STRUCTURED SETTLEMENTS
Structured settlements are a method by which damages can be paid by a defendant
in a stream of future annual payments, rather than by the traditional lump sum
award at trial. What usually happens is that the lawyers come to an agreement
about the value of the claim in the usual way, and then start to investigate whether
it suits both the plaintiff and the defendant for some or all of the money to
be invested in an annuity so that there is a guaranteed income for the life of
the plaintiff. Generally, some of the damages are used to buy accommodation and
equipment, and the rest is needed for the future expenses of living, including
additional care, therapies and normal household expenses. The system is quite
flexible, in that the plaintiff can choose how much of his damages should be kept
as capital (a contingency fund), and there are various ways in which the structured
settlement can be tailored to the individual's needs. The great advantage for
a plaintiff is that the income is guaranteed for life, however long that might
be, subject to the financial stability of the insurance company which is used
to provide the annuity, and it is usually linked to inflation. The main disadvantage
seems to be that the plaintiff loses control of the money which goes into the
annuity, so that, if something unforeseen happens which requires him to use part
of his capital, it will not be possible. A structured settlement is not possible
unless the insurance company consents: it cannot be ordered by the court in the
absence of consent.
There is a good deal of controversy at the moment about whether structured
settlements are, or are not, a good thing (see, for example the Law Commission's
Report on Structured Settlements [Law Com No 224] 1994). Each case should be
considered on its own merits, because not all are appropriate for this type
of disposal: it is important to get the best advice. The decisive consideration
is often security for the plaintiff and his family: when life has collapsed
around you, it must be some comfort to know that you will receive a guaranteed
income for life, linked to inflation.
The Law Commission made several recommendations:-
- There should be no judicial power to impose structured settlements.
- Life offices should be able to make payments under annuities bought by defendants
free of tax direct to the plaintiff.
- There should be provision for statutory structured settlements.
- The position of intermediaries acting for both parties should be considered
by the relevant professional bodies.
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