Academic journal article Journal of Legal Economics

Structured Judgments and Periodic Payments in New York: A Unique and Complex System for Tort Awards

Academic journal article Journal of Legal Economics

Structured Judgments and Periodic Payments in New York: A Unique and Complex System for Tort Awards

Article excerpt

Introduction

In New York, law makers have instituted structured judgment laws concerning the nature of periodic payments that will be received by plaintiffs who have won awards in wrongful death and personal injury actions. Economic experts in New York are being called upon to provide a new type of expertise for post trial hearings. Structured judgment laws often result in testimony by economic experts in post trial hearings held before judges asked to rule on judgment motions made by the litigating parties. This new type of expertise and testimony shares important elements with the skills needed to assess proposals sometimes offered in pretrail settlements. The key differences are that structured judgments are legally mandated for all verdicts not settled before final judgment and the assessment rules are to be spelled out by statute. This system is complex, and the explanation in this paper is designed to make it possible for practitioners outside New York to understand the New York system. Because other states have adopted similar, but less comprehensive structured judgment or periodic payment laws, an understanding of the system used in New York will be helpful to forensic economists, who may be asked to make calculations under the more limited provisions that exist in other states.1

This paper begins by considering the goals implicit in the New York legislation. It then describes the process of tort litigation that was created by New York's structured judgment laws. Finally, it takes the reader step by step through the calculations an economic expert will be called upon to make if a case is not settled between the parties before going to final judgment in a post trial hearing.

The Rationale for Structured Judgment and Periodic Payment Laws

In the broadest sense, a structured judgment is simply a financial scheme which completely distributes a verdict award to a claimant and the claimant's attorney. In the typical structured judgment, at least some of the award is distributed via immediate cash distributions, known as lump sums, with the rest of the award distributed through periodic payments. New York's statutes apply to all personal injury and wrongful death situations, with some special rules for medical malpractice. To understand these laws, one must begin with a consideration of the goals legislators may have had in mind when developing these statutes.

One special focus of structured judgment laws, both in New York and elsewhere, is on the fact that injured claimants may not survive through the term specified by a tort verdict. This is of particular importance when awards include a large sum for long-term life care needed by an injured party. In cases involving catastrophic injuries, future life care costs are often a very large element of damages. Assume, for example, that a jury awards $1 million per year based on a 25-year life expectancy for the injured person, with a total present value of $19 million. If the injured person survives only seven years, approximately $7 million of the $19 million would have been needed to pay for life care. The remainder would become part of the injured person's estate and passed on to heirs in what would amount to a windfall gain to the heirs.

The adversarial process of litigation can increase the probability of such windfall gains. A catastrophic injury can often increase the annual mortality probabilities of the injury victim. This is often referred to as "reducing the life expectancy" ofthe injured person, although this can be quite misleading.2 At trial, plaintiffs will try not to present testimony concerning reduced probabilities of life care needs so that juries will not award smaller damages for life care. Defendants will not want to argue that the plaintiffs claims are too large because the injury has probably significantly increased the annual mortality probabilities of the claimant. Doing so amounts to the defendants claiming they owe less money to the plaintiff because the injury caused by the defendants means that the plaintiff is less likely to live as long. …

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