Why your client must sign a Grillo waiver when you settle their personal injury case for a lump sum payment

Attorneys are at risk for legal malpractice for not recommending a structured settlement instead of a lump sum for their clients. 

A key problem with cash settlements is early dissipitation: the money is spent before the needs of the injured party are met.  A 1992 California study found that in that state, 90% of all personal injury settlements were dissipitated within five years of the settlement. Structured settlements typically include both an immediate cash payment to take care of current needs and future payments often continue for the injured party's lifetime.  Structured settlement payments are income-tax free.

The bellwether case for attorney liability for failing to advise clients about structured settlements is Grillo v. Pettiete, 96-45090-92, 96th District Court, Tarrant County, Texas.  In 1982, Christina Grill was injured at birth at a hospital in Texas, and she suffered quadriplegia, blindness and seizures resulting from the negligence of her physician. During the pendency of the medical malpractice lawsuit, the defendant physician offered a structured settlement costing $1.2 million that would over the lifetime of the child have paid out more than $100 million.

The child's lawyers rejected the structured settlement offer and in 1990, settled the case for a cash payment of $2.5 million.  Like most lump sum payments, Grillo's cash settlement was completely gone within a few years, and the family was left to pay tens of millions of dollars for medical treatment over many years.

The Grillo family sued the child's attorney for legal malpractice arguing that the child's case should never have been settled for cash, and that the attorney should have insisted upon a structured settlement.  The defendant lawyer in the legal malpractice action settled for an amount in excess of $4 million.

Once liability for malpractice in failing to recommend a structured settlement is proven, the measure of damages is the difference between what the plaintiff actually received and the amount he should have received, and the potential is substantial.

At a minimum, the attorney for the injured party should advise their client of the risks and benefits of both lump sum and structured settlements.  Attorneys should ask their clients to sign "Grillo Waivers" on every personal injury case that settles for a lump sum payment.

The Grillo Waiver should include a client acknowledgement that:

(1) "I acknowledge that I have been given an opportunity to meet with a financial consultant of my choice.";

(2) "I am aware that the law enables all principal and interest earned in a structured settlement annuity to be excluded from my gross income adn that this opportunity is only available to persons like me who are recovering tort damages on account of a physical injury or physical sickness that I or an immediate family member have suffered."

(3) "I understand that, if I do not participate in a structured settlement, all earnings on any investment I may choose could be fully taxed at my highest income tax bracket."

(4) "My attorney has warned me of the pitfalls of not selecting a portion of my recovery to be included in a structured settlement annuity and has informed me that due to unexpected events or circumstances, many plaintiffs who do not participate in a structured settlement annuity either lose their money award due to investment risks and/or deplete their funds and lose financial security."

(5) "I understand this is my only opportunity to take advantage of a structured settlement annuity and that my settlement decision cannot be changed or reversed on a future date in that it is irrevocable. I have been given every opportunity to ask questions and all my questions have been answered."

(6) "I acknowledge and understand that after being fully informed of my options that by signing my name, I agree to either [  ] reject the structured settlement annuity option and accept a one time lump sum payment option; or [  ] wish to evaluate structure settlement annuity option/evaluate quotes." 

By having your client sign the Grillo Waiver before they accept a lump sum settlement, you are protecting yourself from a potential legal malpractice lawsuit down the road.