Structured Settlements

Structured settlements, an alternative to lump sum payments, allow damage payments to extend over a person’s lifetime, or over any time period that might be desirable. When would your client possibly benefit from a structured settlement rather than a lump sum payment? Here are a few examples:

• Your client is going to require medical or custodial care for the remainder of his or her lifetime.
• Your client is a minor too young to be entrusted with management of a large award.
• Your client is mentally or physically incapable of management of a large award.
• Your client wishes to avoid the high marginal tax rates that would apply to the interest on a large award.

Flexibility of structured settlements You can think of structured settlements as a form of annuity which would be purchased from an insurance company. Like standard annuities, a structured settlement can take many forms including these:

• For a specified number of years, such as 20 or 30, even if your client dies
• For your client’s remaining lifetime

Payments can be specified to be constant or increasing and can be scheduled for any period such as monthly, annually, or for any interval desired, such as every five years.

Tax advantages of structured settlements Although a lump sum award in a personal injury or wrongful death suit is not subject to taxation, interest earned on the lump sum is taxable. Large awards can earn significant amounts of interest, even at today’s relatively low interest rates, that push your client your client into higher marginal tax brackets. Spreading payments, which are not themselves taxable, over a number of years can avoid this problem.

Obtaining a structured settlement To obtain a structured settlement it is necessary to use a broker, or annuitist, who specializes in dealing with insurance companies for this type of business. Most often, the defendant’s attorney works with the broker but not necessarily. The attorney does not pay the annuitist whose compensation will be a percentage of the premium amount. Annuitists, who often advertise in legal journals, will work out the specific form of the structured settlement and obtain several bids from insurance companies. Experience has shown that companies can vary greatly in the amount they charge for the same benefits.

Each bid will specify a “guaranteed return” which is the undiscounted sum of the payments that will be made under all circumstances. Where appropriate, the bid will also specify a “return to life expectancy.” Since these sums are not discounted, you will need to work with an economist to determine the net present value of the payments and assess the income tax implications of stretching payments out over a period of time. Only in this way is it possible to estimate the actual value to the plaintiff of a structured settlement.

Your fee as the plaintiff’s attorney will be based on the present value of the structured settlement which should be close to the premium amount. However, the defendant may not be willing to disclose the amount of the premium so the economist’s estimate may be the only basis for setting your fee.

Doing without Experts and Legal Malpractice

Case: Allbritton v. Gillespie, Rozen, Tanner - Watsky, P.C. (Tex.App. Dist.5 03/04/2005)Justice Wright05-04-00132-CV

Reporting source: Texas Lawyer

Commentary on importance of the case:
Not hiring an expert witness to calculate damages can cause you to lose your case, or even land you in a legal malpractice suit. A current Texas case demonstrates just these dangers. A law firm represented two clients in a breach of contract suit against their employer. Rather than hiring an expert, the attorneys instructed the plaintiffs to prepare their own damage calculations. This was not a problem with one of the clients who had a financial background. The other, however, was trained in theology and lacked the skills to prepare such an estimate.

At trial, the two plaintiffs presented their self-generated damage estimates. When the jury found that the employer had indeed breached the contracts with both, the plaintiff with the ability to calculate and explain his damage estimates was awarded in excess of $4,000,000. The other plaintiff received nothing.

The unsuccessful plaintiff responded by filing a legal malpractice suit against his attorneys claiming they failed to prepare the case properly for presentation of damages. He also claimed that they were negligent in failing to hire an expert on damages in view of his lack of financial background and knowledge of how to calculate damages. To support his case, he secured affidavits from an attorney and an accountant. The two experts agreed that the defendant attorneys’ negligence was the “proximate cause” of the second plaintiff’s failure to receive any damages. The accountant pointed out that the plaintiff had failed to use a reasonable growth rate, had failed to use present value analysis, and had not adjusted his estimates to account for the probability of dying and being unemployed. As a result, the plaintiff’s estimates of damages, which the jury found not to be credible, were several times larger than those prepared by the accountant.

The attorneys sued for malpractice were successful in having the trial court issue a summary judgment based in part on the argument that the plaintiff’s experts’ affidavits were “conclusory,” i.e., they presented conclusions not based on reasonable and substantive arguments. This finding, however, was reversed on appeal and the case was remanded to the trial court.

This case demonstrates that your client may suffer if you do not obtain the expert opinions necessary to support your claims of lost income and other monetary damages. The cost in time and money of obtaining an expert is small indeed compared to the potential loss of damages your client may incur if the jury dismisses the “non-expert” calculations as not credible.

Court opinion:
http://www.law.com/jsp/tx/LawDecisionTX.jsp?id=1110310808706

Economic Costs of Spinal Cord Injuries

Each year about 11,000 people in the United States suffer severe but non-fatal injuries to their spinal cords that leave them with some degree of paralysis or loss of motor function. There are now about a quarter of a million people in this country living with spinal cord injuries. Many of these injured parties bring lawsuits alleging negligence or malfeasance and seeking compensation for lost earning capacity and medical costs. Below is information that should be useful to attorneys trying such cases.

Degrees of spinal cord injury The location and extent of the injury to the spine determine the degree of loss of body function and have a great impact on the ultimate economic damages for your client. About 53 percent of permanent spinal cord injuries (excluding the small percentage of those who recover) result in paraplegia, or the loss of feeling and movement in the lower parts of the body. If your client has this type of injury, a vocational rehabilitation expert is likely to find that your client has significant residual earning capacity, perhaps with retraining. The remaining 47 percent suffer from quadriplegia or tetraplegia. Injuries to the top of the spine, vertabra C-1 to C-4, are classified as high tetraplegia and result in paralysis from the neck down while those occurring in vertebra C-5 to C-8 are termed low tetraplegia and result in paralysis from the shoulders down. Within these categories, paralysis can be complete or incomplete. The most severe non-fatal spinal cord injuries leave a person dependent upon a ventilator while the least severe, resulting in “incomplete motor function,” are evidenced by involuntary movements such as spasms, twitching, and shaking.

Reduced earning capacity Estimates of how much a spinal cord injury has reduced the capacity of your client to earn income must consider not only pre-injury earning histories but also prospects for post-injury employment. The severity of the injury will obviously determine the feasibility of reemployment and a vocational rehabilitation expert will be needed to evaluate employability in each particular case. The National Spinal Cord Injury Association reports that eight years after their injuries 34 percent of paraplegics and 24 percent of quadriplegics (or tetraplegics) are employed. Many of those who are working have part-time positions and are likely to miss work periodically due to complications from their conditions. Calculations of future earning capacity for your client should be reduced to account for these involuntary breaks in employment and the strong liklihood of a reduced number of remaining years in the workforce.

Medical and living costs If your client has an extemely severe type of injury, damages for medical care and living costs will probably outweigh damages for lost income. The Spinal Cord Injury Information Network provides “average yearly health care and living expenses that are directly attributable to [spinal cord injuries].” These annual costs, which are highest in the first year after the accident, range from $15,000 to over $700,000, depending upon the severity of the injury. (SCIIN's 2000 dollar values have been inflated to their 2004 dollar equivalents.)

Foundations for Reliable Expert Testimony

Case: Taylor vs. Am. Fabritech, Inc. (14-02-00982-CV)

Reporting Source: Dauberttracker.com

Type of economic damage testimony: Lost earning capacity and lifetime health care costs

Commentary: In this 2004 case in Texas Court of Appeals, the court’s opinion lays out criteria which can be used to judge the admissibility of expert witness testimony by an economist. The expert’s testimony was found to be admissible based on the following points:
--The expert had Ph.D. in economics
--The expert was a member of a university faculty
--The expert had extensive experience in analysis of personal injury damages
--The expert used standard techniques that have been subjected to peer review
--The expert’s testimony was based on a review of the evidence concerning the patient’s injuries and on reliable data from the US government

From the opinion:
“[The economic expert] expected to testify regarding his evaluation of economic losses suffered by [the plaintiff] due to his impairment. [He] has a Ph.D. in Economics, is a former chairman of the Department of Economics..., and has considerable experience in the analysis of personal injury damages. In his deposition, he stated that he based his evaluation on standardized principles in the field of economics that have been peer reviewed. He further stated he reviewed the Life Care Plan created by Dr. ... for [the plaintiff], as well as [his] medical and employment records and deposition testimony and interviews. Although he said he based his calculation, at least in part, on the level of care in the Life Care Plan, he also said he could adjust his figures accordingly if changes were made to that plan. He further stated he based his present value calculations on what has happened in the past, by looking at [the plaintiff's] earnings history, as well as statistics from the U.S. Bureau of Labor Statistics, the Census Bureau, and standardized life expectancy tables. He stated the data in these resources are subject to elaborate review mechanisms and have been found reliable. Based on these representations, we find the trial court did not err in finding [the economic expert's] testimony was based on a reliable foundation.”