Litigation Track
Tuesday, June 14 Rooms 316-318
Litigation Track Tuesday, June 14
Rooms 316-3318
9:10 a.m. - 10:10 a.m. Anatomy of a Hoax James Cooney, III, Womble Carlyle Sandridge & Rice, L.L.P., Charlotte, North Carolina
2:30 p.m. - 3:00 p.m. Witness Preparation Hour Alexander Wonio, Hansen McClintock & Riley, Des Moines, Iowa
3:20 p.m. - 3:50 p.m. What Every Litigator Should Know About Structured Settlements Scott Brown, Summit Structured Settlements, Waukee, Iowa Steven Lawyer, Steven Lawyer & Associates, Des Moines, Iowa Sponsored by the Iowa Association for Justice
3:50 p.m. - 4:20 p.m. Legislative Update from the Defense Perspective Scott Sundstrom, Iowa Defense Counsel Association Lobbyist, Des Moines, Iowa
4:30 p.m. - 5:00 p.m. What Grown Ups - Even Lawyers - Can Learn from the Movies We Show Our Kids Matthew Eslick, Nyemaster Goode, P.C., Des Moines, Iowa
2016 Annual Meeting Conference2016 Annual Meeting Conference2016 Annual Meeting Conference
Litigation TrackLitigation TrackLitigation Track
Rooms 316-318
TUESDAY, JUNE 14TUESDAY, JUNE 14TUESDAY, JUNE 14
Anatomy of a Hoax
9:10 a.m. - 10:10 a.m.
Presented by James Cooney, III
Womble Carlyle Sandridge & Rice, L.L.P. One Wells Fargo Center
Suite 3500, 301 South College Street Charlotte, North Carolina 28202
Anatomy of a Hoax
Detective Ben Himan
Opportunity
Twenty to Thirty Minutes
March 13-14, 2006
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
March 13-14, 2006
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
March 13-14, 2006
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
March 13-14, 2006
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
Elmostafa Picks Up
Seligmann and
Wellington
12:19a
March 13-14, 2006
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
Elmostafa Picks Up
Seligmann and
Wellington
12:19a
Seligmann Reenters
Dorm
12:46a
Seligmann at
Wachovia ATM
12:24a
March 13-14, 2006
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
Elmostafa Picks Up
Seligmann and
Wellington
12:19a
12:26aMangum
Cell
Seligmann Reenters
Dorm
12:46a
Seligmann at
Wachovia ATM
12:24a
March 13-14, 2006
12:22a
Finnerty Cell Call
12:24aFinnerty Cell Call
12:30a12:33a
Finnerty Calls
Domino’s Pizza
11:29pEvans’ Cell
12:34a -12:50
Evans’ Cell
A Picture Story
Dave Evans’ Camera
Dave Evans’ Camera
Item 14: Seized by the Durham Police Department on March 16, 2006
13 Hours Difference
Dave Evans’ Camera
Item 14: Seized by the Durham Police Department on March 16, 2006
March 14, 2006 12:02:03 AM
Kevin Coleman’s CameraMarch 16, 2006
March 13-14, 2006
11:00p 1:00a11:02p
Pictures Coleman
11:08p
11:11p11:12p
Mangum Cell
11:09p11:10p
PicturesEvans (Item 14)
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:04a
8 pictures (7 Coleman, 1
Evans)
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
12:10aColeman Picture
12:19a
Elmostafa Picks Up
Seligmann and
Wellington
12:24a
Seligmann at
Wachovia ATM
12:30a12:38a
6 pictures Coleman
12:41a
Mangum Leaves
Coleman Picture
12:46a
Seligmann Reenters
Dorm
12:55a
Roberts 911 Calll
12:26a
12:26aMangum
Cell
Trying to Change Time
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
Elmostafa Picks Up
Seligmann and
Wellington
12:19a
12:26aMangum
Cell
Seligmann Reenters
Dorm
12:46a
Seligmann at
Wachovia ATM
12:24a
March 13-14, 2006
12:22a
Finnerty Cell Call
12:24aFinnerty Cell Call
12:30a12:33a
Finnerty Calls
Domino’s Pizza
11:29pEvans’ Cell
12:34a -12:50
Evans’ Cell
11:02p11:08p
Pictures Player
PicturesEvans (Item 14)
11:09p11:10p
12:04a
8 pictures (7 Player, 1
Evans)
12:10aPlayer Picture
6 pictures P layer12:30a12:38a
Mangum Leaves Player
Picture
12:41a
December 21, 2006 Version
Mangum Arrives
Mangum Dance
Rape Begins 11:40p
Rape Ends Midnight
11:00p 1:00a
11:11p11:12p
Mangum Cell
11:22p11:24p
Mangum Cell
11:25p11:32p
Mangum Cell
Home Tele #l
11:33p11:34p
Mangum Cell
11:36p11:39p
11:50p11:52p
Seligmann Cell
Jandl Cell
Midnight
Jason Bissey
12:06a12:14a
8 Cell Calls by SeligmannCalls Cab at
12:14aElmostafa
Cell
Elmostafa Picks Up
Seligmann and
Wellington
12:19a
12:26aMangum
Cell
Seligmann Reenters
Dorm
12:46a
Seligmann at
Wachovia ATM
12:24a
March 13-14, 2006
12:53a
12:22a
Finnerty Cell Call
12:24aFinnerty Cell Call
12:30a12:33a
Finnerty Calls
Domino’s Pizza
11:29pEvans’ Cell
12:34a -12:50
Evans’ Cell
11:02p11:08p
Pictures Player
PicturesEvans (Item 14)
11:09p11:10p
12:04a
8 pictures (7 Player, 1
Evans)
12:10aPlayer Picture
6 pictures P layer12:30a12:38a
Mangum Leaves Player
Picture
12:41a
December 21, 2006 Version
Mangum Arrives
Mangum Dance
Rape Begins 11:40p
Rape Ends Midnight
Mangum Arrives per Brian Taylor
Receipt
The DNA
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1 3 4 7 16
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
16
100% Exclusion
The DNADoes Not Match Defendants, Lacrosse Team or Mangum Boyfriend
The DNASection 2 Pubic CombAt Least 2 Males
How Close Was This?
How Close Was This?
Alan Gell was Sentenced to Death in February 1997
A Single Vote
Jenkins’ Body Found
Morris and Hall Claim Jenkins is Killed If Allen Ray Jenkins Did Not Die
on April 3, 1995, Then Alan Gell Is Innocent
Jenkins’ Body Found
Morris and Hall Claim Jenkins is Killed
Sidney Jenkins sees Jenkins Alive
Willie Hoggard sees Jenkins Alive
Ricky Odom sees Jenkins Alive
Donald Hale sees Jenkins Alive
The Hunts see Jenkins Alive
The Adams see Jenkins Alive
Richard Jones sees Jenkins Alive
Danny Brogdin sees Jenkins Alive
Larry Luke sees Jenkins Alive
Benjamin Parker sees Jenkins Alive
Paula Brabble sees Jenkins Alive
Janelle Harris sees Jenkins Alive
Linwood Rawls sees Jenkins Alive
Peggy Moore sees Jenkins Alive
Addie Wilder Stops Hearing Sounds from Jenkins’ House
Robert Jerome Blowe sees Jenkins
17 Witnesses Saw Allen Ray Jenkins Alive After April 3,
1995
Open File Discovery
How Close Was This?
Alan Gell was Sentenced to Death in February 1997
A Single Vote
Observations on Crisis Management
You Will Not Always See It Coming
You May Not Even Recognize It as a Crisis (At First)
The Value of Good Information (and Who Has It)
Who You Are Does Not Change: Remember Who You Are
Always Wear Clean Underwear
Do Not Be Afraid to Say You Are Sorry
Just as, all too often,
some huge crowd is seized by a vast uprising,
the rabble runs amok, all slaves to passion,
rock, firebrands flying. Rage finds them arms
but then, if they chance to see among them,
one whose devotion and public service lend him weight,
they stand there, stock-still with their ears alert as
he rules their fervor with his words and calms their passion
Virgil “The Aeneid” I:174-81
2016 Annual Meeting Conference2016 Annual Meeting Conference2016 Annual Meeting Conference
Litigation TrackLitigation TrackLitigation Track
Rooms 316-318
TUESDAY, JUNE 14TUESDAY, JUNE 14TUESDAY, JUNE 14
What Every Litigator Should Know About Strucuted Settlments Structured Settlements 101
3:20 p.m. - 3:50 p.m.
Presented by Scott Brown
Summit Structured Settlements 755 SE Frontier Avenue, Suite 101
Waukee, IA 50262 Phone: 515-987-6888
Steven Lawyer Steven Lawyer & Associates
4944 Pleasant St West Des Moines, IA 50266
Phone: 515-282-2080
Sponsored by the Iowa Association of Justice
Structured Settlements 101
Most everyone has heard or read about former professional athletes who are penniless within a
year or two of retiring from their multi-million dollar salaries. Unfortunately, a similar situation
often befalls upon those receiving large lump sums of money in lawsuits, regardless of whether
the amount received was $100,000 or $1,100,000. Many people are simply unable to handle
large sums of money in such a way as to adequately protect their future needs.
This isn’t a new phenomenon. In 1980, the ABA Journal published a study that looked at persons
who had received lump sum payments in excess of $100,000, including recipients of personal
injury verdicts and settlements. The study revealed that after just five years, 90 percent of the test
group had nothing left of their lump sum payment. This included the personal injury settlement
recipients who no longer had the money, but still had their disabilities.
The recipient of a personal injury settlement who squanders a recovery may be unable to meet
his or her economic or medical needs, and may need to be supported by government programs
for the rest of their life. In 1983, recognizing that many plaintiffs needed to be protected from
themselves (and that taxpayers needed protection from having to support those who are likely to
squander their lawsuit recoveries), Congress passed the Periodic Payment Settlement Act in
which the federal government formally endorsed structured settlements in personal injury and
wrongful death cases, and codified the special tax treatment that encourages their use. In 1997,
the law was changed to include workers’ compensation settlements. By 2006 over $100 billion in
personal injury, wrongful death, and workers’ compensation recoveries had been placed into
structured settlements.
What is a Structured Settlement?
Structured settlements have been a useful tool in helping to resolve legal disputes for more than
three decades. Structured settlements deliver fixed streams of tax-free payments that can often
better address the needs of those bringing physical injury, wrongful death, and workers’
compensation claims, while relieving those individuals of the responsibilities and challenges of
managing large sums of money. By providing these benefits, claims often become easier to
settle, which reduces litigation costs for both sides of legal disputes.
In its simplest terms, a structured settlement is like putting the plaintiff (or workers’
compensation claimant) on an allowance. Or, perhaps more accurately it is like giving them an
allowance (that can’t be taken away from them), funded out of their lawsuit recovery, which is
earning a guaranteed rate of return, without having to incur any ongoing asset management fees,
and without having to worry about any downturns in the stock or bond markets.
In a structured settlement, the defendant or their liability insurance carrier pays funds to a life
insurance company for the purchase of a structured settlement annuity which will then produce
periodic payments made according to a predetermined payment schedule. Payments can be
scheduled at the times and amounts necessary to help with buying a house, or putting kids
through college. Others recipients prefer to receive regular monthly payments for a number of
years. Some prefer lifetime payments (that will continue being paid month after month no matter
how many years that they live past their normal life expectancy).
In order to close their books on the lawsuit and immediately deduct the entire settlement cost, the
defendant or their liability insurance carrier will almost certainly assign their duty to make
periodic payments and their ownership of the structured settlement annuity to an “assignment
company” that is affiliated with the life insurance carrier that is administering the structured
settlement.
It should be pointed out that neither the plaintiff nor the defense incurs any out-of-pocket costs
when structuring a settlement. As such, there is rarely any downside to exploring whether a
structured settlement would be helpful in resolving a legal dispute.
So, how do the life insurers and the structured settlement consultants (also known as structured
settlement brokers) get paid? At the time of settlement, the life insurer administering the
structured settlement receives the structure funding from the defendant or their liability insurer,
then immediately puts that money to work. The life insurance carrier uses that money in such a
way that it expects to earn a rate of return a little bit higher than the rate of return guaranteed to
the plaintiff (or workers’ compensation claimant) in their structured settlement. The difference in
the rates of return (that is, “the spread”) is where the life insurer earns its profit. All of the life
insurer’s expenses, including any commissions paid to structured settlement consultants working
for the plaintiff and for the defense, are also paid out of the spread.
Evolution of Structures
To better understand the structured settlement process, it can be helpful to know a little bit about
how structured settlements first came into existence and how the law that governs structured
settlements has evolved over time. 1
The first known structured settlements were used in the Thalidomide claims in the 1960s.
Expectant mothers took Thalidomide to ease the symptoms of morning sickness. Unfortunately,
Thalidomide often deformed the fetus. Consequently, various suits begged for a financial product
that would provide benefits for the lifetime of these children (70 to 80 years), who were expected
to outlive their parents.
A simple annuity contract was introduced to the process. An annuity is merely a contract issued
by a life insurance company that guarantees a certain future payout in exchange for an immediate
premium. It is also one of the few mechanisms that can guarantee a payment stream for a
lifetime.
The structured settlements set up in the Thalidomide claims established the obligation to make
the future periodic payments in the settlement agreement. The defendant/insurer then purchased
and continued to own an annuity that guaranteed the same payments required by the settlement
agreement. For convenience, the defendant/insurer instructed the annuity provider to make the
payments directly to the claimant, thus providing instant and direct payment administration of
the obligation.
There were no guidelines for structured settlements in those days. The closest arrangement to
structured settlements were deferred compensation agreements, where the benefits were tax
deferred as long as the recipient had neither actual nor constructive receipt of the funding asset.
Consequently, the Thalidomide claims were set up in a manner analogous to deferred
compensation arrangements. For this reason, everything was established by the
defendant/insurer. The claimant had no hand in setting up the arrangement except to accept the
benefits.
The parties to the Thalidomide settlements were hoping that these settlements would be treated
as tax free and not tax deferred, since at that time2 the Internal Revenue Code (I.R.C.) §104(a)(2)
excluded from income "the amount of any damages received (whether by suit or agreement) on
account of personal injuries or sickness." However, the I.R.C. was silent as to "payments over
time," which would later be called "structured settlements" or "periodic payments." The
Thalidomide litigants felt that their best chance of receiving tax free status would be to avoid
constructive or actual receipt of the annuity by the claimant.
After a few years had passed, in 1979 the IRS issued two Revenue Rulings: 79-220 and 79-313.
These rulings put forward the following requirements for a structured settlement to be tax free
under §104(a)(2):
1. The claimant is a mere recipient of the benefits.
2. The annuity is purchased at the convenience of the obligor/defendant.
3. The claimant has neither actual nor constructive receipt of the annuity or the
economic benefit of the lump sum amount that was invested to yield the future
payments (i.e., the premium).
4. The claimant does not have the right to accelerate any payment or increase or
decrease the amount of the payments.
The Revenue Rulings settled the tax issue for the claimant, but left the defendant/insurer on the
hook for the duration of the obligation as owner of the annuity. Defendant/insurers are
accustomed to a complete release once they pay their money, but this result was unattainable in
the 1970s.
The defendant/insurer’s problem was solved with the passage of the Periodic Payment
Settlement Act of 1982. First, Congress added to I.R.C. §104 (a)(2) the following italicized
words "whether by suit or agreement and whether as lump sums or as periodic payments." The
Conference Committee reports made it clear that Congress intended to codify the Revenue
Rulings, rather than change them, and reaffirmed the prohibition against actual or constructive
receipt.
Additionally, this legislation enacted a new I.R.C. §130, which paved the way for the assignment
of the periodic payment obligation to a third-party assignee, thus allowing the original
defendant/insurer to be completely released at the time of settlement. The assignee would take
over the obligation and own the annuity instead of the original defendant/insurer. An assignment
under §130 is referred to as a qualified assignment. Some of the requirements of §130 are as
follows:
1. Originally, only liability claims that qualified under §104 (a)(2) could be assigned.
This was amended in 1997 to include workers’ compensation claims under §104
(a)(1) filed after August 5, 1997.
2. The only assets that qualify to fund a qualified assignment are (a) annuity contracts,
or (b) any obligation of the United States.
3. The periodic payments must be fixed and determinable as to the amount and time of
payment.
4. Although not in the original act, §130 was amended in 1988 to allow the recipient to
be a secured creditor of the funding asset.
So, in summary, the law governing structured settlements has evolved to where:
1. Today it is clear that both lump sum recoveries and structured settlements can be tax
free where there has been a personal physical injury or physical sickness (or a
workers’ compensation injury).
2. The original structured settlement concept was borrowed from deferred compensation
agreements (which prohibited taking actual or constructive receipt of the funding
asset). Structured settlements have continued to retain the prohibition against taking
actual or constructive receipt of the funding asset. If the plaintiff (or workers’
compensation claimant) or their attorney should take actual or constructive receipt of
the recovery, a tax-free structured settlement is no longer possible.
3. So that the defendant/insurer can be released at the time of settlement and close their
books on the case at hand, the defendant/insurer will almost certainly assign their
liability to make future structured settlement payments to an assignment company
(typically an affiliate of the life insurance company providing the structured
settlement).
Qualified (and Non-Qualified) Assignments
In the vast majority of structured settlements, the defendant/insurer will enter into a qualified
assignment of the periodic payment obligation pursuant to I.R.C. §130. The assignment is
considered “qualified” because the settlement proceeds (both the money used to initially fund the
structured settlement AND the amount earned over the life of the structure) qualify to be
excluded from income taxes under paragraph (1) or (2) of I.R.C. §104.
In a qualified assignment, the defendant/insurer transfers, or “assigns,” the liability and
responsibility for making periodic payments to a third-party assignment company. The
assignment company—typically an affiliate of the life insurer providing the structured settlement
annuity—requires that the defendant/insurer pay an amount sufficient to purchase an annuity,
which funds the periodic payment obligation. Once the assignment is executed, the
defendant/insurer has no further liability to make the periodic payments. The assignment
company purchases the annuity from a life insurance company to fund its obligation to make the
periodic payments and directs the annuity issuer where to send the payments.
Structured settlements are also possible in taxable damage cases, such as discrimination lawsuits.
These are called “non-qualified” structured settlements, because the structured settlement
payments do not qualify for exclusion from taxes. Non-qualified structured settlements do
include a guaranteed rate of return and perhaps even more importantly offer the ability to defer
(and spread) the payment of taxes over a period of several years, so that those taxes can be paid
using lower tax rates. For instance, a plaintiff receiving $400,000 in a discrimination settlement,
would ordinarily be taxed on that entire amount, at the highest possible tax rate, during the year
the money was received. By structuring the settlement over 5 or 10 years, they would save a
large amount of money by being able to pay taxes on their recovery at a much lower tax rate. In
fact, the tax savings are often so large that a plaintiff’s attorney who fails to consider structuring
a taxable damage case may be carelessly costing his client tens of thousands of dollars (or more).
Structuring Contingent Fees
In addition to qualified structured settlements and non-qualified structured settlements, there is
one other common type of structured settlement. Plaintiff (and claimant’s workers’
compensation) attorneys are afforded the option to structure their contingent fees. Such attorneys
can structure their contingent fees even in cases where their clients don’t structure their
settlement.
The structured payments are not taxable to the attorney until the year in which they are received.
Contingent fee attorneys may choose to structure a large fee in order to defer taxes (perhaps until
after retirement) in order to lessen the tax bite. It should be noted that same prohibition against
taking actual or constructive receipt of the settlement funds also applies to the structuring of
attorney fees. In order to avoid having the contingent fee become taxable at the time of
settlement, the contingent fee attorney cannot take actual or constructive control of the money.
Rather, the money funding the attorney fee structure needs to be sent directly by the
defendant/insurer to the life insurance company that will be providing the attorney fee structure.
In addition to the potential tax savings, other reasons that attorneys may choose to structure their
fee might be to pay for their children’s or grandchildren’s college expenses, or to fund their
retirement. If an attorney chooses to receive lifetime payments during retirement, it is like
purchasing “longevity insurance” as the payments will continue to be made no matter how long
the attorney lives, so that the attorney cannot outlive their money.
Common Situations for Structured Settlements
For the defense, a structured settlement is a tool for helping to settle cases sooner and without the
risk and expense of going to trial. For instance, a plaintiff that might have reservations about
settling a case for $100,000, may be much more willing to settle if they can see on paper how
that $100,000 settlement can grow into guaranteed, tax-free payments totaling $200,000 over a
period of years.
For the plaintiff (or workers’ compensation claimant’s) attorney, whenever a structured
settlement might be of benefit to a client, the exploration of a structured settlement is something
that should be discussed with the client. In such instances, the attorney might even have an
ethical duty to have this discussion with their client.
What follows are several questions and answers that should run through the plaintiff (or workers’
compensation claimant’s) attorney’s mind in nearly every case. These questions address some of
the more common situations where a structuring a settlement might be particularly beneficial to a
plaintiff or workers’ compensation claimant.
Are settlement proceeds of $25,000 or more going to be paid to a minor? If so, the choice is
whether to establish and maintain an ongoing conservatorship with its attendant procedural
requirements and expenses, or to consider a structured settlement. With a structured settlement
the conservatorship can be terminated immediately after the claim is settled. Ongoing bonding
and reporting requirements and expenses can be easily avoided. As such, a structured settlement
is an option that should be considered when a minor is involved.
Is my client going to need to spend his or her entire settlement within the next 3 or 4 years? If
the answer is yes, then a structured settlement may not be appropriate. If the answer is no, then
you need to dig a bit deeper. While not an exhaustive list of considerations, several additional
questions need to be answered:
1) Does my client have the capability to both intelligently invest and responsibly manage the
settlement money he or she will be receiving? Most people are not good at managing large
amounts of money suddenly received. Many attorneys have had former clients who have
quickly blown through their settlement dollars. Studies bear out that the majority of accident
victims who receive their money in a lump sum spend every penny within a few short years.
Would the client benefit from being put an allowance? If the client has no investment
experience and isn’t sophisticated with money, a structured settlement is an option that
should be considered.
2) Is my client thinking about putting some or all of their settlement into a conservative, fixed-
income investment? Looking for financial security and peace of mind, many Americans put
some or all of their investable assets into conservative, fixed-income investments such as
bonds. Some want to avoid market risk and reduce the possibility of losing money. Others,
particularly as they age, want to make sure they have a dependable source of income locked
in before their mental faculties start to decline. The tax-free return on a structured settlement
is typically better than the return on bond portfolios. As such, if your client is thinking about,
or will benefit from, putting some or all of their settlement dollars into a conservative, fixed-
income investment, then a structured settlement is an alternative that should be considered.
3) Does my client have worries about outliving their money? Outliving your money is the
number one financial fear of many Americans—living too long and completely exhausting
one’s savings. Depending upon your client’s circumstances, it may be possible to obtain a
structured settlement that will provide them with monthly income payments for as long as
they live, even if they live past 100. If your client has worries about “living too long,” then a
structured settlement is an option that should be considered.
4) Is my client receiving government benefits that may be affected by a settlement recovery?
The last thing you want to do is to get a $100,000 settlement on behalf of your client, which
ends up costing them $100,000 worth of government benefits. Your structured settlement
consultant should be able to work with you to craft a structured settlement plan that will
greatly reduce the likelihood of losing government benefits. For example, in a workers’
compensation compromise settlement a carefully crafted structured settlement can often help
avoid social security disability offset issues.
5) Speaking of workers’ compensation. . . . Death (or remarriage) may put an abrupt end to the
weekly workers’ compensation benefit payments that are supporting a family. A structured
settlement can be a tool to ensure that payments will continue to support the family after
remarriage or death.
6) In a case where there is no physical injury, is your client going to be receiving a large,
taxable settlement? Where there is no physical injury involved, such as in a discrimination
case, large settlements can lead to large tax bills. Your clients might suddenly find
themselves in the highest possible tax bracket. By structuring taxable settlements, where the
income is received (and thus the taxes are deferred) over a period of several years, the
highest tax brackets can easily be avoided. In many instances, this could save your clients
tens of thousands of dollars.
Isn’t This Structured Settlement Thing Just Extra Work?
Do I Really Have To Discuss This With My Clients?
In the most cases where a structured settlement is being considered, both the plaintiff side and
the defense side will have their own structured settlement consultant. Regardless if you are a
plaintiff attorney or a defense attorney the job of your structured settlement consultant is to be
your partner or coach, and he or she will “hold your hand” every step of the way to make the
process as simple and seamless as possible. For instance, your structured settlement person will
provide you with the numbers and will draft the structured settlement language that will need to
be included in the release. After you have done a structured settlement or two, you will find the
process pretty straightforward.
There is a proper path that needs to be followed to put a structured settlement into place. It isn’t
terribly hard to stay on that path, but things can get complicated or difficult if an attorney has
gotten off the proper path before bringing in their structured settlement consultant. You should
be contacting your structured settlement consultant before any mediation or settlement
discussions are held.
Does a trial lawyer ever have an ethical duty to discuss the possibility of a structured settlement
with a client? Of course, both the plaintiff and defense attorneys, in working through legal
disputes, are to strive for the best possible outcome for their clients. For the plaintiff attorney in
particular, the question arises, “Does this mean that I have any sort of ethical duty to discuss
structured settlements with a client?”
The answer appears to be that such a duty exists when a structured settlement might be in the
client’s best interest. Quoting from section 2.1 of the 2002 ABA publication Ethical Guidelines
for Settlement Negotiations, “During settlement negotiations and in concluding a settlement, a
lawyer is the client’s representative and fiduciary, and should act in the client’s best interest and
in furtherance of the client’s lawful goals.” In most instances, one of your client’s “lawful goals”
will be to end up in the best possible financial situation at the conclusion of their lawsuit.
At the heart of the attorney-client relationship, an attorney must comply with Iowa Rule of
Professional Conduct 32:1:4(b), “A lawyer shall explain a matter to the extent reasonably
necessary to permit the client to make informed decisions regarding the representation.” This
would seem to involve communication not only of all settlement offers, but also of all settlement
options that would best serve the client, including the option to receive part or all of the
settlement recovery in the form of a structured settlement.
It appears that there are times when not only should a structured settlement be discussed, but
when a structured settlement consultant should be brought in to be a part of that discussion. Iowa
Rule of Professional Conduct 32:2:1 states, “In representing a client, a lawyer shall exercise
independent professional judgment and render candid advice. In rendering advice, a lawyer may
refer not only to law but to other considerations such as . . . economic . . . factors, that may be
relevant to the client’s situation." In addition, Comment 4 to the Rule says in part, “Matters that
go beyond strictly legal questions may also be in the domain of another profession. . . . Where
consultation with a professional in another field is itself something a competent lawyer would
recommend, the lawyer should make such a recommendation.”
Many trial lawyers are unaware that they can even be sued for failing to discuss the possibility of
a structured settlement with a client. As such, it may be wise to have some familiarity with the
well-known legal malpractice case, Grillo v. Pettiete. (Josephine Grillo, as guardian and as next
friend for Christina Grillo, a minor v. Tom L. Pettiette, T. E. Swate, and Hardy Milutin & Johns,
96th District Court, Tarrant Count, TX, Cause 96-145090-92.)
Christina Grillo suffered quadriplegia, blindness, and seizures resulting from medical
malpractice at birth. Her family sued and received a $2.5 million medical malpractice settlement.
The family was never informed about the option to structure the settlement, and the entire $2.5
million settlement was completely exhausted within just a few short years, largely to cover the
cost of Christina’s ongoing care.
The Grillo family later learned that if Christina’s settlement had been structured properly, not
only would they have received far more (guaranteed and tax free) income over Christina’s
lifetime, but they would have also preserved their eligibility for government benefits and that
much of Christina’s care would have been paid for by Medicaid. The Grillo family then brought
a legal malpractice claim against Christina’s attorney and the guardian ad litem, who eventually
settled for an amount in excess of $4.1 million. (And, yes, a sizeable portion of that amount was
put into a structured settlement.)
There are clearly times when a structured settlement could be of benefit to a plaintiff. Just as
clearly, at those times it would appear that a plaintiff attorney has a duty to help his or her clients
explore all of their settlement options. It is my belief that we are talking about two sides of the
same coin. When a structured settlement might be of benefit to your clients, it is an option that
you should be discussing with them.
Quoting from the Journal of the Virginia Trial Lawyers Association (Summer 2004, page 36),
“A structured settlement under IRC 104 represents a substantial economic value available to
claimants in the resolution of their claim and plaintiff’s attorneys who fail to consider this option
leave themselves openly exposed to Grillo-type claims. Rather than debate whether trial counsel
has a duty to alert a client to the benefits of a structured settlement, the safer response is to
assume that such a duty exists, analyze its implications, and adjust your practices accordingly.”
The Bottom Line
For the defense, a structured settlement is an important tool for helping to settle cases sooner and
without the risk and expense of going to trial. For the plaintiff (or workers’ compensation
claimant’s) attorney, a structured settlement is an important tool for improving the financial
future of his or her clients. Whether you are the defense attorney or the plaintiff’s attorney, there
are structured settlement consultants available without charge to you or your clients to answer all
of your questions and hold your hand through the entire structured settlement process. A
structured settlement is not appropriate in every case, but you owe it to your clients to understand
the process, and to explore the use of a structured settlement when such a settlement might be
beneficial.
1 Parts of the seminar paper that you are reading today are “borrowed” from other papers. Much of the section “Evolution of Structures” comes from an article that appeared in the July/August 1999 edition of the ABA’s General Practice, Solo & Small Firm Division Magazine. That article was written by Wayne Wagner, a Certified Structured Settlement Consultant who has worked for Ringler Associates in New Orleans, Louisiana since 1984. The sections “Common Situations for Structured Settlements” and “Do I Really Have to Discuss This With My Clients” come from articles that I have written for the Iowa Trial Lawyer magazine, a publication of the Iowa Association for Justice. 2 It is important to note that there have been a couple of amendments over the years to the tax laws that allow for structured settlements. In 1996, the word “physical” was dropped into the phrase “personal physical injuries or physical sickness” that appears in I.R.C. §104(a)(2). In order to for there to be a tax-free (or qualified) structured settlement, the lawsuit needs to allege that a physical (as opposed to a merely emotional) injury was involved. Then in 1997, I.R.C. §130 was amended to allow for the use of qualified assignments in workers’ compensation claims filed after August 5, 1997.
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