What Does it Really Mean to Settle a Lawsuit?Posted on: July 18, 2020
WHAT IS A SETTLEMENT, LEGALLY SPEAKING?
A settlement is an agreement made between disputing parties. Rather than needing the tools and the decisions of a courtroom, a settlement, by its very nature, implies the parties involved were able to work out their dispute on their own through the aid of attorneys. Trials can be arduous and frustrating and costly, with the added risk that one party may come out more favorably than the other. In a settlement, both parties have ceded their willingness to cooperate on a solution, even if that means, for example, one party paying out a responsible level of compensation for their role in a car accident.
Settlements generally come in two forms: lump sum and structured. If you are the victim in an accident, weighed down by the heavy cost of medical bills, property damage, and ongoing pain and suffering, a lump sum settlement would involve the defendant paying you all at once. No waiting. But depending on the level of an agreed settlement, even a willing and cooperative defendant may not have the available funds to pay out everything at once. Which leads to something called a structured settlement, also sometimes referred to as an annuity plan. In this case, under a structured settlement, the defendant is in your debt, agreeing to make payments over time, for several years. Or, in a more serious case, a payment that will continue for the rest of your life and theirs.
Depending on the type of settlement, there can be pros and cons. Lump sum settlements are the largest and most immediate way to know that a case is behind you, but having access to that much money at once can also be disorienting, especially if the compensation goes over and above the outstanding costs involved. The recipient of a lump sum may be tempted to spend beyond their means, investing in items that they are unable to maintain in the long run. On the other hand, structured settlements might seem like an extra, regular income, but if your injuries are serious enough to warrant ongoing care and the party paying your settlement happens to go bankrupt at any point, then the source of that settlement may run dry while you continue to battle with the conditions of the original dispute.
The benefits of having an attorney involved in the process of your case are myriad, but when it comes to settlements, our firm is always prepared to evaluate the parties involved and provide the most reasoned advice.
IS A SETTLEMENT TREATED AS TAXABLE INCOME?
In the case of a personal injury, where the injury is physical, then no. According to the IRS, “the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness” shall be excluded from one’s gross income. The emphasis on that word physical should cannot be overstated, since the IRS can often be a stickler, but was held at bay in the case of Lefleur v Commission, back in 1996.
But if that seems pretty cut and dry, simple and straightforward, it isn’t. The IRS may draw a different line in the sand on the meaning of physical. For example, in the case of a serious car accident, you may deserve compensation for emotional distress or even an increased regularity of headaches, setting aside any fight our attorneys might have on your behalf over the issue of pain and suffering. But the IRS does not consider “mental pain and anguish” or “injury to professional reputation” to be within their definition of physical. They concede that emotional distress may lead to physical symptoms, like insomnia and stomach disorders, but that these do not qualify in the same way that, say, a broken bone or a punctured lung may indicate in their terms a more verifiable source of physical damage.
WHAT SHOULD I KNOW ABOUT FLORIDA PERSONAL INJURY SETTLEMENTS?
First, we should back up and talk about Florida personal injury cases in general, particularly as they relate to car accidents, which tend to be the most common example. Should you ever be a Florida car crash, you have up to four years from the date of the accident to file a claim, according to the statute of limitations in our state. But one of the reasons this statute extends out four years is because the victim of an accident may not, initially, see the long term damage to their life and livelihood at the time of an accident or even in the first few months afterwards. In seeking the consultation of an attorney, our job is to assess any of the following:
- Medical bills, their costs, and their reasonableness
- The loss of past wages as well as future
- The type of insurance and amount of coverage for both parties
- Factors of comparative negligence in more serious accidents
In the State of Florida, insurance companies are barred from skirting the system to avoid payment of a claim, but as a business, they are incentivized to minimize their own losses. So rather than engage in deceptive practices, you could be asked to sign a form that indicates you accept their initial payment in lieu of any further claim or need of compensation. The problem is that most of us can’t possibly know the full extent of our damages until the dust has settled, even when insurance companies are in a hurry to resolve claims. It can be tempting to accept the offer of a check, especially when a car has been totaled and a driver wants the freedom to get back on the road by purchasing a new one, but the lingering symptoms of an accident are often gradual and can start to add up in ways that exceed the mere cost of buying a replacement vehicle.
SO HOW DO YOU DETERMINE THE VALUE OF A SETTLEMENT OFFER?
If a defendant wishes to settle with an injured party, their initial offer of a settlement may sound good with any serious dollars attached. But in consultation with an attorney, a few things have to be considered.
First is the liability of the defendant. If the recorded evidence of an accident leans heavily in their favor, the defendant may hold more leverage in terms of an offer. They might even offer to settle at a low figure because they simply want the claim resolved, because they want to move on. But if the police report, the X-Rays, the images of damage, and a host of other available factors are more heavily in favor of the plaintiff, then a low offer may further discussions of going to trial and laying bare all the evidence with the audience of a courtroom.
Second is the extent of damage or loss to the plaintiff. On the surface, that might seem pretty straightforward, like compensation for medical bills and motor vehicle repairs, but the role of an attorney is to pull back the layers, looking at things like loss of income, gross negligence, or even pain and suffering. Depending on the situation, compensation alone may not suffice, leading to punitive damages, or rather, a punishment against the defendant for being openly careless and cruel in the actions that led to an accident and any subsequent injuries.
Third, and most related to the second, is a careful look at assets related to the defendant. Even in the most careless and heartless case, if a defendant is already poor or bankrupt or incapable of drawing funds, then punitive damages may be useless. As would the pursuit of a costly settlement for which they will knowingly struggle to pay forward. Wages can certainly be garnished, but the quality of a good settlement also hinges on a logical, reasonable agreement of parties involved. On the other hand, if a defendant has the means, then their offer would be weighed against their acceptable assets.
At the scene of an accident, no one wants to be there, on either side. But in the aftermath, the most responsible thing to do is seek out the consultation of an experienced and trial ready attorney.