Leverage in Negotiations: Structured Settlements
In this session from PRIMA 2024, Colin Finn, Vice President of Structured Settlements at Alliant, focused on the ways public entities effectively use structured settlements to combat the alleged damages brought by plaintiffs in personal injury cases. Learn how structured settlements add leverage to the negotiating table while providing credibility that yields higher closure rates for many claim files.
Structured Settlements Defined
A structured settlement is a method of negotiating and compensating individuals involved in personal physical injury claims and litigation. Rather than receiving a single lump sum to settle a dispute, the injured party receives a stream of periodic payments.
Structured Settlements by the Numbers
At a glance, we are trending towards greater premiums across the industry. Colin broke down the progression from the past 20 years:
2003 – 2022
- $4.23 billion – $6.46 billion
- Relatively low interest rates
- Average yearly cases structured (26,482)
2023
- $8.68 billion
- Higher interest rates (main factor driving the settlement deals)
- Larger settlements and more cases (31,354 cases structured)
2024
- Trending projects of $9+ billion
Identifiable Claims for Structured Settlements
Various claims have a strong influence on structuring a settlement in a negotiation. Common categories include:
- Catastrophic injuries (TBI, spinal cord, amputations, burns, etc.)
- Sexual harassment
- Wrongful termination
- Abuse claims (physical and non-physical)
- Life care plans
- Wrongful death (guaranteed income to spouse and kids)
- Future lost earning capacity (supplement wage gaps)
- Medicare Set-Asides (MSAs)
- Children and minors (college funds and payments through adulthood)
Advantages of Structured Settlements
Structured settlements add leverage to negotiations by providing credibility to offers while yielding higher closure rates for claim files.
1. Leverage
Present-day costs for future damages create leverage for structured settlement decisions. This includes proof of lost wages and future medical plans. Ultimately, an illustration can help the plaintiff visualize the economic impact of guaranteed payments.
2. Credibility
Structured settlements represent good-faith bargaining and are universally accepted by mediators and judges as a settlement tool.
3. Closure
In 2022, MetLife reported that “76% of claims professionals would likely use a structured settlement if they were a plaintiffs in a physical injury case.”
Collateral Sources and Future Damages
Collateral sources are assets, especially when used during cases involving catastrophic injuries. Combining a known collateral source within a structured settlement can help determine the level of damage assessed in a case.
Some notable examples of collateral sources include:
- Social Security Disability Insurance (SSDI)
- School District Therapies (IDEA)
- Special Needs Trust (SNT)
- Affordable Care Act (ACA)
- Medical Set-Asides (MSAs)
When used properly in negotiation, collateral sources can help reduce the cost of future medical needs with ACA analysis. This benefit often results in structured settlement pricing policy premiums, out-of-pocket costs, and future care items.
Future Wage Loss
All structured settlement pricing for future lost wages should be quoted on an after-tax basis and include applicable deductions for personal consumption. Any deductions related to income tax and personal consumption, along with fringe benefits and net annual earnings, should be accurately reported and documented.
Best Practices for Structured Settlement Brokers
To effectively achieve a structured settlement, brokers should set up a pre-settlement evaluation of any alleged damages. Custom proposals should be designed based on the case, and representation should be arranged for every mediation (both virtually and in-person).
For plaintiff brokers, be sure to prioritize transparency for the defense and the representatives of the plaintiff.
Finally, keep in mind the importance of proper settlement case management and compliance. Various critical factors should always remain top of mind, especially the following:
- Structured settlement language in Release
- Qualified Assignment vs. Qualified Assignment and Release
- Life insurance approvals
- Coordination of funding
- Petition reviews and orders for court approval
- Policy issuance