This article was adapted from the book The Art of Settlement, written by Jason Lazarus.
When personal injury victims win a settlement, it can be life-changing. They have costly medical bills to contend with, as well as the fact that they often aren’t able to live or work the way they used to. To victims, settlements aren’t just money; they’re an assurance that the victim will have their needs met and will be able to get on with their lives as best they can.
Still, it’s hard for personal injury victims to know what to do. Should they take the settlement in a lump sum? Take it in installments? Put it in a trust?
Many personal injury practitioners seem to believe that advice regarding financial matters and techniques to preserve public benefit eligibility crosses the line between legal and “financial” advice. However, these issues touch on the law and do create an obligation on the part of the personal injury practitioner to properly advise the client regarding their implication as to the form or structure of the recovery. Here’s why.
Malpractice Liability for Failing to Advise Injury Victim Clients
Precedent shows that lawyers who fail to advise their clients about the financial implications of their settlement are liable. The Grillo case from Texas is the most widely publicized legal malpractice settlement involving liability for failing to counsel a minor client on the form of a personal injury settlement. Christina Grillo was born with cerebral palsy, cortical blindness, and quite a few other medical problems. Her parents instituted a medical malpractice action alleging her medical problems were due to negligent medical care during delivery in a Texas hospital. The medical malpractice case was settled for $2.5 million. The settlement was placed into the court registry. The interest earned from the investments in the trust was taxable and the child lost her Medicaid eligibility since no Special Needs Trust was established.
The personal injury lawyers who handled the case were later sued for legal malpractice for their handling of the settlement. In the legal malpractice action, Grillo’s legal counsel, Kevin Isern, alleged that her personal injury lawyer “didn’t offer a structured settlement to the child and “[t]hey had the money deposited into the registry of the court…and she lost Medicaid.”
Having the money placed in the court registry meant Christina Grillo could not have a tax-free structured settlement and all of the accrued interest was taxable. He also pointed to the fact that the lawyers also failed to set up a Special Needs Trust which would have preserved her Medicaid eligibility.
The Grillo legal malpractice case was settled by the personal injury firm that handled the medical malpractice action on behalf of the minor and by the guardian ad litem (GAL) who had represented the minor’s interests when the settlement was approved. The personal injury firm settled the legal malpractice action for its handling of the medical malpractice settlement for $1,600,000. Interestingly, the suit against the GAL was settled for $2,500,000.
For attorneys who serve as guardian ad litems with any frequency, it is attention grabbing that the GAL wound up with the largest share of the liability in terms of the gross settlement amount. However, it sends a clear warning message to personal injury lawyers as well as guardian ad litems about their obligations to properly advise a client about the financial options they have and preservation of public benefits.
Ethical and Legal Duties to the Plaintiff at Settlement
The fact that all the issues relating to the form of the recovery touches the law drives home the fact that it is the personal injury lawyer’s obligation to at least raise these issues as part of their discussions with the disabled client. There are provisions in the United States Code along with the Internal Revenue Code that impact the form of the recovery. These provisions, if not explained to the injury victim client, can result in the client’s inability to avail themselves of options available under the law. If the injury victim’s lawyer does not explain these issues to them, who will?
If the disabled client is not given advice about how to structure their recovery, they could suffer quantifiable damages that can be proven in a legal malpractice case. Furthermore, allowing a disabled client to take the personal injury recovery in a single lump sum without any advice on the impact of that decision would set up a situation where the client could be adversely impacted by the passage of time. Without knowledge of the tax law, the client can lose the power of a significant tax exemption offered for structured settlement recipients. He or she can lose out on the opportunity for a safe investment with competitive rates of return. Finally, and potentially the most damaging, the client can lose public assistance eligibility.
Personal injury lawyers have an ethical responsibility to inform their clients about the financial implications of their settlements. There are many experts that can be hired to make sure clients are properly advised of all their options for their recovery. To avoid future liability, the personal injury lawyer should hire such experts to protect their clients and themselves. If clients refuse counseling or refuse methods to protect their recovery, a good course of action is to have them sign a waiver or acknowledgment that they have been advised of their options and understand what they are giving up. If the personal injury practitioner gives clients all their options regarding how to structure their recovery, and has them sign a waiver/acknowledgment if they decline the options presented to them, the lawyer has at least documented the file so if there is a subsequent legal malpractice claim, they can offer evidence of the advice they gave.
You’re Responsible (or, You’re Responsible for Hiring an Expert)
The American Bar Association released its report on the Profile of Legal Malpractice Claims in 2003 and personal injury lawyers made up the largest percentage of malpractice claims, at twenty percent. Advice and settlement/negotiation made up over twenty-three percent of the claims overall. When those two categories are combined, they are tied for first in terms of the highest claims by type of activity in the study.
While the report does not specify, it is logical to conclude that claims of failing to give advice about financial options, taxation of damages, and preservation of public benefits would squarely fall within the purview of advice as well as settlement/negotiation malpractice claims. A personal injury practitioner must discuss with disabled clients the form of their personal injury recovery or hire an expert to do so.
For more advice on personal injury lawyers’ responsibilities at settlement, you can find The Art of Settlement on Amazon.