- Legal EditorHenry Dahut, J.D.
Henry Dahut, J.D.
Attorney - Legal Publisher - Educator
Henry Dahut is a licensed California trial attorney. Over the course of his 30-plus years practicing law, Henry has represented and counseled countless clients in legal trouble.
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This article covers how personal injury settlements are paid out, including the types of payments, legal documentation, distribution of funds, tax implications, and the role of personal injury attorneys.
What are Personal Injury Settlements?
Personal injury settlements are agreements reached between an injured party and the party responsible for the injury, usually through their insurance company.
The great majority of personal injury lawsuits are settled before going to trial. Settlements usually occur shortly before or after a lawsuit is filed or just before trial.
Because of the inherent uncertainty of jury trial results, there can be significant benefits to settling your case at the mediation or settlement conference stage.
About This Article
This article covers the settlement process in personal injury cases, including the role and responsibilities personal injury lawyers take in the settlement process.
You will also learn about the risks of going to trial and the benefits of settlement through mediation or through a court settlement conference. This article also includes topics such as:
- Common Misconceptions of The Settlement Process
- Why Jury Verdicts Can Be Unpredictable
- Advantages and Disadvantages of Structured Settlements
- Settlement Through Minors Compromise
- The Legal, Financial, and Health Risks of Settling Too Early
Settlement and Personal Injury Lawyers
Experienced personal injury attorneys not only advocate for your rights while navigating the complexities of the litigation process, but they are also experts in facilitating the negotiation process and maximizing settlements.
Having a good idea of what the average personal injury settlement in your jurisdictions has been like can be a reliable guide in providing a realistic estimate of what your case might settle for. However, actual figures can vary widely based on the specifics of each case.
In addition to covering medical expenses, personal injury settlements often include compensation for pain and suffering damages.
Three Common Misconceptions About Personal Injury Settlements
Misconception #1: Pre-existing conditions don’t affect the settlement.
Reality: Insurance companies will try to reduce the settlement by claiming that some or all of the plaintiff’s injuries resulted from an unrelated previous accident, injury, or medical condition and, therefore, cannot be considered compensable damages in the current accident.
Misconception #2: Settlements are tax-free.
Reality: While some portions of a personal injury settlement, such as compensation for medical expenses or pain and suffering, maybe tax-exempt, other parts, like lost wages, may be taxable.
Misconception #3: The settlement process is quick and straightforward.
Reality: Personal injury cases can be complex, and the settlement process may involve lengthy negotiations and even litigation. It can take months or even years to reach a final agreement.
Settlement Verses Facing an Unpredictable Jury at Trial
Why Are Jury Verdicts Unpredictable?
No one can predict what a jury will do under a given case’s specific facts and circumstances. This is an excellent reason to consider settling your injury case once the discovery phase of your case has concluded.
Every category of accident case has its strengths and weaknesses. For example, jurors treat car accidents differently than bus and motorcycle accidents. Proving liability in accidents involving trips and falls can be more complicated than medical malpractice cases.
Even the most compelling cases can result in a defense verdict or being awarded a sum that is far less than you expected. The reason? Juries tend to view the facts of a case through their own personal experiences, which may lead to bias and, at times, even resentment.
Juries Can Be Resentful
Conventional wisdom, especially during difficult economic times, is that jurors may also be struggling financially and factor their own frustration into their decision on how much to award the plaintiff—especially when awarding compensation for pain and suffering.
Getting caught up in our financial struggles is easy, especially at trial. As a plaintiff, however, you don’t want to give the jury the impression that you are overreaching on the value of your case, nor do you want to appear over-deserving in the amount you are asking the jury to consider awarding you.
Your Lawyer Is There to Guide You on Settlement Decisions
Although experienced personal injury lawyers can advise you about the overall strength of your claim and your chances of recovery at trial, jury verdicts are still unpredictable. They may not decide in your favor – no matter how strong or compelling you believe your case to be.
What Are the Benefits of Settling Your Case Through Mediation?
As the actual trial date approaches and after a plaintiff has, in most cases, waited a year or more to finally have their day in court, it is only natural for them to imagine what going to trial might mean and how the process will unfold.
The plaintiff might envision a trial filled with high drama and moments of glory, culminating in a public victory and vindication of the plaintiff’s rights. So, you can imagine the disappointment felt when the plaintiff learns their very public case has been ordered to confidential mediation rather than trial.
How Does the Mediation Process Work?
Depending on the jurisdiction and the amount of money the plaintiff claims in damages, almost all personal injury cases are sent to mediation before trial. Some jurisdictions may refer to this process as a settlement conference. However, there are differences:
Differences Between Mediations and Court-Ordered Settlement Conferences
Mediation is usually a voluntary, confidential process in which the parties meet with a neutral, outside third-party mediator to reach a settlement. The parties split the mediator’s fee. Mediations are usually more structured, lengthy, and expensive.
Settlement Conferences are usually ordered by the court shortly before trial. They often take the form of meetings at the courthouse where the parties and their attorneys meet with a judge or lawyer acting as a neutral third party to discuss the case settlement.
Some jurisdictions may charge the parties a minimal fee for the conference.
However, both forms of settlement forums, whether voluntary or involuntary, share the same purpose – settlement of the case.
In both situations, the opposing lawyers present their case to a neutral third person who tries to have the parties settle. This usually involves an uncomfortably long and tedious process in which the neutral instills fear in both parties about the fundamental risks of going to trial.
What Are Structured Settlements?
Structured Annuities
In personal injury cases in which the plaintiff settles for large sums of money, the plaintiff’s counsel will likely discuss the option of receiving their settlement over time instead of receiving it in a lump sum payment now. This is often referred to as a structured settlement.
Cases Involving Minors as The Plaintiff
The Minors Compromise
A court-ordered minor’s compromise is a mandatory legal procedure in which the court reviews the proposed settlement to ensure its fairness. The judge will consider factors such as the severity of the injury, the potential long-term effects on the minor, and the adequacy of the compensation offered.
Sometimes, the court may appoint an independent guardian to represent the minor’s interests regarding the proposed settlement. This person will investigate the circumstances of the case and make recommendations to the court.
Usually, the court will set up a hearing. At this hearing, the judge can ask questions and hear testimony from the lawyers, the minor, and any other relevant parties, such as the minor’s parents or caretakers.
If the judge determines at the hearing that the settlement is in the best interest of the minor, the court will issue a court order approving the settlement.
This order will specify how the settlement monies should be handled. One option is to place the funds in a blocked account or trust until the minor reaches the age of majority, which is 18 in most jurisdictions.
Structured Settlements for Minors
For minors in personal injury cases, a structured settlement usually provides periodic payments over a specified period rather than a lump sum payment.
This type of settlement is designed to ensure that the minor’s financial needs are met over time, often extending into adulthood.
In summary, the court process involving minors protects minors from potentially unfair or insufficient settlements. It ensures that any compensation they receive is managed wisely.
Structured Settlement Cases With Minors:
More on Structured Settlements
The Periodic Payment Settlement Act of 1982 amended the Federal tax code to recognize and encourage structured settlements in personal injury cases.
Given the legal and financial complexity surrounding structured settlements, the states and the federal government have enacted important consumer legislation and industry regulations to better protect minors and others.
What Are the Advantages of Structured Settlements?
- Receiving periodic payments can reduce taxes. People choose a structured settlement to avoid the potential tax consequences of a lump sum settlement.
- Receiving periodic payments can also reduce the chance of overspending and running out of money before the next payment arrives.
- A significant advantage to structured settlements is that they can be devised in various ways based on the claimant’s individual medical needs and specific financial preferences.
These preferences can include periodic payments to the claimant when funds are required for:
- Continued medical expenses
- Continued education
- Vocational education
- Housing expenses
- Continued financial support
Both defense counsel and the insurance company prefer working with annuities because it is far easier for the parties to settle big-dollar cases. One reason is that the settlement amounts can look much larger over time.
The following video explains Structured Settlement Versus the Fixed Income Annuity:
What Are the Disadvantages of Structured Settlements?
- Some claimants under a periodic payment schedule often consider their arrangement unnecessarily restrictive.
- It is tough to change the structure of the agreement once the annuity is locked into place.
- Finally, beware of excessive commissions in structured settlements. They can always be negotiated. A great deal of money is made selling annuities. Ensure the commissions don’t consume too much of the principal. Check with at least two other brokers and your financial advisor before you agree to accept the annuity settlement.
Risks of Settling Your Case Too Early
Legal Risk of Settling Too Early: (Future Claims) Early settlements often require the injured party to sign a release of liability, which means they cannot pursue further legal action related to the injury in the future. This can be problematic if additional complications or costs arise later.
Financial Risk of Settling Too Early: Early settlement can often mean you will be leaving settlement money on the table. Many personal injury lawyers say the best settlement offer will be made just before the trial.
Settling Too Early Can Be Bad for Your Health. In some cases, plaintiffs may feel pressured to accept a quick settlement offer before fully recovering. This can result in them foregoing necessary care or rehabilitation, which can have long-term consequences for their health and well-being.
How Long Does a Personal Injury Settlement Take?
The timeline for receiving settlement payments can vary. Typically, once a settlement is agreed upon, it takes a few weeks to several months for the plaintiff to receive the personal injury settlement funds.
This timeline may be impacted by various factors, such as the processing times of the involved insurance companies and the completion of necessary legal documentation.
Statistic: According to a study conducted by the Bureau of Justice Statistics, the median duration from filing to disposition for tort cases, which includes personal injury cases, is approximately 13.8 months. This timeline varies significantly based on case complexity and jurisdiction.
The Bottom Line
- Settlement vs. Trial: Settling a personal injury case through mediation can save time, reduce costs, and provide a more predictable outcome than going to trial.
- Unpredictable Juries: Jury decisions are unpredictable, influenced by personal biases and economic conditions, making settlements a safer option.
- Mediation Benefits: Mediation is informal, confidential, faster, and less expensive than a trial, allowing parties to control the settlement outcome.
- Structured Settlements: They can offer tax benefits and help manage settlement funds over time. However, they can be inflexible and have high fees.
- Importance of Professional Advice: Consulting with a personal injury lawyer and financial planner is crucial to navigating the complexities of settlements and ensuring the best possible outcome.
Consider Legal, Financial, and Health Risks of Settling Too Early: While there is no such thing as perfect timing, there are significant factors to consider when considering the timing of the settlement.
Finally, having a talented and experienced personal injury attorney on your side is invaluable in ensuring you receive fair and comprehensive compensation for your injuries and losses.
