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    The Christina Grillo medical malpractice case reached a $2,500,000 settlement in Texas in 1990 – thirty years ago. Why is the case still important today? And why, like two other historical industry events which occurred in 1990 (the Uniform Periodic Payment of Judgments Act and the Americans with Disabilities Act),  is it worth revisiting?

    Most structured settlement and settlement planning professionals, perhaps even some plaintiff attorneys, recognize the 1990 Grillo medical malpractice settlement and, even more so, the subsequent legal malpractice lawsuit and 2001 settlement involving Christina Grillo’s attorneys, as highlighting the potential legal liability for plaintiff attorneys who do not advise their clients about structured settlements.

    While all that is true, the Grillo case merits a second look today because, historically and strategically, the Grillo case can and perhaps should be viewed as a transformative industry event – possibly also as a critical step in transforming structured settlements from a defense-controlled “claim management” business model to a plaintiff-controlled “best interest” personal injury settlement planning business model.

     The Grillo case began (a $2,500,000 malpractice settlement in 1990) and ended (a $1,629,180 structured legal malpractice settlement in 2001) during two different industry eras.

    In 1990, NSSTA and and its defense-dominated membership controlled the structured settlement market with a traditional "claim management" business model. In between the two Grillo settlements, multiple historic industry events occurred, five of which (along with the Grillo case) helped to establish the foundation for “best interest” personal injury settlement planning:

    • OBRA 1993 - Until 1993, receipt of a personal injury award or settlement would almost automatically disqualify a recipient from receiving Medicaid. The Omnibus Reconciliation Act of 1993 (OBRA) created a "safe harbor“ consisting of three alternative types of “special needs trusts" (self-settled; pooled; third party) to allow disabled individuals to receive assets without disqualifying them from Medicaid. Today, SNTs represent an important settlement planning tool and an important submarket for structured settlements.
    • QSFs 1993 – In 1986 Congress enacted IRC 468B creating “Designated Settlement Funds.” Treasury, however, did not issue regulations establishing “Qualified Settlement Funds” (QSFs) and Revenue Procedure 93-34 until 1993. Proc. 93-34 specifies requirements under which an IRC 468B qualified settlement fund will be considered “a party to a suit or agreement” under IRC 130 (c) (1) in order to determine whether a qualified assignment has occurred. QSFs increasingly have become a useful and popular settlement planning methodology for resolving complex personal injury negotiations.
    • Childs v. Commissioner 1994 – The Childs v. Commissioner case demonstrated that if a structured settlement annuity is properly established, an attorney subject to a contingent fee agreement will not be required to recognize income on deferred future periodic payments he or she receives as compensation until he or she actually receives the payments. Not only did this groundbreaking case focus more plaintiff attorneys on structured settlements, it created an important new sub-market for the product, structured settlements for attorney fees.
    • The Weil Lawsuit 1996 – Prior to Weil, structured settlement annuity providers had refused to appoint plaintiff brokers. Three plaintiff consultants initiated a class action lawsuit against several life insurers, certain structured settlement consultants and the National Structured Settlement Trade Association (NSSTA). The case settled in May 1996. Although the terms of the settlement were confidential, the settlement coincided with a willingness on the part of structured settlement annuity insurers to license plaintiff-oriented consultants and to permit the sharing of commissions between defense and plaintiff consultants in concluded cases.
    • SSP Founded 2000 - Disenchanted with what they considered to be NSSTA’s "defense bias", a group of plaintiff structured settlement brokers formed the Society of Settlement Planners (SSP). SSP has continued to focus on building the profession of settlement planning.  SSP members now include settlement planners, structured settlement specialists, attorneys, product providers, and other professionals.

    The Legal Malpractice Case

    Josephine Grillo, Christina Grillo’s mother and guardian, filed a legal malpractice lawsuit on her behalf against the attorneys who had represented Christina in obtaining the $2,500,000 settlement. Mrs. Grillo alleged the attorneys’ services fell below the standards of reasonably competent and prudent attorneys practicing personal injury law in Texas in 1990.

    The legal malpractice lawsuit was settled, without any admission of liability by the defendant attorneys, on March 22, 2001 for a cash payment of $600,000 plus a structured settlement costing $1,029,180 payable into a special needs trust.

    Christina Grillo’s Amended Petitions in her legal malpractice case set forth multiple Causes of Action including negligence, breach of fiduciary duty and fraud, as well as false, misleading and deceptive acts and practices under the Texas Deceptive Trade Practices Act.

    Among the lawsuit's allegations: Christina’s attorneys had failed to inform Josephine, as guardian, of a structured settlement offer proffered by the defendants; they had failed to inform Josephine about the tax-free nature of structured settlements or the availability of qualified assignments and/or age ratings; they had failed to consult with experts about structured settlements, trusts and taxation; they had failed to obtain a structured settlement; and they had failed to obtain a special needs trust or Medicaid qualifying trust.

    Impact of the Grillo Case

    Looking beyond 2001, and considering other cases and industry developments including those summarized above, what impact has the Grillo case had on structured settlement and settlement planning standards and practices?

    First, consider the growth of settlement planning and special needs planning as definable markets and professions which has occurred since 2001. A broad range of professionals and professional associations, such as the Society of Settlement Planners which was formed in 2000, are now available to provide these services to plaintiffs and their attorneys. These professionals include structured settlements consultants, life care planners, settlement trustees, economists, tax attorneys, special needs attorneys, Medicare set-aside professionals, IRC Section 468B counsel, financial planners, registered investment advisors and other financial professionals.

    Second, to this author’s knowledge, with the exception of the Mraz case, there have been few, if any lawsuits since Grillo filed by plaintiffs against their attorneys for failure to recommend or obtain a structured settlement. Nonetheless, to avoid a lawsuit, whenever a plaintiff attorney is preparing for a mediation involving various tort and non-tort case, the attorney should ask: “have I advised my client about structured settlements and provided my client with adequate resources to allow my client to express an informed opinion of their possible interest?

    Third, plaintiff attorneys are increasingly knowledgeable about, and proponent for, structured settlements - recognizing the value of a structured professional, especially in preparing for a successful mediation, and why many of the most successful plaintiff attorneys are now structuring their own fees.

    Fourth, control of structured settlement negotiations has increasingly shifted away from defendants in favor of plaintiffs.  As a result of Grillo and other developments, many plaintiffs and their attorneys now insist (and should insist) that they be: 1) represented by their own structured settlement advisors; and 2) able to select whichever annuity providers will be funding their structured settlements. The logic of this argument has resulted in an increasing shift in control on structured settlement issues from the defense side to the plaintiff side in personal injury negotiations.

    Fifth, qualified settlement funds (QSFs), which were not available with the structured settlement clarification provide by Rev. Proc. 93-34 when the Grillo medical malpractice case settled in 1990, provide added impetus and opportunity for plaintiffs to utilize structured settlements today. QSFs offer a neutral space that benefits both sides to a negotiation simultaneously.

    • Efficient dispute resolution for each settling defendant, who pay an agreed amount into the Fund in exchange for a binding, court-approved release.
    • A safe harbor for claimants with unlimited time to resolve their own issues before any form of distribution is decided upon and before tax and other financial results are locked in place determining “receipt” of settlement proceeds.

    For all of these reasons, in this author’s opinion, the Grillo case should be viewed as more significant than just highlighting the potential legal liability for plaintiff attorneys who do not advise their clients about structured settlements – which it does. Rather, the Grillo case (actually two cases) should be viewed as a transformative industry event.

    Together, the two Grillo cases (which bookended an entire decade) helped to change structured settlements from a defense-controlled claim management business model to a “best interest” personal injury settlement planning business model – one that Independent Life will explore further in our upcoming webinar series titled “Best Interest Personal Injury Settlement Planning.”

    Christina Grillo died as a result of injuries related to her malpractice case. Her parents, Josephine Grillo Sullivan and Craig Sullivan have established and maintain The Christina Grillo Sullivan Foundation as her legacy.

    This article is part 6 of a 6-part retrospective series where key legislation and decisions that have impacted the structured settlement industry are analyzed and revisited. 

    1. Revisiting Periodic Payments of Judgments
    2. Considering the Uniform Periodic Payment of Judgments Act: Part I
    3. Considering the Uniform Periodic Payment of Judgments Act: Part II
    4. Considering the Uniform Periodic Payment of Judgments Act: Conclusion
    5. Celebrating 30 Years of the ADA
    6. Revisiting the Grillo Case

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