Settlement Planning & Risk Management: The Grillo Case: Are You Employing Pre-Resolution Planning and a “Client Acknowledgement Letter?”

As a personal injury or worker’s compensation attorney, you have finally been able to resolve an important – perhaps, large – settlement for an injured claimant with the defendant(s).  You know your work has only just begun in order to quickly get to full and final resolution of the settlement, and execution of the Settlement Agreement and Release.  You’ve calculated your attorneys’ fees, the costs and expenses of the litigation, made appropriate arrangements to reimburse any required past Medicare, Medicaid, ERISA or other health care provider liens.  You now have a final disbursement figure for your client’s benefit, and are ready to meet with your client to discuss options for use of those funds.

But, what if your client is a minor; an incompetent; eligible for continued Medicare and/or SSDI payments; or may need to remain income-eligible for future Medicaid, SSI payments or other governmental benefits, like food stamps or Section 8 housing?  What if you believe that your client may need a structured settlement, a Special Needs Trust, a Settlement Preservation (or other appropriate) Trust, or even a Medicare Set-Aside Account?  What if you believe your client needs a combination of the above?

Therefore, you promptly contact a structured settlement broker, a settlement planner, or an Estates and Trusts attorney with expertise in special needs cases.  One or more of the above consultants meet with you and your client, and make recommendations necessary (1) to secure your client’s financial future, especially for long-term medical and other life care needs; (2) preserve your client’s eligibility for Medicaid, SSI and other governmental benefits; and/or (3) protect Medicare’s future interests pursuant to the Medicare Secondary Payer Act of 1980, 42 U.S.C. Section 1395y(b)(2).  Hours may be spent working with these consultants, and meeting with your client to protect and preserve some or all of the above.  You fully agree with the recommendations of these consultants as being in your client’s best interests and necessary to protect the client from the ramifications of the above and the risks associated with failing to employ some or all of these settlement planning techniques.  And, you’ve spent hours explaining the importance of these issues to your client.  You do not want your client to prematurely dissipate the settlement funds or, potentially, outlive needed benefits thereof.

Then, after all that work, and despite the recommendations that are obviously in your client’s best interests, your client tells you that he wants the cash now . . . and all of it.  You may be flabbergasted, but you know that ultimately it is your client’s decision, regardless of the potentially-adverse ramifications to the client and the strong recommendations made by you and the consultants you brought in to advise the client.  We have all been there.  Then, months or maybe a few short years later, you get the call you always dread:  your client calls to say he or she has none of the settlement proceeds left, and what can you do to help?  Most likely, the answer is absolutely nothing.

More frightening, what if - at the time of settlement - you never considered the adverse ramifications to your client noted above prior to having him or her execute the Settlement Agreement and Release?  What if you never brought in the structured settlement broker, settlement planner or E&T attorney?  What if you simply cut the check to your client for the full cash proceeds of the settlement without consideration of these important issues?

More importantly, what if you get that call a few months or several years later, and your client informs you that (1) he or she has none of the funds left; or (2) the government cut off Medicaid benefits, SSI payments and other governmental benefits; or (3) Medicare has contacted the client and wants immediate reimbursement for their conditional payments; or (4) a combination of the above?  And, why should you be concerned?  You effected a great settlement for your client and did everything possible and appropriate prior to, and during, the litigation in order to maximize the recovery.  Well, unfortunately, you should be concerned.

The reason is the seminal and oft-cited Texas case of Grillo v. Pettiette et. al. (Docket No. 96-45090-92, 96^th District Court, Tarrant County, Texas).  The facts of Grillo are, as follows:  in 1982, Christina Grillo suffered a birth injury in a Texas hospital, resulting in quadriplegia, seizures and blindness.  Plaintiff’s complaint alleged medical negligence against the attending physician.  Life care plans prepared on plaintiff’s behalf opined that the costs for future lifetime medical care for young Christina were in excess of $20 million.  During litigation, defendants offered plaintiff a structured settlement plan costing $1.2 million that, over the child’s lifetime, would have netted over $100 million.  Plaintiff’s counsel and her Guardian ad Litem declined the offer.  In 1990, the case was settled for $2.5 million in a cash only settlement.  The cash settlement was recommended by both the plaintiff’s attorney and GAL. 

Not unexpectedly, in several years, the disbursement for Christina was completely dissipated, leaving the family with nothing to cover her lifetime medical and life care expenses.  The family (and, yes, the taxpayers) were left to pay tens of millions for those same medical and life care expenses.  The child’s family subsequently sued plaintiff’s attorney and the GAL for negligence and legal malpractice, arguing that the defendant attorney and GAL should never have recommended a cash settlement, and that defendant should have insisted on a life contingent, structured settlement plan for Christina.  Defendants in the legal malpractice claim ultimately settled the claim for an amount in excess of $4 million, much of which was ultimately structured.

Since Grillo, numerous cases across the country have been brought against counsel and representatives of minors and incompetent adults where a lump sum settlement was recommended by plaintiff’s counsel as opposed to a structured settlement plan.  Likewise, and again throughout the country, most legal advisors have concluded that in certain personal injury and workers compensation cases, a 100% lump sum settlement, especially without the benefits of a structured settlement plan, are simply inappropriate.  The key risk in doing otherwise is the premature dissipation of the much-needed settlement funds throughout the life of the injured party.

More importantly, such cases illustrate the risk management problems and liability exposure of attorneys, guardians and legal representatives of the injured party, especially where the lump sum settlement funds are expended well before the full needs of the injury victim have been met.  Settlements of this sort should, and are often are, intended to meet those future medical and life care needs, yet dissipation of those lump sum settlement proceeds remains the number one risk to the injured party.  While not every case is appropriate for a structured settlement, employing other available settlement planning techniques is imperative, especially in circumstances where Medicaid and other governmental benefits are often lost immediately upon receipt of the lump sum settlement.  Moreover, as workers compensation claimants have had to do for more than 15 years now, failure to employ Medicare Set-Aside Accounts in order to protect Medicare’s future interests in liability cases is of growing concern to plaintiffs, plaintiff’s counsel, defendants and their insurers.

Therefore, employing appropriate settlement planning consultants, whether they be structured settlement brokers or not, is – in this author’s opinion -- a valuable and, indeed, necessary resource for proper risk management of certain personal injury and workers compensation cases.

But, let’s return to the initial scenario above, where you as the claimant’s attorney have taken all of the necessary steps to obtain such settlement planning consultation, and you have then made those recommendations to your client, but your clients and/or their legal representatives have nevertheless insisted on taking their settlement proceeds in an all-cash lump sum settlement.  How can you best protect yourself from a potential future claim that you, as the claimant’s attorney, were implicated in the decision to accept such settlement funds in a lump sum only? 

Obviously, the first recommendation would be that you put everything concerning your efforts and recommendations in writing and ensure that the plaintiff and their legal guardians and representatives are provided with a detailed report of those efforts.  Alternatively, and as many of my clients have opted to employ, I have recommended the use of a “Client Acknowledgement Letter,” often referred to as a “Grillo Waiver.”  The Client Acknowledgement Letter is generally used by my clients in situations where, despite advice and recommendations to the contrary, the claimant has insisted on taking an all-cash lump sum settlement.  The Letter requires the client’s signature and his/her initials at various points indicating that he/she understands certain ramifications of that decision, especially as it relates to the risk of premature dissipation of needed settlement funds and the possibility of jeopardizing certain critical governmental benefits, including and especially medical care provided by Medicaid and Medicare.  Obviously, “one size does not fit” all cases we handle. Feel free to edit this Client Acknowledgement Letter as you see fit and as necessary to the circumstances of your individual cases. 

Edward C. (“Tacker”) LeCarpentier, III, a licensed North Carolina attorney of 18 years, is the current Director of Annuities and Structured Products for Lawyers Insurance Agency/Lawyers Structured Settlements, a subsidiary of Lawyers Mutual Liability Company of North Carolina. Contact Tacker at Tacker@LawyersMutualNC.com or (919) 247-9070.