settlement is a term most commonly applied to personal injury
settlements in which deferred periodic payments are made to the
plaintiff in addition to or in lieu of a single cash sum award.
The structured settlement concept has been shown to be a
powerful and effective tool in the settlement process.
Often it is the inclusion of periodic payments, generated
by the structured settlement, which resolves the disparity between
the demand and offer. Both
the plaintiff and the defendant should resolve certain issues
before agreeing to include a structured settlement as a party of
any settlement. These
issues are discussed below. While
the concerns of the defendant and the plaintiff differ there is a
certain amount of overlap. Because
plaintiffs are typically in the most vulnerable position, their
issues will be discussed first.
Four key concerns of any plaintiff considering a structured
settlement are: safety; rate of return; taxability and
preservation of settlement funds.
Because the defendant is typically allowed to assign
its liability for ongoing payments provided by the structured
settlement, the plaintiff should inquire as to the financial
strength of the assignee responsible for the future payments.
When annuities are used in funding the periodic payments an
inquiry should be made as to the life insurance carries rating as
determined by the various financial rating agencies.
(In large settlements the use of several life insurance
companies afford additional security.) In certain instances the life insurance company’s
assignment company which owns the policy and guarantees the
payments to plaintiff will provide the plaintiff with a secured
interest in the policy. This
type of an arrangement provides the plaintiff with a key recourse
in the event of a default or failure by the annuity company or its
affiliate assignment company. While most annuity companies do not currently provide for
this type of protection, IBAR has developed a secured creditors
arrangement through its U.S. Treasury funded Custodial Bond
Account (CBA). Under
the CBA arrangement all payments to the plaintiff are generated by
U.S. Treasury Bonds which are in turn held by City National
Bank or by Merrill Lynch. More
detailed information regarding the CBA is provided following the
discussion of the plaintiff’s “four key concerns”.
of Return: Because funds set aside for structured settlement payments
cannot be invaded by the plaintiff, it is most important to obtain
the best rate of return at the time of settlement.
Life insurance companies can vary widely on the rates of
return offered depending on a variety of factors too numerous and
complex to discuss here. Whenever
possible the plaintiff should obtain several annuity quotes before
deciding on a particular payment program.
of settlement funds:
This is perhaps the greatest achievement of the structured
settlement concept. Too
often a cash settlement has been negotiated only to be dissipated
through poor financial actions or in some cases fraud.
This is particularly unsettling in cases involving minors
or permanently disabled adults.
Any funds which are designated for structured settlement
payments may not be invaded, and for this reasons they are
protected from potential creditors.
greatest advantage gained by the defendant who chooses to include
structured payments as a part of the settlement is that they often
bridge the gap between its settlement offer and the plaintiff’s
demand. In most cases
the defendant should insure that any continuing liability be
eliminated through a qualified assignment of its liability to a
financially sound assignee.