By Geraldine Straus, LL.B., CSSC, Partner/Consultant
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There’s a famous idiom worth remembering when approaching a mediation or settlement meeting: “A bird in the hand is worth two in the bush.” Knowing you have the ability to reach a mutually agreeable resolution to a legal matter such as a personal injury case should bring a sense of comfort, security and certainty to everyone involved – plaintiff lawyers, defence counsel and their respective clients (injured persons and insurance claims representatives). The inherent risks of going to trial should always give participants pause for thought.
What is that bird in the hand really worth? It’s a question that is definitely top of mind for plaintiffs. If the proposed agreement involves the value-added benefits of a structured settlement – an investment vehicle which may be unfamiliar to them – its full worth may not be immediately apparent. And, as negotiations proceed, the exact monetary value of the proposal may change the structure in subtle, yet important ways.
In this blog post, I explain the value of bringing a certified structured settlement consultant into discussions as early into the process as possible. All parties to a case can benefit from the education, information and independent real-time calculations these consultants can provide.
What Is A Structured Settlement?
Structured settlements are an alternative to traditional single, lump-sum payment of damages in cases involving personal injuries or death. They were introduced in the 1950s to prevent early exhaustion of personal injury awards. At that time, governments began offering plaintiffs a method to invest a portion of the damages they received in an annuity purchased by a life insurance provider.
As a highly secure investment vehicle, structured settlements provide guaranteed income replacement and can be designed in a variety of ways based on the particular needs of a plaintiff. Some plaintiffs agree to a monthly “pay cheque” to cover day-to-day expenses and may ask for an additional yearly lump sum payment for larger and often unforeseen expenses.
There are real tax savings for the recipient of a structured settlement. The payments from a structured settlement are tax-free (both monthly payments and yearly or periodic lump sum payments). Conversely, when a plaintiff receives non-structured damages, while the lump sum is not subject to taxation, the income derived from investing these funds is taxable. In addition, when a plaintiff is guaranteed payments for a specific period, they do not have to worry about premature exhaustion of funds due to market conditions or poor investment decisions.
Why and When Should A Structured Settlement Consultant Be Brought Aboard?
Structured settlements have become increasingly popular in personal injury cases, but plaintiffs often have little to no pre-existing knowledge of this option. Although insurance representatives may have a greater familiarity with the benefits of structuring versus paying out a lump sum, ensuring that all parties involved are well-informed is paramount.
An independent and neutral certified structured settlement consultant can be brought in by either or both parties to a case. Early education will help plaintiffs to understand the structured settlement option and the process involved in calculating the distribution of payments. Introducing a concept that is unfamiliar to the plaintiff near the end of negotiations or mediation is more likely to lead to hesitation based on fear of the unknown or suspicion of motives. Therefore, it is wise to call on a structured settlement consultant to pre-emptively meet with all the parties prior to mediation or initial settlement discussions.
Don’t Wait Until It’s Too Late
You don’t need to introduce your client to your structured settlement consultant until the mediation or settlement meeting. Nevertheless, it makes sense to involve them in these meetings as early as possible to help the consultant get to know the case and particulars. Pre-planning with a consultant is often necessary to work up some preliminary figures or schedules and to set appropriate client expectations.
In The Mediator’s Handbook: Advanced Practice Guide for Civil Litigation, John Cooley explains that there is less chance for a successful mutually agreeable resolution if the information is lacking at mediation. He explains that “adjustors’ well-intentioned and good-faith suggestions of structured settlements play out as hollow, unhelpful rhetoric without pre-planning and working up of illustrative annuity schedules.”(1)
Discussing the file early, with a certified structured settlement consultant from Henderson Structured Settlements, also helps us to understand the nuance of the file and the injured party. This not only allows us to prepare impairment ratings but reduces the time spent calculating and outlining a structured settlement hours into a mediation meeting.
Real-Time Calculations Can Be Critical To Moving Discussions Forward
It is rare in mediations and settlement meetings for the opening positions of the plaintiffs and defence to align or that a first offer is accepted. Rather, negotiations in a mediation – even if a settlement is within striking distance – often result in rounds of counter offers and proposals. A good mediator will keep the process moving, but he or she can’t work miracles if new calculations aren’t made in a timely manner.
As new information emerges during discussions, either or both sides may need to re-evaluate their positions and consider movement. A certified structured settlement specialist who is well prepared for the case and physically present during these discussions (or remotely accessible) can provide quick calculations to prevent talks from grinding to a halt. Mediations and settlement discussions are often stressful and exhausting processes. Discussions that are well-managed with timely information can ease the frustration involved in waiting and prevent parties from losing momentum towards a resolution.
Resetting Expectations and Demonstrating Value
Structured settlements would not be as popular as they are if they did not offer real benefits for all parties. In addition to providing the technical skills required to calculate and recalculate offers, structured settlement consultants are able to effectively communicate why such a concept is worth considering in mediation or settlement meetings.
For plaintiffs who may have entered the process with expectations of a million-dollar award, a consultant can explain why they may find greater value and security in accepting a smaller total dollar figure structured in a way to maximize their returns to ensure they can provide for the necessities in their lives. For insurance claims representatives, these consultants are able to issue real present value numbers for all heads of damage during discussions and explain why settling for these sums may be worth the risk of rolling the dice at trial with the expectation of a smaller payout.
The independence and neutrality of certified structured settlement consultants allow all parties present to make well-informed decisions.
With this knowledge and expertise, consultants are able to explain the value of a structured settlement while others present may be caught up in focussing on the cost of the settlement or certain figures. You can trust a Henderson Structured Settlement consultant to offer all parties present with compelling and unbiased reasons why a mutually agreeable resolution involving the safety, security, and superiority of a structured annuity investment is worthy of their consideration every time.
For more information on the types of structured settlement plans available for an injured claimant, please contact Henderson Structured Settlements.
(1) John W. Cooley. The Mediator’s Handbook: Advanced Practice Guide for Civil Litigation, p. 169.