Law Times

Law TiMes • March 28, 2011 BRIEF: STRUCTURED SETTLEMENTS PAGE 15 Avoiding common pitfalls in structured settlements I BY ROBERT TODD Law Times t's diffi cult to understate just how important a struc- tured settlement can be for a recipient, brokers say. For those who have suff ered life-changing injuries, it often becomes a sole source of income and thereby the diff erence be- tween living with dignity and fac- ing a never-ending battle against fi nancial and physical hardships. Yet structured settlement brokers say they often see the same mistakes by plaintiff s or their lawyers that can bring un- necessary complication to the process of establishing a struc- ture, or worse, take the option off the table entirely. Ralph Fenik, president of McKellar Structured Settle- ments Inc., suggests people can avoid many of these common errors by simply engaging a structured settlement broker early on in any proceeding. He points to a recent case in which his fi rm became en- gaged late in the game and in which questions have arisen over whether the right to have a structure was established. Th at type of straightforward planning mistake may seem implausible to onlookers, but Fenik says it's not that unusual. "At mediations and so forth, everybody's focusing on getting the case resolved and reaching a mutually agreeable number for the settlement," he says. "Th ey tend to forget the issues sur- rounding the structure, which is, obviously, No. 1, getting the right to structure, which without the defence's consent can't hap- pen unless it's by virtue of legis- lation that gives the courts the discretion to order structures." Fenik points out that law- yers who have failed to preserve the right to structure have later faced errors and omissions claims from clients. Th ey can avoid that type of headache by getting up to speed on struc- tured settlements, something brokers can assist with. "We even created a pre-me- diation checklist, and a settle- ment checklist, to outline all of these various items as to what needs to be done," says Fenik. Douglas Mitchell, president of Structured Settlements Group Inc., says another common area where plaintiff s can end up los- ing out comes through the nego- tiation of fi nancial rates that will apply to any structured settle- ment. Accordingly, he estimates he now spends a signifi cant part of his time helping plaintiff s or the defence develop the numbers they'll produce in arguments during negotiations. "It is very much part of the adversarial procedure," says Mitchell. Mitchell points out that reports on future care costs often rely on the consumer price index to de- termine the amount of money re- quired to fund appropriate goods and services for a plaintiff . While that measure is often considered a Untitled-4 1 reasonable means of determin- ing what the same product will cost down the line, Mitchell notes it's not infallible. "Ordinary costs of living are going up with [the index], that makes sense," he says. "But care costs are going up at least one- per-cent faster per year. Medical costs are going up at least two- per-cent faster than [the index]." Th at's why it's vital, he says, fulfi lling their duties to their client. Th ey're not getting in- dependent expert advice." Bob Nigol, managing part- ner of Henderson Structured Settlements LP, says rules imposed on the purchase of structures are a common over- sight. He points out that some casualty insurers decline to declare in advance the specifi c life companies they allow to the insurer mandates that it be named as the benefi ciary or sec- ondary payee. Nigol says post-settlement confl ict can often erupt when any of these issues aren't ad- dressed in advance, which can even put the primary settle- ment in jeopardy. But unfortunately for plain- tiff s, there's no real ability to wrangle with casualty insurers At mediations and so forth, everybody's focusing on getting the case resolved and reaching a mutually agreeable number for the settlement. for plaintiff s and their lawyers to dig deeply into the numbers to get a precise estimate of the size of settlement required. To illustrate that point, he refer- ences a recent matter in which the plaintiff would have lost up to 25 per cent of the case based on improper calculations. "Th at's where the danger lies," says Mitchell. "Th at's where claimant lawyers are in a situation where they're not be used in the transaction. At the same time, some ca- sualty insurers fail to make it clear that they won't own the structured settlement and that they require the ownership to be assigned. Th at can add both direct and indirect costs to the process, notes Nigol. Meanwhile, others also fail to declare that they require a reversionary interest in the structured settlement, meaning over these issues. "Settlements must be con- sented to by the casualty insurer because technically they pur- chase them for the benefi t of the injured party," he says. "Th ey're largely in the driver's seat." Kyla Baxter of Baxter Struc- tures agrees that the essential fi rst step in the process is an agreement among parties that they'll use a structured settle- ment in the resolution of the matter. Th ey can then proceed to establish ownership of the annuity. She adds that brokers must thoroughly survey the en- tire market for the best deal. "Structured settlement bro- kers must be diligent in this regard to ensure that the best rate of return for the struc- tured settlement is obtained and the life company with the best rates receives the placement of the structure," Baxter said in an e-mail. She added that the parties' counsel and the broker must also review and approve closing documentation. "Th e parties must recognize that Canada Revenue Agency has established strict require- ments with which the struc- tured settlement must comply in order to maintain tax-free status. Structured settlement brokers have the expertise to ensure that a structured settle- ment agreement has the spe- cifi c language and provisions required by the CRA." www.lawtimesnews.com 10/8/10 1:38:47 PM

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