8.4 Special Considerations

• Library: Medical Malpractice Law in Virginia (Virginia CLE) (2017 Ed.)

8.4 SPECIAL CONSIDERATIONS

8.401 Settlements for Infants. The settlement of an infant's medical malpractice case is no different than a typical personal injury case involving an infant. Both require court approval. The requirements for obtaining court approval and the appointment of the required guardian ad litem are set forth in sections 8.01-9 (appointment of the guardian ad litem), 8.01-424 (court approval of the settlement), and 8.01-606 (payments of small amounts through the court without the intervention of a fiduciary) of the Virginia Code.

Section 8.01-9 gives the court or its clerk the power to appoint a guardian ad litem. It is the responsibility of the guardian ad litem to "faithfully represent the estate or other interest of the person under a disability for whom he is appointed." ⁸ The guardian ad litem's primary consideration is whether or not the proposed settlement is fair and in the best interests of the plaintiff. The guardian ad litem must review the pleadings and the evidence that would have been presented at trial and must analyze closely the alleged negligence and causation issues as well as the infant plaintiff's alleged damages. No guardian should ever approve a settlement for some discounted value if he or she is not satisfied that either the liability question makes the settlement appropriate or the child's medical or financial situation is such that the child has either fully recovered or the future medical bills will be paid by a third party.

Section 8.01-424 details court approval of an infant settlement. In relevant part, this section provides that:

1.	The case can be settled and the proceeds paid into the court, as provided by section 8.01-600 of the Virginia Code, or to the general receiver of the court;
2.	A fiduciary, appointed for the infant, can take control of the money, but an adequate bond must be posted to protect

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	not only the principal amount but also the anticipated future value of the settlement fund;
3.	If the settlement amount is $25,000 or less, the proceeds may be paid to the parents or "some other person who is considered competent to administer it" for the benefit of the infant, without the intervention of a fiduciary, pursuant to section 8.01-606 of the Virginia Code. No bond is required by the party to whom the money is paid in this situation; and
4.	The money can be paid out through the use of an annuity, which provides for payment to the infant over a period of years. This option may be attractive for several reasons:
	a.	Posting a bond may be unnecessary, 9 depending on the type of payout;
	b.	A very competitive rate of return is usually available; and
	c.	It is usually possible to guarantee that some amount of money will be available to the child when he or she reaches the age of majority. However, the requirements of section 8.01-424(D)(4) of the Virginia Code must be met when selecting the company from whom to purchase the annuity.

As a final consideration, the defendant or his or her carrier is typically responsible for paying the guardian ad litem's fee and for the costs and time in preparing the settlement documents. The purpose of obtaining the court's approval is to protect the defendant from later defending the suit when the child reaches the age of 18 years. Thus, the defendant has a vested interest in seeking and obtaining the court's approval of the settlement and should be responsible for the preparation of all documents and costs related thereto.

8.402 Wrongful Death Claims. Pursuant to section 8.01-55 of the Virginia Code, the personal representative of a deceased may compromise

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any claim for damages arising out of the wrongful death action recognized by section 8.01-50. However, like the settlement of an infant claim, the settlement must be approved by the court where the action is pending or, if no action has been filed, with the consent of any circuit court. If the settlement is approved, the court has the right to direct how the distribution of the settlement proceeds will be made to multiple beneficiaries if the representative and beneficiaries are unable to reach an agreement on the distribution of proceeds.

8.403 Structured Settlements.

A. Annuity-Based Settlements. Structured settlements have become increasingly popular since the mid-1980s as an alternative to traditional lump-sum cash settlements. Many plaintiffs wish to handle their money responsibly but may lack the experience and financial acumen to differentiate between appropriate and inappropriate investments. They may risk their money in inappropriate investments where the risk far exceeds what a tort victim can tolerate. Plaintiffs may fall victim to investment salespeople who are motivated more by the prospect of earning a commission than by a desire to give good advice.

An annuity-funded structured settlement is fairly simple. All parties agree on a settlement amount, and the plaintiff releases the defendant from tort liability. In addition to a lump sum payment, the defendant agrees that future periodic payments will be made to the plaintiff through the purchase of an annuity from a life insurance company listing the plaintiff as the payee.

Traditionally, the defendant owned the annuity policy, and the plaintiff had no direct contractual rights to it. The carrier made payments to the claimant at the express direction of the annuity owner. This traditional approach changed with the passage of the Periodic Payment Settlement Act of 1982, ¹⁰ which allows defendants to assign their future payment obligations to a third party. In this arrangement, the plaintiff agrees to accept a new obligor who is informally called the assignee. The defendant assigns to its assignee its obligations to make payments. Today, almost all structured settlements are handled this way.

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Plaintiff's counsel must select an annuity-based structured settlement that will meet the long-term needs of his or her client. The insurance industry used to provide sufficient security for future payments. Now, however, with top-rated life insurance companies being placed in receivership, many lawyers have begun to question the security of structured settlements. With this in mind, plaintiff's counsel should:

1.	Verify the assets and financial stability of the assignee company as well as the life insurance company. The most secure structured settlements are those where both the issuing life insurance company and the assignee are financially strong;
2.	Request a surety bond guaranteeing the assignee's performance. This provides another strong company to back the settlement. The surety insurer should not be another insurance company within the same family or group;
3.	Request that the life insurance carrier issue a letter guaranteeing the obligations of its assignee;
4.	Request that the plaintiff be given a superior credit position to general creditors in order to prevent the plaintiff from only receiving partial payments or none at all if the assignee becomes insolvent;
5.	Look at more than one rating source in evaluating the life insurance carrier or assignee. In the late 1980s, the Securities and Exchange Commission approved several rating agencies, including Duff & Phelps LLC, 11 Moody's, 12 and Standard & Poor's. 13 These rating agencies issue "claims-paying-ability" (CPA) ratings for life insurance companies. A CPA rating is an independent evaluation based on an established scale of a carrier's ability to meet its long-range contractual obligations. These ratings are

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	useful to help counsel choose a secure company or group;
6.	Remember that life insurance carriers are regulated by state insurance departments, while most assignment companies that are not life insurance carriers are not subject to such controls. Life insurance carriers are generally more secure assignees than other types of companies;
7.	Not be misled and assume that the Virginia Guaranty Fund will protect the settlement in the event the life insurance carrier becomes insolvent. The fund is not applicable to life insurance or annuities; 14
8.	Include a clause in the agreement that the sums set forth in the schedule of payments "are not, nor are they intended by the parties to be, compensation for lost income, and the provisions of this agreement shall be construed to give effect to such intent." The tax exclusion on damages applies only to damages received on account of personal injuries or sick-ness; 15 and
9.	Make it clear that the obligation of the defendant, the insurer, or the assignee to make each periodic payment is only discharged when a valid check is received by the payee. Sometimes the insurer will try to insist on a different standard, such as when the check is sent. If possible, insist on discharge only upon receipt, since checks occasionally get lost in the mail.

B. Treasury Bonds Structured Settlement Trusts. When absolute security is the primary objective, a structure based on United States Treasury bonds may be desirable. The United States Treasury Bonds Structured Settlement Trust (TBSS trust) was developed in response to concerns about the stability of insurance carriers in the wake of their poor

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investment record in the 1980s. TBSS trusts differ from annuity-based structured settlements as follows:

1.	The assignment is to a separate trust created exclusively for the case being settled;
2.	A bank serves as the trustee;
3.	The trust purchases United States Treasury bonds rather than an annuity;
4.	A security interest is granted to the plaintiff, as permitted by I.R.C. § 130; and
5.	The plaintiff holds the only security interest in the bonds, which are individually purchased by the trust for each case.

There are at least two limitations to a TBSS trust. First, since the longest United States...