Written By : Catherine J. Byerly
Edited By : Emily Miller
Financially Reviewed By : Michael J. Boyle, M.S.

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The History of Structured Settlements

Structured settlements were first popularized in Canada during the 1960s as a way of managing payouts from settlements involving thalidomide. German pharmaceutical company Grünenthal manufactured the drug to ease morning sickness for pregnant women, but the sedative caused severe, life-threatening birth defects in thousands of children.

Thalidomide survivors require specialized health care and help with activities of daily living, and it quickly became clear that lump-sum settlements were not ideal for covering the cost of these lifelong needs.

Pro Tip
A stream of inflation-adjusted periodic payments was a more practical and just form of compensation.

Although structured settlements for thalidomide claimants originated in Canada, similar cases were later filed in the United States, which popularized the use of structured settlements in medical malpractice disputes.

Recognizing that personal injury victims could also benefit from this type of settlement, the federal government passed the Periodic Payment Settlement Act (PPSA) in 1983 to promote the use of structured settlements as a means of providing long-term, tax-free financial security to people seriously injured in accidents and their families.

Pro Tip
The PPSA is now part of the Internal Revenue Code.

Today, structured settlements are awarded in a variety of cases, and are common for lawsuits settled out of court. Most claimants get to choose between accepting periodic payments, taking a single lump-sum payout, or some combination of the two.

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However, in cases that involve minor children or persons found to be incompetent, courts typically require structured settlements in order to ensure the award money is disbursed and spent appropriately.

Structured Settlement Case Examples

Structured settlements can be used to settle any kind of civil lawsuit, but they are more common for particular legal issues.

Case 1

A 46-year-old woman suffers back and head trauma after an ambulance rear-ends her car.

Personal Injury: This area of law covers much more than just physical accidents. Long-term illnesses and even emotional and reputational harm can lead to a personal injury suit.

Case 2

A 35-year-old store clerk slips and falls on a snowy sidewalk outside of a major department store.

Workers’ Compensation: State laws require many employers in the United States to carry insurance specifically for work-related injuries or illnesses that employees may suffer.

Case 3

Patient was misdiagnosed with a chronic illness and was negligently prescribed medication that caused severe liver damage.

Medical Malpractice: A special type of civil lawsuit may be filed when a medical professional harms a patient through an incorrect diagnosis, a flawed treatment or a failure in follow-up care.

Case 4

A couple is killed in an accident aboard a train speeding in inclement weather.

Wrongful Death: When someone dies due to another’s negligence, the victim’s surviving loved ones may seek compensation for pain and suffering, funeral expenses and lost household income.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: July 12, 2021