 with added tax benefits.

As a practical matter, most litigants aren’t eager to force the defendant to contribute personally to the settlement (though there are definitely notable exceptions) if only because of the additional layers of difficulty involved. The defendant may have to sell property or could even file for bankruptcy to avoid responsibility which increases the risk a plaintiff assumes when pursuing compensation exceeding policy limits.

For the insurer, protecting their policyholder is high on the list of duties owed when evaluating the claim value.

Caveat: Defendants need to respond to policy limits demands very carefully. In some states, a response to a policy limits demand which could be interpreted as a counteroffer can uncap the policy forcing the defense carrier to pay beyond its policy limit.

If the defense wishes to make a structured settlement available in response to an otherwise acceptable policy limits demand (i.e. say the demand is for the $100,000 policy limit when the obvious damage exceeds ten times that amount), it should be clearly indicated that the policy limit demand is accepted.

Good Faith

Sometimes the plaintiff files an uninsured or underinsured motorist claim against their own insurance company. In these situations when the policy limits are going to be paid, it’s simply good business to make a structured settlement option available. It allows the plaintiff (who is also the carrier’s insured) to take advantage of one of the best settlement options available.

Insurance carriers who make them available to their customers can receive “free PR” for their efforts when their policyholders are made aware of the many positive attributes structured settlement contain.

Satisfied clients talk. As do unhappy ones. Passing along an opportunity to gain something of greater value when they are under no legal obligation to do so speaks volumes about the company providing the insurance and the attorney representing the plaintiff.

More Money This Way

Structured settlements allow litigants to resolve their differences within insurance policy limits while providing enhanced value which exceeds those limits.

Plaintiffs whose immediate needs are too great may not be able to take advantage of this opportunity. But for those whose complaint includes future needs, a structured settlement is always going to be a smart choice.

No reason to deny someone such an excellent opportunity whenever a policy limit claim is being negotiated.

Structured Settlements: Post-Verdict Negotiations

Fourth in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment: Post-Verdict Negotiations

May 15, 2019 When personal injury lawsuits are adjudicated, it’s a safe bet that one side or the other will be displeased with the end result. Usually it’s just a matter of degrees of disappointment.

Once the jury renders its decision – whether a defense verdict, one of the “runaway” variety in favor of the plaintiff, or somewhere in between – litigation participants have few choices about what happens next regardless of which side of the v. they stand.

They can accept the verdict, appeal it, or seek to compromise the decision.

In all but a few rare instances, a structured settlement can be a powerful, if underused, tool at this phase. Yet surprisingly, many claims professionals and attorneys (plaintiff and defense) alike incorrectly assume that a structured settlement is not possible once a verdict is rendered.

While it is true that a final judgment with no appealable issues triggers constructive receipt and therefore cannot be structured, in most cases structured settlements are not only possible but quite useful following a trial.

Constructive Receipt

One of the keys to whether or not an individual has forfeited the opportunity to structure a settlement or verdict lies within the doctrine of constructive receipt.

26 CFR § 1.451-2 outlines the rules and requirements for constructive receipt. Tax triggers occur whenever a taxpayer has an unfettered right to funds. A taxpayer need not be in actual possession of funds in order for them to owe taxes on money that is otherwise taxable (or, to remain eligible for a structured settlement where tax-free funds are being paid). They merely need to be able to access them if they wanted.

The “substantial limitation” of an unsettled lawsuit under appeal consideration with no settlement documents yet executed opens the door for structured settlement consideration.

Risk Mitigation

For the same reason structured settlements are useful in pre-trial settlement negotiations, they can also be helpful once a verdict is reached regardless of which side the verdict favors.

Because either party will usually be in a position to consider their appeal options post-verdict, any tool that can help them avoid the additional time, expense and risk associated with another trial will be welcome.

A structured settlement can help increase the overall value of the verdict at no additional cost to either party. This can be welcome news for plaintiffs who feel the jurors misjudged their case and awarded too little.

For the defense, it may allow them to resolve a claim for its verdict value by guaranteeing more total dollars to the plaintiff (albeit over time) thereby lessening their motivation to appeal.

Punitive Damages

When they appear in a verdict sheet, punitive damages offer a unique opportunity for structured settlement usage.

Because they are fully taxable, punitive damages paid as a single lump sum can significantly dilute the overall net value of any verdict for the plaintiff.

But by utilizing a nonphysical injury structured settlement and spreading damages (and the accompanying tax liability) out over time, it is entirely possible for the defense to pay less than the verdict while increasing the amount of money the plaintiff puts in their pocket due to the reduction in taxes owed.

NOTE: This topic will be covered in greater detail in a future blog post.

Pre-or-post-verdict, a structured settlement is one of the best tools litigants have to increase the overall value of whatever money is in play. When verdicts are the result of a personal, physical injury, structured settlements can enhance the overall value of the outcome at no additional cost for either party and should be explored.

Photo by Tim Gouw on Unsplash

Structured Settlements: Catastrophic Injuries

Third in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered

Today’s Installment: Catastrophic Injuries

May 10, 2019 – While structured settlements are useful in resolving a wide variety of liability disputes, those involving catastrophic injuries are especially well-suited to this method of claims resolution.

When an accident leaves a person tragically impaired requiring health care and living assistance extending well into the future, there are several reasons a structured settlement should always be the first choice when negotiating and finalizing these lawsuits or claims.

Reason 1: Certainty

Unlike cash settlement funds invested in the stock market which may rise and fall with market conditions and can even lose value, structured settlement payments are fully guaranteed ensuring funds will be there when needed.

Tax-free with no management fees or expenses, structured settlements enhance the value of these types of settlements by matching future needs with future dollars, often crafted to track with a professionally prepared life care plan.

Sure, market investing can also increase the value of a settlement, but increased returns are only possible by assuming more risk. And a positive outcome is far from guaranteed.

“Risk cannot be a factor in my son’s recovery.”

Roger Greene, on why he chose a structured settlement for his son, Kyle, who suffered a spinal cord injury in a motor vehicle accident.

Creating a series of guaranteed cash flows to meet costs of known and anticipated future care allows the injured party and their family to focus on the patient’s recovery.

Backed by some of the world’s largest and most solvent life insurance companies in a highly regulated industry, structured settlements eliminate the risk of running out of funds for needed medical and attendant care.

Reason 2: The Rated Age Pricing Advantage

Because some accidents leave the survivor with injuries severe enough to compromise their normal life expectancy, life companies offering structured settlements are often able to offer improved pricing on lifetime payments.

By insuring large pools of individual policyholders, life companies can better manage longevity risk than an individual can on their own. Some in the pool will live longer than expected while some will die sooner. But because the life companies have so many individuals under contract, mortality risk for any individual is shared by members of the pool.

This pricing advantage can increase the rate of return on lifetime monthly payout for any given funding sum at no additional cost. Monthly benefits can increase by 5% to 20% or more depending on the medical records reviewed.

Among the types of injuries eligible for rated age consideration: Spinal cord injuries, traumatic brain injuries, burns, lacerated organs, heart conditions, and other conditions even if unrelated to the accident such as hypertension, obesity, drug or alcohol dependency, etc.

Reason 3: Lifetime Security

When injuries require care for a lifetime, safeguarding settlement funds for as long as the individual lives becomes a paramount concern.

A life annuity structured settlement option can match future needs with future dollars safely and more effectively than any alternative investment strategy.

And it’s also a bargain! Compared to other options, especially when combined with their tax-free nature and fixed payout, nothing compares to a structured settlement.

“To achieve a similar riskless guarantee of income throughout one’s uncertain lifetime without life annuities would cost between 25% and 40% more.”

Rational Decumulation, David F. Babbel, Craig B. Merrill

Those with debilitating injuries often require care beyond the lives of their primary care givers. A structured settlement can establish a pattern of predictable funds to meet future life care needs.

When safety, security, superior comparative returns, and guaranteed lifetime income are goals, a structured settlement should always be a primary consideration for those involved in catastrophic injury lawsuits and claims.

For further information, be sure to check out this brochure from the National Structured Settlements Trade Association (NSSTA.com):

Structured Settlements: The Key to a Successful Financial Strategy

Photo by JAFAR AHMED on Unsplash

Structured Settlements: Fatalities

Second in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered

Today’s Installment: Fatalities

May 7, 2019 – “Death is a crisis that all families encounter, and it is recognized as the most stressful life event families face . . .”

The preceding quote was excerpted from Chapter 4, “Death, Dying, and Grief in Families” (Murray, Toth & Clinkenbeard, 2005), of Families & Change: Coping with Stressful Events and Transitions, a best-selling text of compilation scholarly research on a topic most of us would sooner avoid.

No death can be minimized, but the unexpected, sudden death of a loved one leaves families feeling especially violated as they struggle for comfort that is too slow in arriving and acceptance of a new reality they never asked for.

The ensuing grief takes a significant emotional toll on psyches and many families fracture to the point of permanent dysfunction as a result.

When survivors file insurance claims and wrongful death lawsuits due to negligence alleged to have caused a fatality, they experience a new set of stressors inherent in the litigation process which can prolong their suffering and worsen their already-fragile sense of being.

And that’s just the emotional toll.

Why Structured Settlements for Fatalities?

When the decedent was the family’s contributory wage earner, the loss of their steady income adds yet another layer of vexing complexity to the survivor responsible for keeping the family together.

Life insurance will help, but the ongoing cost of raising a family, particularly when young children are left behind, can remain long after life insurance proceeds are spent.

Few cases cry out for structured settlements as loudly as those involving fatalities. Especially when a principal wage earner leaves small children behind.

Because a structured settlement can be crafted to replicate lost future income, structuring that portion of the claim serves the family better than a single lump sum of cash ever could. It stabilizes their financial situation and eliminates daunting decision making.

In fact, an argument can be made that attorneys and claims associates do the family a grave disservice when they don’t structure the settlement. Given the unpredictability of the stock market and most people’s inexperience in managing large sums of money effectively, a lump sum simply fails to adequately meet the needs of the family over time.

Structured settlements offer secure, guaranteed, tax-free future income at rates superior to anything else of commensurate risk.

No other investment strategy can legitimately make a similar claim.

In Addition to Wage Loss

Structuring the decedent’s wage loss to help ease the financial stress for surviving family members should be considered the minimum “do the right thing” moment when resolving a wrongful death claim.

And because, unlike wages, structured settlement benefits flow 100% income tax-free for wrongful death claims, net income can be replaced for less money than would be possible absent the structured settlement.

In addition to lost wages through the date of retirement, the decedent likely would have still been earning pension credits or contributing to Social Security and/or a defined benefit retirement plan. For this reason, many structured settlement plans include spousal income for life to help make up the shortfall.

Also, reserving some general damage funds for the kids’ college education is often a sensible component of any litigation outcome. Especially if the case requires court approval, attorneys will find that structured settlements make for a better end result on minors’ cases and help ensure a smooth court approval process. (See Structured Settlements; Minors)

Idea: When a child is lost, we’ve even seen families structure annual scholarship funds as a way to help keep their offspring’s memory alive.

An annual contribution to MADD, the high school wrestling team or charity of the family’s choice ensures a continuing legacy versus a single lump sum which can be forgotten after a one-time donation is made. 

Predator protection

Another advantage of structuring wrongful death claims is the protection it affords the surviving spouse and children.

Some widows/widowers inadvisably jump into new marriages before they are emotionally ready. Some become easy targets for “Dirty Johns” who troll the obituaries looking for vulnerable prey and newfound benefactors.

Structured settlement contracts established prior to the new marriage remain premarital property generally exempt from divorce settlement consideration should the new marriage eventually sour.

While it’s true cash personal injury settlements would also be considered premarital property, it’s much easier to lose track of those assets if commingled with other funds or purchases.

Conclusion

Sudden death is hard enough to deal with emotionally without added financial stress. Structured settlements can’t bring a loved one back to life. But they can help ensure the financial aspects of dealing with grief are eased and should be strongly considered on wrongful death claims.

Recommended reading and additional resource:

“Surviving Sudden Loss: Stories from those who have lived it”

Collected personal accounts of people who have lost loved ones unexpectedly through air disasters, 9/11, SIDS, and auto and construction accidents. Written by friend of our firm, Heidi Snow, whose fiancé died in the TWA Flight 800 crash off Long Island in 1996 and whose grief mentoring nonprofit helps those who are left behind in the wake of air disasters.

Photo by dylan nolte on Unsplash