Law Times

Page 14 November 24, 2014 • Law Times www.lawtimesnews.com Case law update Recent decisions consider indexation, child support By yamri Taddese Law Times s the case law contin- ues to develop around structured settle- ments, one of the ques- tions the courts are considering is whether the payments should rise according to the rate of inf la- tion. In a recent medical malprac- tice case involving a man left with permanent cognitive im- pairments resulting from two brain abscesses, the court con- cluded his structured payments shouldn't rise with the consum- er price index. "The issue to be determined is what structured settlement product will adequately protect Mr. Campbell's lump sum fu- ture care cost award from inf la- tion," wrote Superior Court Jus- tice Cory Gilmore in Campbell v. Roberts last month. The plaintiffs, Richard Campbell and his family, sought a structured settlement indexed at three per cent annually to minimize the risk of running out of money. Their concern was that if Campbell outlived the fixed number of years under the structured settlement agree- ment, he'd no longer be able to afford the care he requires. The question before the court, then, involved assessing whether a fixed-term annuity or one linked to the consumer price index would be more ap- propriate given Campbell's life expectancy. In inf lation-indexed struc- tured settlements, annuities in- crease according to the statistics published annually by Statistics Canada. "In addition, and I think this is an important point, there is an enhancement to CPI- linked annuities in that if there happens to be def lation, the annuity doesn't decrease," says Ralph Fenik, president of McK- ellar Structured Settlements Inc. "With CPI linkage, the an- nuity . . . either increases or con- tinues the same; it never goes down." There's an obvious appeal for indexation among those who don't want inf lation to eat up their income in the future. "It is really the only prod- uct that could provide close to perfect inf lation protection," says Barry Chobotar, managing partner of Henderson Struc- tured Settlements LP. But why, then, did Fenik, who gave evidence about the index- ation of structured settlements in Campbell, testify that out of 4,000 structured settlements his company sold over the last five years, just two involved a link to the consumer price index? According to Fenik, that's because inf lation-indexed struc- tures cost more. He tells Law Times the high premiums associ- ated with inf lation-indexed set- tlements may never pay off, espe- cially if the individual receiving the payments is older. "When I'm dealing with cli- ents in that situation, I say: 'Well, you could have indexation of over three per cent, guaranteed increases, [but] what are the chances of inf lation over the next 10 years averaging over three per cent or 3.5 per cent? Because if it's not going to, then you're paying a premium to get CPI for which you will never really derive the benefit,'" says Fenik. In Campbell, the court ul- timately decided on a fixed- rate annuity after considering Campbell's life expectancy and the average rate of inf lation. "Given all of the above, I order that the structured settlement related to Mr. Camp- bell's future care costs be set at a two per cent fixed rate annuity for a period of 10.4 years," wrote Gilmore. "Inf lation has averaged 1.85 per cent since 1992 (as per the defendants' submissions) and, according to Mr. Fenik, it is unlikely that inf lation will sky- rocket over the next decade," the judge said, adding that the Bank of Canada has a target of keep- ing inf lation at or below two per cent. "A fixed term annuity is appropriate given the expert opinions on Mr. Campbell's life expectancy," the judge deter- mined. Fenik says an indexed struc- tured settlement can be more appropriate in cases involving people who sustained injuries at a very young age. "It was a very short-term payout that was required based on the evidence," says Fenik of Campbell. "The final decision by the judge in that case was that the annuity would pay for 10.4 years. There was essentially very close agreement on what the life expectancy of that individ- ual was. It was very short term. Then the question becomes one of is CPI a good product to use for indexation of a structure in such a short-term payout?" Kyla Baxter, president of Bax- ter Structures, agrees. "CPI-in- dexed annuities are expensive," she says. "The life insurance compa- nies are pricing them around three per cent or even 3.83 per cent depending on the life company. If you wanted a fixed three-per-cent indexation, it is certainly more cost effective to do so." Her firm had a tendency to quote inf lation-indexed annui- ties for older accident-benefits policies, says Baxter. "However, I am sure I speak for most struc- ture companies that they simply are not actually purchased," she says, noting "they are just too expensive and do not deliver the higher indexed rates given the current interest rate situation we are in. Many predict rates will get better. However, I don't anticipate anywhere close to the double digits we experienced in the 1980s. The generally accept- ed index rate has been two per cent from our experience." What will happen with in- f lation isn't clear, of course. As Chobotar notes, there's no guarantee it won't rise. "That's opinion," he says of the predic- tions of continued low inf lation. "From my perspective, anyway, that's evidence best given by an economist or someone who is in that area. I can't tell you what inf lation is going to be next year any better than you can tell me. That's outside my area of What do your clients need? The means to move on. Guaranteed. ™ Baxter Structures customizes personal injury settlements into tax-free annuities that can help your clients be secure for life. » Pre- and post- settlement consultation and support » Caring professionalism for over 30 years » No fee to you or your clients Need more information? Contact us at 1 800 387 1686 or baxterstructures.com Kyla A. Baxter, CSSC PRESIDENT, BAXTER STRUCTURES Baxter_LT_Oct7_13.indd 1 13-10-01 4:03 PM BRIEF: STRUCTURED SETTLEMENTS A See Inflation, page 15

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