Reprinted from the January-February, 1995 Edition of the Kentucky Academy of Trial Attorney’s Advocate

Structured Settlements in Kentucky Workers Compensation Cases

 By Don McNay, CLU, ChFC, MSFS

Structured settlements have been a popular concept in personal injury law for the past 15 years. There are occasions when structured settlements can also be utilized effectively in workers compensation settlements.

A structured settlement is an alternative to a lump sum cash payment. It usually consists of two parts, an up front cash payment and a series of future payments funded by an annuity. For example, Instead of settling a claim for a $100,000 lump sum, you might settle instead for $20,000 up front and $750 a month for life.

When set up properly, all payments are tax free to the injury victim.

Some common workers compensation scenarios in which structured settlements can be used are cases where a lump sum is inappropriate, cases where medical expenses are stable and ongoing, total disability awards and lifetime awards, cases where claimants are receiving government benefits, cases where a plaintiff wants additional security from an individual self insured and cases where a severely injured worker has a reduced life expectancy.

1. Cases where a lump sum is inappropriate

A Stanford University study showed that 90% of all lump sums are dissipated within five years. This is particularly true in cases where the people awarded the money are financially unsophisticated.

Since many disabled claimants who waste a lump sum are prime candidates for welfare or public assistance, there is a societal benefit in making sure that a claimant has a regular income.

It is often true that the statutory award will not meet a claimants individual financial needs. In those cases, a structured settlement can be utilized.

A structured settlement can be used in conjunction with a lump sum or by itself, in order to produce a settlement that best meets an individuals circumstances. For example, a person who receives an award of $200 a week for 425 weeks might settle for any of the following scenarios instead:

1. $860 a month for 100 months.
2. $750 a month for 10 years.
3. $40,000 lump sum and $500 a month for five years.
4. $450 a month for life (male age 47).

2. Cases where medical expenses are stable and ongoing

There are situations where a claimant will have ongoing medical expenses on a regular basis. A structured settlement gives the opportunity to settle the claim and allow for the claimant to receive regular payments.

For example, if it is fairly certain that a person will be needing $500 a month in medical expenses for the rest of his life, an annuity can be purchased to make those payments.

3. Death cases, totals and lifetime awards

When it is fairly certain that a maximum payment will be made, a structured settlement might be used to settle the case.

Cases where an employee has little or no likelihood of returning to work or benefits ending lend themselves to structured settlements. Death benefits for juveniles and widows are excellent candidates for the structured settlement concept.

4. Maximizing Government Benefits

In situations where a victim is receiving social security benefits, it is usually in the victim's best interest to wrap his workers compensation payments around the social security payment, so that there is not an offset of social security.

An article in the March, 1994 edition of Trial Magazine said that 1400 people nationwide had their social security cut off completely by a workers compensation award and 130,000 had their social security payments reduced by more than $350 a month. The authors assert that their attorneys could be liable for malpractice by not attempting a negotiated offset.

A structured settlement can be used to fund the maximum amount of compensation available without an offset. There can also be an extra incentive for the plaintiff such as a lump sum deferred to when the claimant draws social security retirement.

In certain situations, a Medicaid Trust can be effective in protecting the claimant’s government benefits.

5. Additional Security for the Plaintiff

In recent years, Kentucky has had situations where an individual self insured company has run into financial difficulties and been unable to meet its workers compensation obligations. If a claim is settled using an assigned structured settlement annuity, the payments to the claimant will be secure, regardless of the financial condition of the self insured company.

6. Reduced Life Expectancy

Many injured workers have reduced life expectancy. Therefore an annuity can be purchased that will give that worker a larger benefit than someone of the same age with a normal life expectancy. The structured settlement should be looked at any time someone with a reduced life expectancy is considering a settlement.

For example, in a recent case, a person who was 42 years old had the rated age of a 60 year old. This allowed the purchase of an annuity for $400,000 to fund his maximum lifetime payments, when it would have cost $600,000 at his normal age.

Conclusion:

Structured settlements are an often overlooked tool in settling workers compensation cases. They can help settle a case where a lump sum or statutory award is inappropriate.

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