The most desirable situation is to provide a way of paying the plaintiff’s
expenses as they arise, with offsets for both increased and reduced needs.
This is incompatible with having lawsuits result in fixed obligations.
The remaining alternative is to retain the lump sum determination but to pay
out the lump sum only as it is needed by the plaintiff. This is termed a
structured settlement and is available only in a structured manner. Structured
settlements may be agreed to as part of the overall judgment in a case or
required by the court if the plaintiff is a minor or the state has a specific
statute requiring that certain awards be structured.
Plaintiff’s attorneys have an ethical obligation to inform the client fully of the
value of entering into a structured settlement. Many attorneys will even reduce
their fees to provide an incentive for the client to waive a right to the lump
There have been many proposals to require that all large settlements and
verdicts be paid on a structured or periodic payment basis. The intent is to
ensure that money is available to meet the plaintiff’s needs and to allow the
defendant to recoup any unused money. This can happen when a plaintiff does
not live long enough to use up the projected nursing and medical care
allowances. In one extreme instance, a quadriplegic plaintiff was awarded
more than $1 million for future medical needs. The plaintiff died shortly after
the settlement papers were signed, and the money went into the plaintiff’s
estate. In this case, a periodic payment law would have led to a more just
There are problems with structured settlements. Most periodic payment
proposals are not symmetric; the defendant’s contribution is reduced if the
plaintiff’s needs diminish, but it is not increased if the plaintiff’s needs were
underestimated. A second problem is that they make the calculation and
awarding of attorney’s fees difficult. The value of the award must be reduced
to net present value and fees calculated and paid as a lump sum in addition to
the periodic payments. The most serious problem is ensuring that the
defendant will be solvent during the period over which the award must be paid
out. The usual way to handle this is to require the defendant to buy an annuity
from a third-party financial institution. The defendant will want to buy the least
expensive annuity that will provide the necessary payments to the plaintiff.
Since the stability of the financial institution is a factor in the pricing of
annuities, the least expensive annuity may be backed by the least stable
institution. If the institution fails, the plaintiff will receive no compensation.