If your defective drug or medical device lawsuit settled or a jury granted you an award, there are several ways in which you may receive your money. It may be paid all at once in a lump sum, or in multiple payments over time called a structured settlement.
If you filed a defective drug or medical device lawsuit and won a verdict or settlement, you can collect your money several ways.
Typically, drug or medical device legal payouts come in three different forms:
- An immediate lump-sum payment
- A structured settlement with payments made over time.
- A lawsuit loan against a future settlement award.
A lump-sum payment is a one-time check or wire transfer that is non-taxable. For many years, this was the only way you got money from winning a verdict or agreeing to a financial settlement.
Some defendants set aside funds money in a trust. Plaintiffs file a claim with the trust and court-appointed officials judge the merits of the claim by a certain set of criteria. The amount of money awarded is based on this.
For example, a recent $2 billion Actos settlement requires plaintiffs who already filed a lawsuit to submit a claim to a court committee. The committee then decides how much of the $2 billion each claimant will receive based on severity of injuries, such as bladder cancer, and the amount of documented damages.
If a case settles before trial – or before a verdict is reached – plaintiffs may get money faster than if it went to trial. In the case of a jury verdict, the process may be longer because defendants usually appeal the jury’s decision, causing delays, which can be lengthy. In addition, sometimes appellate courts reduce jury awards.
In 1982, Congress passed the Periodic Payment Settlement Act which encouraged the defendants to use structured settlements and pay out compensation in smaller payments over time. A structured settlement is a form of annuity that guarantees the recipient a set number of payments over months or years with a pre-specified dollar amount.
The idea was that giving out smaller amounts of money over time would help plaintiffs make better financial decisions for the long term. The legislation included tax benefits for structured settlement recipients.
Awards valued at more than $5,000 — including personal injury claims, worker’s compensation claims and wrongful death claims — often are paid through structured settlements.
How Structured Settlements Work
After a case settles, the defendant turns over the responsibility of making the payments to a third party. This party — called a qualified assignee or assignment company — then purchases one or more annuities from an insurance company. The insurance company is responsible for sending the periodic payments to the plaintiff.
Payments can be made monthly or annually, depending on the terms decided at the time of settlement contract. The timing of distributions can be tailored to account for the long-term needs of plaintiffs, such as future medical treatment or education. These payments are tax free.
Structured settlements are not dependent on market fluctuations and the amount and payments are guaranteed by the insurance company.
The terms of the payments and the schedule of distributions are determined after the jury award or settlement. In some instances, a plaintiff may decide to hold off for several years before receiving payments.
Here’s one example: A $500,000 award could be paid out in yearly, $50,000 installments over ten years. Other people may opt for monthly payments over a much longer time period. However, once the terms are set in place they cannot be altered. If the recipient of the settlement needs more money because of financial hardship or the desire to make a big purchase such as a house or car, they cannot take more money out than the predetermined amount.
In these instances, a plaintiff may decide to sell the structured settlement or annuity to a buyer at a discount. The company will then pay the plaintiff in a lump sum.
Lawsuit loans are advances against any possible future awards or settlement amounts. They are also known as lawsuit cash advances, settlement funding or litigation financing. In drug and medical device injury cases, plaintiffs and their families may be in dire need of money to pay for medical care or funeral expenses in the case of a death, and a settlement advance may help.
How Does Settlement Funding Work?
After you file a lawsuit, you choose a lawsuit/settlement funding company and send in an application for the loan. The company evaluates your claim and grants you a loan amount based on what they feel your case is worth.
The loan doesn’t usually have to be paid back until the claim is settled or the jury awards an amount. There is also a “funding fee” which accrues in interest per month. This fee can be anywhere from 2 to 4 percent each month. The longer the case takes to settle, the larger the fee can be. So, you have to consider taking out a loan wisely because you may end up paying up to triple of what you borrowed if it takes a few years to settle a case.
Paying Back the Lender
Example: You sued Drug Company X because it failed to warn you about side effects of a drug. You file an application for a loan with Lawsuit Loan Company Y. Company Y offers you $25,000 at 3 percent per month. A year later, you receive a settlement of $100,000. However, you must pay the principle back to the lender plus a $12,500 funding fee.
After about $50,000 in medical bills, litigation expenses and attorney’s fees, the $25,000 principle and the $12,500 funding fee, you will net $12,500 from the settlement after accounting for the loan and all the expenses.
In this scenario, if it takes two years to settle, the funding fee will double to $32,000. That would actually leave you with a deficit of $7,000, but you would not have to pay additional money to the settlement company. Also, if your case does not settle, you are not obligated to pay back the loan.
Before you decide on the terms of your structured settlement or decide to take out a settlement funding loan, you should speak to a financial advisor to make sure you are making the best decision based on your goals.