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Suing the Wrongdoer – The Serious Personal Injury Lawsuit
Part IV of IV:

The final means to get compensation for loss of income is through a tort claim - bringing a lawsuit against the person who caused the injury and subsequent disability. A plaintiff can claim compensation in the form of general damages and special damages. General damages include damages for pain and suffering and loss of amenities of life, as well as damages for past loss of income, meaning the loss of income between the injury and trial, and future loss of income, as well as estimated costs of future care, and so on. Special damages can include damages for specific costs incurred as a result of the disability such as medical prescriptions, treatments, adaptive aids, etc.

Although the eventual outcome of a lawsuit can be quite positive, financially at least, lawsuits present their own headaches. They often take a long time to finalize and there can be significant costs along the way. Although many personal injury lawyers will offer contingency fee agreements to their clients, which generally provide for payment only after the case settles or is successful at trial, there are numerous other costs that must be paid along the way. Filing fees for court documents, payments to medical witnesses and other experts, photocopying of medical records, and so on. These up front costs can be quite a burden on a disabled individual who is already short on assets or income.

There is another problem: the risk of a costs order against an unsuccessful plaintiff. Costs are a reimbursement for the expense of bringing or defending an action. Typically costs follow the event. In simple terms, this means that the loser pays the winner’s costs. The Rules of Court contain a schedule through which costs are calculated for each step of a lawsuit. Although costs do not necessarily reflect the true and complete cost of bringing an action, they are still a significant burden to the loser of a lawsuit. The likelihood of having to pay costs will depend on the strength of the claim. In any lawsuit, the prospect of having to pay costs creates a risk - a risk that is often used by defendants to force you to settle early.

Another tactic frequently used to frighten plaintiffs into early settlement is the formal offer to settle. The Rules of Court have created a process whereby either side can make a formal offer to settle the action before trial. If the other side rejects the offer, and then does not better the offer at trial, they will owe double costs from the date of the offer up to the end of the trial. For example, a defendant offers to settle the plaintiff’s claim for $50,000. The plaintiff refuses and the matter goes to trial. At trial, the plaintiff loses. The plaintiff now owes the defendant double costs for every part of the action taken between the offer to settle and the trial. Even if the plaintiff wins, but gets less than the amount offered, let’s say $40,000, then the plaintiff owes costs to the defendant from the offer to settle all the way through trial even though the winner doesn’t usually pay costs.

The same rules apply in reverse, so the plaintiff has the option to play the same game. If the plaintiff makes a formal offer that the defendant refuses, and the plaintiff equals or betters that offer at trial, then the defendant is liable to pay the plaintiff double costs.
The Rules regarding double costs are meant to act as an incentive to early settlement. Unfortunately, the profound financial consequences associated with these Rules are sometimes used as a stick to force early settlement where the plaintiff is afraid of the potential consequences of proceeding in the face of a formal offer to settle.

The risks and financial problems just described apply to all litigation, whether it is an action against the person who hit you in a car accident or whether you are suing your disability insurance company for its denial of your disability claim.

The news is not all bad. Many plaintiffs are successful against insurance companies and against those who caused their injuries. A successful plaintiff will not only recover costs, but will win a damages award. The law requires that the court award damages as a lump sum, unless the parties agree otherwise. The trouble with a lump sum payment is that it leaves the plaintiff with the responsibility to manage and invest the funds to create a regular income stream for him or herself. Few plaintiffs are astute money managers, nor do they know how to find a suitable investment advisor. Furthermore, although the initial lump sum damages award is not taxable, the interest earned on the capital is taxable as investment income. To avoid some of these investment and taxation challenges, lawyers have come up with structured settlements.

A structured settlement is a voluntary agreement between the parties to the lawsuit whereby all or part of the damage award is paid out through periodic payments rather than through a lump sum. For example, there may be an initial lump sum payment to pay out the plaintiff’s mortgage, cover the cost of renovations to the home for ramps, or an elevator, or a main floor bedroom, or to cover the cost of adaptive aids and equipment such as a wheelchair or a special van, and perhaps provide funds for a much needed holiday. The remainder of the funds would then be structured through periodic payments, with perhaps some additional lump sum payments to cover replacement adaptive aids, and so forth. The arrangements range from simple to sophisticated depending on the needs of the parties. There are specialized firms in business doing nothing other than preparing structured settlements.

One of the main advantages to structured settlements is that the periodic payments are not taxable, just as the one-time lump sum payment of a damages award is not taxable. Another advantage is spendthrift protection. A structured settlement can protect a financially inexperienced plaintiff from losing a large portion of his settlement through inappropriate spending or vulnerability to pressure from family or friends. The settlement creates a guaranteed income stream for the disabled individual who needs this financial security. Structured settlements are a safe choice in that only federally registered life insurers can underwrite structured settlements.

According to an article in Canadian Lawyer, “the typical plaintiff seeking a structured settlement is a catastrophic victim, one who has future care needs and no prospect or limited prospects of income from employment or other sources during their lifetime.”

Structured settlements can also help a disabled individual retain their AISH benefits. In the case of a severe injury, a lump sum payment could put the AISH applicant over the $100,000 asset threshold. A structured settlement could be crafted to meet the specific needs of an AISH recipient. For example, a lump sum payment could be provided to pay out the mortgage on the home, since the principal residence is an exempt asset. Similarly, a lump sum payment could provide for a modified vehicle, another exempt asset. The remainder of the settlement could be structured in such a way to limit the impact on any AISH entitlement. The periodic payments will count as income in the month they are received. Depending on the amount of the payment, they might reduce the AISH benefits in the month they are received. They would not, however, impact overall AISH eligibility.

The main critique of structured settlements is that they do not provide the same rate of return that might be obtained through aggressive investment of a lump sum. In each case, the decision as to whether a structured settlement is worthwhile will depend on the specific needs and circumstances of the individual plaintiff. The earlier a structured settlement is considered, the better, as it can then be best planned to suit the plaintiff’s needs.

While it may seem that all is lost after someone suffers a disabling injury, there are in fact a number of ways in which the individual can recover, at least financially. Between a tort claims, disability insurance, or the government-sponsored support provided through AISH, disabled individuals who are no longer able to earn an income can find some form of income protection.