Settling Personal Injury Claims for Minors, Decedents, and Incompetents
When settling death cases or injury cases involving children or incompetents, lawyers often wonder whether the court must approve the settlement. Parts I, II and III of this outline will summarize the law on this subject.
Apart from court approval, another question which lawyers often ponder in cases involving minors is this: What alternatives exists as to how the settlement proceeds are distributed. For example, can the money be released to the parents, or must it be placed in a sequestered bank account? Can a structured settlement or trust be utilized for the child? Parts IV and V will address these questions.
Finally, it should be noted that most personal injury lawyer, when considering these issues, think only in terms of complying with the Pennsylvania Rules of Civil Procedure. However, there are several sections of the Probate, Estates and Fiduciaries Code which apply to settlements for children or decedents, particularly when the Rules of Civil Procedure do not apply because no lawsuit has been filed. Thus, a complete understanding of the law governing counsel in these settlement situations requires familiarity with both the Rules of Civil Procedure and the PEF code. Throughout this outline, references to both sources will be made. References preceded by “sec” refer to sections of the PEF Code (20 Pa.C.S.A.); whereas references preceded by “R.C.P.” refer to the Rules of Civil Procedure.
WHEN IS COURT APPROVAL NECESSARY?
I. DEATH CASES
A. The General Rule The leading case on the subject of court approval to settle death cases is Moore v. Gates, 580 A.2d 1138 (Superior 1990). In a comprehensive discussion on the subject, the court considers the circumstances under which court approval must be obtained for the settlement of both wrongful death and/or survival claims. In general, the court indicates that, for wrongful death claims, court approval must be obtained if one of the beneficiaries is a minor or an incompetent. If the only beneficiaries are adults, however, no court approval is required.
As far as survival claims are concerned, Moore indicates that court approval is always required, regardless of whether the heirs to the estate are minors or adults.
If no lawsuit has been filed at the time of the proposed settlement, necessary court approval must be obtained in the Orphans Court. If a lawsuit has already been filed, court approval can be obtained either in the Orphans Court or in any other division of the court in which the action is pending. The paragraphs below summarize the section of the Rules of Civil Procedure and the PEF Code which form the basis of these general rules.
B. Survival Actions – Not In Suit.
1. Court approval required – “Whenever it shall be proposed to . . . settle any claim, whether in suit or not, by or against an estate . . . the court, on petition by the personal representative or by any party in interest . . . may enter a decree authorizing the . . . settlement to be made.” (While it is not entirely clear from the statutory language that a personal representative is required to obtain court approval to settle an estate’s claim, case language, statutory consistency and orderly estate administration appear to make the section mandatory.) sec.3323(a)
2. Personal representative is person to bring, or defend action by, or against, Estate. sec. 3373
C. Survival Actions – In Suit.
1. In addition to requirement of sec. 3323(a), procedure for approval of settlement of pending action in which damages are sought by estate is provided by sec. 3323(b). It may be by the court in which the action is pending and which has jurisdiction and may include approval of agreed attorney’s fees and expenses. sec. 3323(b)
- Copy of settlement order to be filed with Orphans Court Clerk. sec. 3323(b)
- Note possible bond requirements.
D. Wrongful death actions – In Suit.
1. Rules do not expressly require court approval of settlement or discontinuance unless a minor or incompetent has an interest. Nevertheless upon petition of any party in interest the court shall designate the persons entitled to, and their shares of, the net proceeds. R.C.P. 2206
2. If minor or incompetent does have an interest, the court, upon petition of any party in interest, under R.C.P. 2206 shall:
- Designate the persons entitled to, and their shares of, net proceeds, as well as the manner of payment.
- Approve agreement for payment of counsel fees and expenses from minor or incompetent’s share.
E. Wrongful Death – Not In Suit.
No applicable law. PA. R.C.P. do not apply since no action is pending, and PEF Code does not apply since Wrongful Death claim, unlike Survival claim, is not the estate’s cause of action. (Query: Does any settlement of a Wrongful Death claim necessarily impact the corresponding Survival claim?)
II. MINORS – AUTHORITY TO SETTLE REQUIRED
A. No Suit Pending.
1. Same as for Survival claims – substitute “guardian” for “personal representative” and “minor” for “estate” in sec. 3323. sec. 5l44
B. Suit filed.
- Guardian required to represent minor. (Guardian defined in R.C.P. 2026).
- Approval by the court required for settlement or discontinuance. R.C.P. 2039; sec. 5144
- Court, upon petition of guardian or any party to the action, shall rule on counsel fees and expenses. R.C.P. 2039; sec. 5144
III. INCOMPETENTS – AUTHORITY TO SETTLE REQUIRED
A. No Suit Pending.
- Incompetent defined. sec. 5501
- Same as for Survival claims – substitute “guardian” for “personal representative” and “incompetent” for “estate” in sec.3323. sec. 5521
B. Suit filed.
l. “Incompetent” and “guardian” – defined – “Incompetent” essentially the same as sec. 5501. R.C.P. 2051
- Guardian or guardian ad litem required for incompetent who is party in pending action. R.C.P. 2053
- Same as for minors, except any party in interest, rather than just guardian, may seek approval. R.C.P. 2027 R.C.P. 2064
IV. MINORS’ CASES
A. Paying Money Outright to Minor or Others. sec. 5101, 5102 R.C.P. 2039, 2206
- If possible at all, can only be done where net proceeds to plaintiff do not exceed $10,000.
- If it can be done, proceeds may be paid to minor, the guardian of his person, his natural guardian (parent) or the person or agency by whom the minor is maintained. sec. 5103 R.C.P. 2039, 2206
B. Sequestered Bank Deposit.
1. Can be used regardless of amount of net proceeds.
2. Money must be placed in federally insured savings account in minor’s name. (See 7 P.S. §603; 7 P.S. §6020-117 for authority to maintain accounts in minor’s name.) Definition of “savings account” contained in R.C.P. 76; no definition in PEF Code.
3. Proof of deposit must be filed with court. R.C.P. 2039 and 2206
- Withdrawal from these accounts can only be had upon order of court.
- The account terminates upon the minor attaining the age of 18, at which time all proceeds go to minor.
R.C.P. or the PEF Code. Query: Authority is the general equity power of the Orphans’ Court, court’s general power to approve settlements, or court’s power to act in “best interests” of minor? See sec. 5144 (applying sec. 3332) and sec. 5155
C. Use of a Structured Settlement.
There is no specific authority for the use of a structured settlement under the for powers of guardians of minors and, thus, presumably the power of the court.
D. Court Implemented Trust or Estate Plan.
Arguably can be done in Orphans’ Court under common law principal of “substituted judgment”. Also, may argue by analogy to sec. 5536(b) (applicable to incompetents), that court has power to implement trust or estate plan.
V. INCOMPETENTS’ CASES
A. Paying Money Outright – Same as for minors except that only permissible payees are guardian of the
person or the person or agency by whom the incompetent is maintained. sec. 5505 R.C.P. 2064, 2206; but see sec. 5536(a)
B. Sequestered Bank Account – Same as for minors except that the account does not terminate until the incompetent is adjudicated competent. sec. 5505 R.C.P. 2064, 2206
C. Use of Structured Settlement – Same as for minors except that sec. 5521 incorporates sec. 3332 and sec. 5155; and that sec. 5536(b) also furnishes a basis.
D. Court Implemented Trust or Estate Plan – Specific section of PEF permits court to estate plan for incompetent (“substitute its judgment for that of the incompetent”). sec. 5536(b)
E. Temporary Guardian of Estate. sec. 5513
- Used where irreparable harm will result without appointment of guardian.
- Limited notice requirements.
- Guardian serves for such time and holds such powers as court directs.
- No determination of incompetency (only allegation of incompetency) avoids effect of determination of incompetency. sec. 5513, 5524
WHO GETS THE MONEY: DISTRIBUTING PROCEEDS IN CASES FOR MINORS AND DECEDENTS
A. Death Cases
1. Mr. Baker is killed in an automobile accident. He dies intestate and is survived by his wife and two minor children. The cases settles for $250,000, all of which is allocated to the Wrongful Death claim. What share of the proceeds goes to Mr. Baker’s wife, and what share goes to his two minor children?
The distribution of all Wrongful Death damages is controlled by 42 Pa.C.S.A. §8301 which provides that damages are to be distributed in accordance with the principles of intestate succession. Thus, under the intestate succession law, 20 Pa.C.S.A. §2102, Mrs. Baker would receive the first $30,000 of the proceeds. Thereafter, Mrs. Baker would receive 1/2 of the money, and the children would split the other 1/2, i.e. each of the children would receive 1/4 of the settlement funds after the first $30,000 went to the mother/wife.
2. Assume the same facts as above, except that Mr. Baker’s children are adults and are not economically dependent on Mr. Baker. Do the emancipated children receive their intestate share of the proceeds, or do all of the proceeds go to the dependent spouse?
While 42 Pa.C.S.A. §8301 does not specifically address this question, the case law indicates that a child must have been dependent on the deceased parent to some extent in order to participate in the Wrongful Death settlement. Manning v. Capelli, 411 A.2d 252 (1979).
Query: How dependent must they be? Must they be totally dependent, or it is enough that they periodically get financial help from their father? There is no clear answer to this question.
Thus, because all of the children are emancipated and non-dependent, the full $250,000 would go to Mrs. Baker.
Suppose the adult children argue for allocation of some proceeds from the survival claim?
3. Larry Zotter, age 40, is killed in an automobile accident. He is survived by his wife and two minor children. Mr. Zotter’s Will left everything to his wife.
Suit is filed on behalf of the surviving spouse and the children, with both Wrongful Death and Survival claims as part of the Complaint. The case ultimately settles for $500,000.
How is the settlement allocated between Wrongful Death and the Survival damages?
Does a guardian ad litem need to be appointed for the children in order to “approve” the allocation between the competing claims?
Allocation between Wrongful Death and Survival is often not a material issue (except for tax purposes since money paid on the Wrongful Death claim avoids the inheritance tax due on Survival claim money). However, in this case allocation is quite material because the children would not share in any money paid under the Survival claim since the wife is the sole heir of the decedent’s estate. In other words, it is in the children’s interest to have as much money as possible allocated to the Wrongful Death case where, under 42 Pa.C.S.A. §8301, they will at least obtain their intestate share.
Ultimately, allocation is a matter for the court to determine given the evidence as it pertains to the various elements of damages in each cause of action.
As for the guardian ad litem, such an appointment is left to the discretion of the court. In some cases a guardian may be necessary. At a minimum the competing parties should be told of their adverse interests and the right to obtain separate counsel.
B. Minors’ Cases
4. Amy Glass, age 5, suffers a soft tissue injury in a motor vehicle accident. The insurance carrier for the defendant agrees to pay a settlement which will “net” the plaintiff the sum of $9,000 after fees and expenses.
May the settlement proceeds be paid to Amy’s parents? If so, what obligations do the parents have? What are Amy’s rights when she turns age 18? Is the result any different if Amy is 17 at the time of the settlement?
Under Rule 2039, Pa.R.C.P., and the PEF Code, the court may (but is not obligated) to release the funds to the parent and natural guardian of the child since the net recovery is less than $10,000.
Whether or not the court is willing to give the money initially to the parents may depend upon the age of the child. For example, if the child is only one year away from majority, the court may be more inclined to release the funds to the parent than if the child is only 10 years old.
Obviously, if the money is released to the parent, they have an obligation to spend the money only for the child’s benefit and only to the extent they (the parents) do not already have a duty to support. See next problem for elaboration.
5. Assume the same facts as above except Amy’s case settles for an amount which “nets” her $25,000 after fees and expenses.
What must be done with the settlement proceeds?
May any of the money be spent for Amy’s personal needs while she is a child? If so, what must the parents establish to the court in order to make such expenditures?
Since the settlement “nets” the minor child over $10,000, the “excess” over $10,000 may not be distributed to the parents. Instead, the money must be distributed to a guardian of the estate, or alternatively, the funds must be deposited in a federally-insured savings account with a stipulation that no withdrawals can be made until the child reaches age 18, except upon special order of court. See Rule 2039 Pa. R.C.P.
As for the circumstances that may warrant a withdrawal for the child’s personal needs, that is a matter left to the discretion of the court. Generally, a parent has a duty to provide basic support for his child and therefore, withdrawal of money normally not be permitted for the basic necessities of life. However, that duty is to some extent dependent upon the parents’ means; thus if the parent can establish some special needs above and beyond their ability to provide, the court may permit such a withdrawal.
6. Assume the same facts as the previous example. However, the parents do not want to have the child’s money placed in a savings account given its relatively poor rate of return. May they have the money invested in Certificates of Deposit or some similar form of investment?
The short answer here is yes. Certificates of Deposit are included within the definition of a “savings account” under Rule 76, Pa. R.C.P.
7. Rachel Roberts, age 10, is injured by an exploding soft drink bottle. She suffers severe injuries to her left for which the defendant is willing to pay $250,000 in settlement of the claim.
The parents are concerned about Rachel coming into a substantial amount of money when she reaches the age of 18. They have always wanted Rachel to go to college, but they are concerned that if she is provided with a lump sum of money
upon graduation from high school, she will “run away and join the circus.”
Can the parents ask the insurance company for the defendant to provide a structured settlement so that Rachel doe snot receive the bulk of the money until after the age of 18?
Instead of a structured settlement, can Rachel’s parents have a trust created which gives the trustee the discretion to pay money out to Rachel as it sees fit? If so, may the parents be the trustee? Who is the settlor (the creator) of the trust?
a) The first question concerning a structured settlement raises this issue: Does the court have the power to encumber a child’s money beyond the time when that child reaches the age of 18? Obviously, there may be instances where it would be unwise for a child to receive a large sum of money at the tender age of 18. Nevertheless, the question arises whether the court has the power to approve a plan which denies the child money once they reach the age of 18.
Arguably, the orphans court has the equitable power under the PEF Code to approve such a structure, See 20 Pa.C.S.A. §5144 and 5155, and the power may also exist under the common law principle of “substitution of judgment.”
b) As far as the trust is concerned, one may likewise argue that the court has the power to approve the trust for the child with the parents (or perhaps a guardian ad litem) as the settlor of the trust.