- A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. As part of the negotiations, a structured settlement may be offered by the defendant or requested by the plaintiff. Ultimately both parties must agree on the terms of settlement. A settlement may allow the parties to a lawsuit to reduce legal and other costs by avoiding trial. Structured settlements have become part of the statutory tort law of several common law countries including Australia, Canada, England and the United States.
- Structured settlements were first utilized in Canada as part of the settlement of claims made on behalf of children affected by Thalidomide.Structured settlements are now often used in product liability and pharmaceutical injury cases (such as litigation involving birth defects from Thalidomide).
- Structured settlements may include income tax and spendthrift provisions. Often the periodic payments will be funded through the purchase of one or more annuities, that generate the future payments. Structured settlement payments are sometimes called periodical payments, and when incorporated into a trial judgment may be called a "structured judgment".
- Structured settlements became more popular in the United States during the 1970s as an alternative to lump sum settlements. The increased popularity was due to several rulings by the U.S. Internal Revenue Service (IRS), an increase in personal injury awards, and higher interest rates. The IRS rulings stated that if certain requirements were met, claimants would owe no Federal income tax on the amounts received.Higher interest rates result in lower present values, hence lower cost of funding of future periodic payments.
- In the United States, structured settlement laws and regulations have been enacted at both the federal and state levels. Federal structured settlement laws include various provisions of the Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Forty-seven of the states have structured settlement protection acts created using a model promulgated by the National Conference of Insurance Legislators ("NCOIL"). Of the 47 states, 37 are based in whole or in part on the NCOIL model act. Medicaid and Medicare laws and regulations affect structured settlements. A structured settlement may be used in conjunction with settlement planning tools that help preserve a claimant's Medicare benefits. A Structured Medicare Set Aside Arrangement (MSA) will generally cost less than a non-structured MSA because of amortization of the future cash flow over the claimant's life expectancy, as opposed to funding.
- The typical structured settlement arises and is structured as follows: An injured party (the claimant) comes to a negotiated settlement of a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides as consideration, in exchange for the claimant's securing the dismissal of the lawsuit, an agreement by the defendant (or, more commonly, its insurer) to make a series of periodic payments.
