If you are a plaintiff in an injury suit and are awarded damages, you can sell the money owed to you in a structured settlement. In exchange, you get an upfront payment rather than incremental payments over the years. For many plaintiffs, this can solve financial problems that piled on during the pendency of the lawsuit, and that is important.
But these deals can only be done with a judge's approval when in the plaintiff's best interest. Unfortunately, there is evidence that this is not what's actually happening.
One Tragic Tale
A tragic tale published in The Washington Post in December tells the story of a man badly burned as child who was awarded a multi-million dollar settlement meant to keep him safe for life. At age 30, when he moved into his apartment, he showed his landlord the settlement payments he was supposed to get from an insurer -- $10,000 a month.
But he sold his incremental settlements for upfront money ... many times over. And soon enough he was evicted. What he left behind in his apartment, his landlord said, was trail of paperwork from lawyers for sales of the settlement.
Nine deals were approved by a single judge, whose duty it was to protect the plaintiff. The judge failed. The man, impaired and meant to be cared for all his life with money from this settlement, had sold $11 million for $1.4 million, or 16 cents on the dollar. Five of the deals are sealed.
Since 1975, insurance firms have committed an estimated $350 billion to these structured settlement agreements, spawning a secondary market in which companies compete to buy payments for a smaller amount of upfront cash, according to The Washington Post. It's another way to make money off of money.
Or is it? While it can be helpful -- not to mention tempting -- to get a settlement in a lump sum, they are structured over time for reasons, one of which is to serve plaintiffs over a lifetime. Almost every state has a law to protect plaintiffs and ensure judges only approve deals in their best interest.
But there are loopholes and judges who are insensitive to the interests of plaintiffs, or who perhaps understand the nature of these deals as helpful rather than predatory. Regardless, plaintiffs should be wary before deciding to sell their settlements for cents on the dollar.