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How Structured Settlements Help Maximize Recovery in Death Cases


By Stefanie V. Plotkin, CSSC, Steven F. Chapman
and Gregg Chapman, Esq.

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> Structured Settlements in Death Cases
Steve Chapman, Gregg Chapman, Esq. and Stephanie V. Plotkin
specialize in structured settlements of workers’ compensation cases.
In this article they discuss the use of structures in death cases.

For more information on structured settlements and the structure broker’s role, see:

 
 
Structured settlements play a large role in the resolution of death cases. The structured settlement allows for the decedent's family to receive guaranteed payments which can be tailor-made to fit the dependents' circumstances. Additionally, the structure can provide a financial incentive for the work comp carrier to settle with the decedent’s family now. As more applicants’ attorneys are taking an aggressive approach to the present value calculations of these cases and looking for COLA adjustments as well, the structured settlement is the perfect tool for calculating the cost and outlining the payment streams so that all parties are clear as to what is being demanded and how those figures were arrived at.

Structured settlements have always been viewed as a win/win tool in the resolution of work comp cases, and death cases are no exception. The flexibility and investment characteristics of these special settlement annuities are extremely beneficial when working to meet the needs of the various parties involved in these unfortunate situations.
 
Structured settlements have always been viewed as a win/win tool in the resolution of work comp cases, and death cases are no exception.

1. What do you need to know to determine the
value of a death case?


The most basic information we need to determine the future and present value of a death case is the date of injury, the date of death (if different), the decedent’s average weekly wages (AWW) and the number of total dependents and their dates of birth.

California Labor Code Section 4702 sets forth the death benefit amount, which depends on whether there are total and partial dependents, how many of each, and how the benefit is payable. Subsection (b) provides:

(b) A death benefit in all cases shall be paid in installments in the same manner and amounts as temporary total disability indemnity would have to be made to the employee, unless the appeals board otherwise orders. However, no payment shall be made at a weekly rate of less than two hundred twenty-four dollars ($224).

For dates of injuries occurring 1/1/06 and after, the maximum death benefits are as follows:

  • $250,000 with 1 total dependent
  • $290,000 with 2 total dependents
  • $320,000 with 3 or more total dependents
  • $290,000 with 1 total dependent & 1 or more partial dependents
  • $250,000 with 1 or more partial dependents

When there is one or more totally dependent minors, the death benefit will continue after the maximum death benefit is paid until the youngest child reaches age 18 or until the death of a child who is physically or mentally incapacitated.

 

California Labor Code Section 4702 sets forth the death benefit amount, which depends on whether there are total and partial dependents, how many of each, and how the benefit is payable.

2. How do you determine the value of a death case?

Most of the time, we simply “mimic” the death benefits with annuity payments. For example, if a dependent is entitled to $290,000 payable at $385/wk, we run the cost of an annuity that would provide $385/wk or $1,668/month for however long it would take to pay out the $290K death benefit. The cost of that annuity is the structure present value, and this is the amount we use to put a demand together.

We also run an alternate calculation showing the present value of the case if cost of living increases are taken into consideration. More and more attorneys are now taking the stand that the annual SAWW increases are applicable to death cases, including those that do not meet or exceed the maximum TTD rate. The cost of living adjustment typically requested ranges from 2.5% to 4.5%.

 
Most of the time, we simply “mimic” the death benefits with annuity payments. We also run an alternate calculation showing the present value of the case if cost of living increases are taken into consideration.
 
3. Are there factors that could affect the value of a death case?

There are many factors that could affect the value of a death case. For instance, attorneys should remember that if a death case was denied and benefits have accrued, those benefits should be paid up-front and NOT discounted. Many times we’ve seen proposals from the defense “costing out” all the benefits prospectively without any consideration for retroactive benefits.

We should also remember that if the claim was originally denied and eventually picked up, the weekly death benefit must be based on the maximum TTD /DB in effect at the time the death benefit is paid.

For example, in 2008 we settled a death case involving an injury from 1999. This case was denied. The decedent’s AWW was $1,923. At the time of injury/death, the maximum TTD benefit was $490/wk. By the time we settled the case, the applicable weekly death benefit was $916.33 which was the maximum death benefit at the time. The settlement was based on this higher weekly rate and included annual increases until the youngest minor child turned 18. The value of this case increased by around 50% which resulted in a higher attorney fee and a greater overall benefit was paid to the family.

Under Labor Code Section 4661.5, when any TTD/DB payment is made 2 years or more from the date of injury, the amount of the payment shall be computed in accordance with the TTD/DB schedule in effect at the time the TTD/DB is paid. This does not apply if the payment will result in a lower rate because of a reduction of minimum average earnings.

 

 
4. Should a COLA be considered when determining the value of a death case?

As I previously indicated, there are more and more attorneys arguing for the application of COLA to future death benefits even on cases that do not involve maximum wage earners.

Keep in mind, on cases that do not involve minor’s continuation, if an annual COLA is added, the base death benefit will be paid out faster which in turn, increases the present value of the case.

If a COLA is added to the base death benefit and the minor’s continuation, the structure present value of the case will be significantly higher than if we just assumed level payments. For instance, we settled a case with a date of injury in 2006. The deceased made $777.50 per week and his family would have been entitled to $518.33/wk of death benefits. There were 2 total dependents including a minor born 2 months after the date of death. The applicant’s attorney discovered that the case was never denied and presumed admitted. We applied SAWW increases to the base TTD rate retroactively from the DOI resulting in an increased TTD rate of $591.14/wk by the time we settled the case in 2009. We also applied COLA increases to the future death benefits which increased the present value of the case significantly.

The defense will take the stand that these increases only apply to maximum wage earners. In most cases, the defense only agreed to consider future COLA increases when the WCJ indicated that if the case was tried, he or she will specifically order the application of future COLA increases to the weekly death benefit.

 

 
5. Please give me an example of how you can take an agreed upon settlement and customize the payments to meet the needs of the family.

We recently settled a case involving 2 minor dependents. The agreed upon settlement figure was $245,000. The family received life insurance proceeds and wanted to use the monies from the WC settlement to provide a college fund for the children.

We were able to design a plan which provided up-front cash of $55,000 to cover attorney’s fee and to provide minimal immediate cash to the family. We also provided a college fund of $10,000 per year to each child beginning on their 18th birthday for 5 years guaranteed as well as guaranteed lump sum payments of $15,000 and $50,000 to each child at age 24 & 28.

Typically the family requires the continuation of monthly payments from the WC claim. In most cases, we can still continue the monthly payments and still be able to provide future guaranteed payments for the minor children.

These plans are preferred by WCJs because the minors are guaranteed to receive benefits in the future.
 
Typically the family requires the continuation of monthly payments from the WC claim. These plans are preferred by WCJs because the minors are guaranteed to receive benefits in the future.
 
 
Stephanie V. Plotkin, CSSC, has 14 years of experience as a Structured Settlement Consultant specializing in workers’ compensation settlements. She has provided training to numerous insurance companies, third party administrators and law firms on the issue of structured settlements.

To contact Stephanie V. Plotkin:
Stefanie V. Plotkin
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Email: svplotkin@aol.com
 
Steve Chapman strives to remain current on all issues affecting the settlement of the case, including Medicare set-aside allocations, life care plans, medical cost trends, Long Term Disability, and Social Security issues.

To contact Steve Chapman:
Steven F. Chapman
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Cell: 310-480-5742
Email: SettleMan@aol.com
  Steve Chapman
 
Gregg Chapman has been a member of the State Bar of California for twenty years. Over the last eight years, he has worked for two of the largest national MSA vendors in various positions including General Counsel, National Sales Manager and Director of MSA Education. He has provided hundreds of presentations on all topics regarding Medicare Set-Asides to the insurance industry and attorney associations across the country.

To contact Gregg Chapman:
Gregg Chapman
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Email: greggchap@aol.com

  Gregg Chapman