The History of Structured Settlements
Structured settlements were first popularized in Canada during the 1960s as a way of managing payouts from settlements involving thalidomide. German pharmaceutical company Grünenthal manufactured the drug to ease morning sickness for pregnant women, but the sedative caused severe, life-threatening birth defects in thousands of children.
Thalidomide survivors require specialized health care and help with activities of daily living, and it quickly became clear that lump-sum settlements were not ideal for covering the cost of these lifelong needs.
A stream of inflation-adjusted periodic payments was a more practical and just form of compensation.
Although structured settlements for thalidomide claimants originated in Canada, similar cases were later filed in the United States, which popularized the use of structured settlements in medical malpractice disputes.
Recognizing that personal injury victims could also benefit from this type of settlement, the federal government passed the Periodic Payment Settlement Act (PPSA) in 1983 to promote the use of structured settlements as a means of providing long-term, tax-free financial security to people seriously injured in accidents and their families.
The PPSA is now part of the Internal Revenue Code.
Today, structured settlements are awarded in a variety of cases, and are common for lawsuits settled out of court. Most claimants get to choose between accepting periodic payments, taking a single lump-sum payout, or some combination of the two.
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However, in cases that involve minor children or persons found to be incompetent, courts typically require structured settlements in order to ensure the award money is disbursed and spent appropriately.
Structured Settlement Case Examples
Structured settlements can be used to settle any kind of civil lawsuit, but they are more common for particular legal issues.
Examples of Structured Settlements
- Personal injury
- Workers’ compensation
- Medical malpractice
- Wrongful death
Case 1
A 46-year-old woman suffers back and head trauma after an ambulance rear-ends her car.
Personal Injury: This area of law covers much more than just physical accidents. Long-term illnesses and even emotional and reputational harm can lead to a personal injury suit.
Established by Congress through the Periodic Payment Settlement Act.
Case 2
A 35-year-old store clerk slips and falls on a snowy sidewalk outside of a major department store.
Workers’ Compensation: State laws require many employers in the United States to carry insurance specifically for work-related injuries or illnesses that employees may suffer.
Congress has viewed structured settlements of workers comp payments as an alternative to government support of workers injured on the job, expanding the settlements’ application through multiple tax reform laws since the 1990s.
“Structured settlements are critical to ensuring workplace injury victims and their families are financially secure while living free of reliance on government benefit programs,” Sen. Chuck Grassley (R-Iowa), said in a 2022 statement.
Case 3
Patient was misdiagnosed with a chronic illness and was negligently prescribed medication that caused severe liver damage.
Medical Malpractice: A special type of civil lawsuit may be filed when a medical professional harms a patient through an incorrect diagnosis, a flawed treatment or a failure in follow-up care.
Case 4
A couple is killed in an accident aboard a train speeding in inclement weather.
Wrongful Death: When someone dies due to another’s negligence, the victim’s surviving loved ones may seek compensation for pain and suffering, funeral expenses and lost household income.
