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Lump Sum Payments

Courts do not like open-ended obligations. When the court enters a judgment, it wants to be rid of the case. If the defendant is found not liable, the plaintiff may not bring another lawsuit on the same facts. If the defendant is found liable, he or she must pay the plaintiff a sum that will compensate the plaintiff for both existing losses and all the future losses related to the injury. The plaintiff cannot come back to the court and ask for money for unforeseen consequences of the injury, and the defendant cannot come back to court and request a refund of the money if the plaintiff does not need all of it. This finality creates an incentive on both sides to put an unrealistic value on the plaintiff's injuries: plaintiffs demand too high a figure, and defendants offer too little. If the plaintiff prevails with the high value, the defendant must pay more than is appropriate. If the defendant prevails, the plaintiff may become a ward of the state for unpaid medical expenses.

The lump sum payment in a lawsuit is intended to last for the duration of the effects of the injury. For many cases, this means the rest of the plaintiff's life. These judgments may be $1 million cash, tax free. (Personal injury settlements and court awards are tax free.) Managing a sum of this magnitude so that it provides current income and future security is a difficult task. In many, perhaps most, cases, the money will be gone in a few years, and the plaintiff is left in debt, sometimes from failed investment schemes. This is undesirable social policy because plaintiffs or their dependents often become wards of the state after the lump sum has been dissipated.


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