Structured Settlements Just Doubled – Benefits And Uses

More than ever before, lawsuits in 2023 ended with a “structured settlement.” The arrangement provides plaintiffs a long-term payout with tax and earning benefits.

Premiums of $8.6 billion in 2023 show a continued increase from 2021, largely resulting from increased awareness, increased interest rates, and a return from COVID’s court closures.

Structure Basics

Some lawsuits are settled with a one-time payment. Instead, a “structured settlement” provides a scheduled payout over many years.

Typically, a defendant pays an “Assignment Company” to make scheduled payments to the plaintiff. The Assignment Company buys an income-producing investment to satisfy its obligation. Often, that investment is an annuity issued by the Assignment Company’s affiliated life insurance company. But the last decade has seen a growing number of alternative investments as well.

Varied Benefits of a Structured Settlement

Structures are used for many reasons. “I always recommend that clients consider a structured settlement,” says David Casey, Jr., former President of the American Association for Justice (AAJ).

Perhaps first and foremost is their “set it and forget it” investment approach. They allow plaintiffs and their planners to design a customized payment schedule. And trial lawyers regularly point to that ability. Says John Carpenter, a trial lawyer who has secured multiple eight-figure verdicts, “The main benefit of a structured settlement is to relieve injured persons, who are not trained in sound investment strategies, with the burden of having to prudently invest their financial recovery.” Says Mitchel Ashley, a former Board Member of the New York State Trial Lawyers Association (NYSTLA), “I have seen some terrific results of structured payouts. For instance, you can have something called a college plan, where the infant plaintiff gets a lump sum payout for 5 consecutive years to help pay for college essentials.”

A second and substantial benefit is that they can help plaintiffs avoid premature depletion of what could be a life-long asset. Retired Judge Robert Holzberg, now a mediator and arbitrator, describes a recent case in which a structured settlement was used to meet a lifetime of economic and medical needs when a college student was profoundly injured in a trucking accident. Alabama personal injury lawyer Hunter Garnett tells a similar story.

In fact, many plaintiff lawyers tell a similar story. MetLife MET conducted a 2023 Survey among employment lawyers, finding that the top reason that they recommended a structure was their “guaranteed payments.”

A third benefit most point to is the tax advantage. When structured, tax-free settlement proceeds generate tax-free returns. Taxable settlement proceeds can also be structured, creating a tax deferral benefit much like an uncapped 401(k).

Increased Use of Structures

Structured settlement premiums jumped from $4 billion to $8.6 billion in the last two years, reports the National Structured Settlements Trade Association (NSSTA). Says NSSTA President Nolan Robinson, “I’m thrilled that so many injury victims are able to benefit from the economic security that guaranteed, tax-free structured settlement payments offer.”

Casualty carriers paid out hundreds of billions last year in personal injury settlements. From MetLife’s 2022 and 2023 Surveys, we see a very high level of structured settlement awareness. 88% of claims professionals are “familiar” with structured settlements. And 86% of employment lawyers believe structured settlements “can be a good negotiating tool … to speed up the resolution of a claim and/or make it more likely to settle.”

Interest rate increases also drove many to use structured settlements more. “Higher interest rates make a big difference,” says David Casey, Jr., former AAJ President. “It makes structures more attractive.” Other trial lawyers note the same. Mitchel Ashley, former NYSTLA Board Member, says “The use of structured settlements has a lot to do with interest rates. When interest rates go high, like now, a structured settlement is a guaranteed cash flow with no thinking component to it.”

And of course, courts reopening after COVID closures allowed settlement-negotiations to resume. Says David Casey, Jr., “California courts were completely shut down for months. You literally couldn’t file a piece of paper with the courts. Negotiations and settlements stopped because we had no ability to pressure the defense with the threat of discovery and trial.”

Growth on Other Fronts

With greater use of structures we also see new and increased uses of other settlement arrangements. Use of Qualified Settlement Funds (QSFs) have tripled since 2020, reports Eastern Point Trust Company, a leading QSF trustee. Says David Casey, Jr., “QSFs can help a lot, especially in big cases.” And last year the charity Help Hope Live launched the Plaintiff Fund, a much-needed plaintiff support for those fundraising to pay medical expenses.

Most settlement solutions complement the use of structured settlements, a critical feature especially with structures set for continued growth.