The Periodic Payment Rule: UGHH!

The periodic payment rule, §509(b) of the M-Care statute, is an absolute killer. It is fraught with problems, complexity and uncertainty which will plague lawyers for years to come. Unfortunately, you need to know the nuances of the rule since it will govern many cases now coming up for trial.

Here are the basics:

• It applies only to future medical expense, not other elements of damage.
• It applies only to verdicts, not settlements.
• Future medicals must exceed $100,000 for the rule to apply.
• Attorney’s fees are paid in a lump sum.
• A separate sum is to be awarded for each year of future medical expense.
• The obligation to make the periodic payments ceases when the plaintiff dies.

The Verdict Slip – The rule requires that there be a separate line for each future year in which medicals will be accrued. If you have a young client with many years of future medicals, the verdict slip could resemble a grocery store receipt for a family of five. It remains to be seen how that might impact jury deliberations.

Uncertainty – Suppose as of the time of trial the plaintiff requires custodial care which, according to your expert, will cost $225,000 annually as of the year 2017. What happens if, in reality, the cost for that care is $300,000/year? Likewise, what happens if the plaintiffs medical expert indicates that the plaintiff will require a surgery in the year 2012 which will be estimated to cost $25,000, and then it turns out that the surgery is required two years earlier in 2010 and it costs $50,000? Since the jury’s award is itemized year-by-year based on the projected costs at the time of trial, and the defendant is required only to pay those amounts each year, it seems like the plaintiff will be out of luck in those scenarios.

Here are the problems.

• Attorney’s Fees – The rule says that fees are to be paid in a lump sum based on the present value of the future periodic payments. If you think the two sides will agree on present value, think again. In the irony of all ironies, the defense, which has historically tried to “sell” plaintiffs on the high present value of structured settlements, will now be arguing just the opposite, namely, that the present value of the future stream of payments in the jury’s verdict is less than what we might think, thereby reducing what they owe in counsel fees. Unfortunately, the trial judge is probably going to have to hear from competing experts and decide the present value issue, something I am sure every trial judge in the state cannot wait to do. Cessation of Payments – The defendant gets to stop making the payments once the plaintiff dies. This provision, which was the driving force behind the entire rule, will be of great benefit in those cases where impaired children who are projected at trial to live a long life turn out to die prematurely. However, there is no corresponding rule which requires the defendants to keep making payments if the plaintiff lives longer than what the jury determined in their verdict.
• Funding of the Periodic Payments – The rule says that the defendant can purchase an annuity to fund a verdict which, for example, requires them to pay medicals of $100,000/year for 45 years. Since annuities are typically sold by life insurance companies, the defendants will no doubt try to get a high “rate age” on a plaintiff (The higher the rated age, the sooner the life company is betting that the plaintiff will die.) thereby reducing the cost of the annuity. Thus, you can have a situation in which the jury determines that the plaintiff’s life expectancy is 45 years, but the company selling the annuity is willing to bet that the plaintiff will die in 30 years. In that scenario, the defendant ends up spending less money for the annuity than what the jury wanted them to spend.

These are just some of the problems that the periodic payment rule will foist on lawyers and judges around the Commonwealth. The prediction here is that once the trial judges learn of these and other problems, they will absolutely hate the rule and strongly suggest (demand?) that the parties stipulate to do business the old fashion way, i.e., with a lump sum verdict return on future medicals. Amen to that!