Structured settlements allow negotiation based on plaintiffs’ needs
There are proven methods for both mediating bodily injury claims and using structured settlements to achieve the same goal. The goal of mediations is to reach an outcome that is acceptable to all parties. Structured settlements must similarly reach a final dollar amount, but the path to reach that figure may differ. Structures attempt to meet plaintiffs’ needs with periodic payments breaking down the final number into parts rather than into one sum, providing a framework for negotiations by identifying, and attempting to meet, future needs with periodic payments.
If mediations and structured settlements are both successful, then why do they seem to conflict? Can structured settlements be more effective for mediators and structured settlement brokers? By exploring mediation and negotiation tactics from industries and government, can structured settlements be used effectively in the process?
Not all cases are conducive to the process of breaking down the final numbers and negotiating the parts. Often, the parties significantly disagree over facts and responsibility. There may also be multiple parties to a lawsuit or claim, which can distract from the process of examining the plaintiff’s needs. However, attempting to settle cases by addressing their many parts can be successful.
Not all settlements end with a structured settlement, as they must be voluntary on all sides. However, by utilizing periodic payments to address the future needs of the plaintiff, settlements might be reached more quickly and reach the final numbers that maximize the outcome for all parties.
Mediation—Alternative Dispute Resolution
The success of mediation depends on the parties entering negotiation with faith in the process. When parties enter negotiations unprepared, the process is more likely to fail.
“The goal of mediation is for a neutral third party to help disputants come to consensus on their own,” writes Guhan Subramanian in “Mediation Secrets for Better Business Negotiations.” He adds, “Rather than imposing a solution, a professional mediator works with the conflicting sides to explore the underlying interests beneath their positions.”
Parties must understand that they “have total power to prevent mediation from leading to an undesirable outcome.” Mediators should direct the process, but each party has control.
In “Beyond Blame: Choosing a Mediator,” Stephen B. Goldberg writes, “Only by understanding each party’s interest can a mediator generate creative solutions that satisfy each party.” He adds that successful mediators “invent options that acknowledge feels, perceptions, and hurts that might otherwise block meaningful and fair resolution.”
Courts across the country have supported mediation as the most effective means of resolving torts. With some courts requiring mediation and settlement conferences, private voluntary mediation has increased significantly in the last 20 years. Randall L. Kiser, principal analyst at DecisionSet, said in an interview with The New York Times’ Jonathan D. Glater that the vast majority of cases do settle. The findings, the article notes, raise provocative questions about how lawyers and clients make decisions, the quality of legal advice, and lawyers’ motives.
Pre-trial mediation is the parties’ one opportunity to control the outcome of their dispute. “The solution is to negotiate on some basis independent of the will of either side—that is, on the basis of objective criteria,” writes Roger Fisher and William Ury in “Getting to Yes.” Identifying that criteria provides more discussion and the ability to compromise.
Structured Settlements
Structured settlements have been used in bodily injury claims for decades. In 1982, Congress passed the Periodic Payment Settlement Act (Public Law 97-473). According to the National Structured Settlements Trade Association, “The law [clarified] that the full amount of a structured settlement’s payments constitutes damages that are received by the victim free of any federal tax liability.” Tax-free periodic payments are consistently preferred over an all-cash settlement in resolving bodily injury claims.
For many years, claims professionals considered structured settlements a very useful tool. Recently, however, structures are often removed from the settlement process and offered as an alternative to cash after settlement is reached. While plaintiffs, in those cases, still have the full tax benefit of a structure, they tend to view structured settlements as just another alternative to other investment options. They should remember that a structured settlement could ensure protection from premature dissipation and tax-free payments guaranteed to themselves or their beneficiary, secured by the highest-rated life insurers.
Other investment options may offer greater returns, but at significant risk. Even with skilled professional advice, plaintiffs must still make the final investment decisions. With all cash available, the potential possibility of dissipation is much greater. And, according to the 2013 Prudential Structured Settlement Claimant Survey, “a general lack of awareness among claimants and attorneys continues to impact growth in the structured settlement marketplace—and precludes claimants from the benefits and security structured settlements can provide.” By negotiating a lump sum, then offering a structured option to plaintiffs, claims professionals and mediators lose the opportunity to educate the plaintiff during the settlement process.
Most mediators view structured settlements favorably, even if all do not view them as an important part of the process. Further, mediators agree that structures are in the best interest of plaintiffs, and that parties must enter mediation with an understanding that the mediation process differs from a trial.
Life care and economist reports presented at trial must be fully appreciated, but may not reflect the actual needs of the plaintiff. Negotiations based on needs motivate parties to agreement, and structures focus parties on the plaintiff’s needs. If parties identify their interests and needs, then the mediator has the ability to accommodate both. Even when parties do not agree on a cost, areas of dispute become clearer. If all sides agree the plaintiff needs future attendant care but do not agree on the cost, it becomes narrower.
Preparing for mediation with valid supporting documentation of future care cost allows negotiating on specific criteria. The areas of disagreement crystalize, allowing all sides to negotiate on one area and compromise on others. Structured settlements allow negotiation based on the plaintiff’s needs and allow the mediator to offer solutions to both parties.
SIDEBAR
The Survey Says….
This article’s conclusions are based from Speranzini’s survey conducted as part of her requirement in completion of her Master’s Certificate in Structured Settlement Consulting, “Structured Settlements in the Mediation Process,” which she completed at the University of Notre Dame in 2016. She posed 13 statements to 31 mediators—selected based on experience and peer recommendations—to gauge their views on mediation and structured settlements. Here’s what she found from the 16 who responded.
Statement / % of Respondents Who Agree or Strongly Agree
Clyde & Co. professionals discuss this year's key trends
Jane M. Speranzini is a consultant with SFA in Boston. She can be reached at jsperanzini@sfainc.com
