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Commercialization ignites structured settlement debate

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We Americans are not a patient people. Our lives revolve around instant messaging, same-day delivery and microwave cooking, so it should come as no surprise that some expect instant gratification from the legal system as well.

Two recent developments illustrate this trend, and may raise significant questions for the court system. One is the growing market for litigation financing. The other is commercial marketing of court-approved settlement packages. Today we will examine the latter.

If you have had the pleasure of viewing daytime TV any time recently – excluding the recent election cycle, of course – you may have noticed that ads offering to purchase settlements arising from personal injury cases now seem to outnumber the ads from lawyers who promise to get those big settlements for you. Often called structured settlements, an agreement for deferred payments has become more popular over the last 20 years and is not an uncommon way to resolve significant injury cases today.

Typically, a structured settlement involves the defendant purchasing an annuity contract which will give the injured person, or their family, payments out into the future, perhaps for life. Properly established, these settlements enjoy compounding interest and favorable tax treatment as well as protection from the manipulation and bad decisions that often go hand in hand with a large economic recovery. Where an injured person has long-term medical needs, or where a wrongful death has deprived a child of one or both parents, a structured settlement can mean the difference between self-sufficiency and dependency on the vagaries of public assistance.

Structured settlements usually involve significant amounts of money, so it is not surprising that easy-money entrepreneurs have taken note. They will gladly give you a check today in exchange for the right to receive your payments tomorrow. Unfortunately, their check may reflect a deal that makes a title loan shop look good, paying perhaps 20 percent to 30 percent of the settlement value.

In response to this new marketplace, many states have enacted laws which limit or prohibit the sale of structured settlements. In 2005, New Mexico adopted the Structured Settlement Protection Act, which provides that a court must independently review any proposed sale or transfer to determine if it is in the best interests of the injured person and his or her dependents, and that the buyer has provided the victim with the required explanations and disclosures, including the right to independent legal advice. Any transfer attempted without court approval is legally void.

Such cases are heard by the District Court. They can vary from the young man who wants a sports car today instead of a college fund tomorrow, to a young family that was doing fine until the husband was injured at work, then fired by his employer, instigating a long period of unemployment. Without selling off the annuity they had agreed to when one of their children died in a hospital mishap years earlier, they would lose their home and face bankruptcy.

Some argue these laws burden the courts unnecessarily and infringe on the freedom of contract that is a mainstay of our legal and social systems. Proponents of laws like the Settlement Protection Act assert they are necessary to prevent unfair exploitation of settlement beneficiaries and an increased burden on our already stressed public-benefit systems. It may well be your money, but should you have it now? What if it’s only 20 or 30 cents on the dollar, or so you can buy a Corvette while all of us pick up the tab for your upcoming surgery?

Are laws like the Settlement Protection Act just a manifestation of the dreaded nanny state or do they protect all of us? As always, you can “Judge for Yourself.”

Alan M. Malott is a judge of the 2nd Judicial District Court. Before joining the court, he practiced law throughout New Mexico for 30 years and was a nationally certified civil trial specialist. If you have questions, send them to Judge Malott, P.O. Box 8305, Albuquerque, NM 87198 or email to: alan@malottlaw.com. Opinions expressed here are solely those of Judge Malott individually and not those of the court.

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