Who Gets the Money in a Wrongful Death Case?

A recent decision from the United States District Court reaches the initially startling conclusion that the estate of a man injured by the negligence of another driver who also died in the crash could not attach monies received by the defendant’s daughter as compensation for his death.  It sounds incredibly confusing and completely illogical, but because of the way the Massachusetts wrongful death statute works, it’s exactly the right result.  Here’s why:

Amnon Bogomolsky was killed when the minivan he was driving was hit by a truck driven by Michael Furlong, who also died as a result of the collision.  The deadly crash took place near the approach to the Sagamore Bridge in Bourne.  A state police investigation of the crash concluded that several factors contributed to the collision, including Furlong’s excessive speed, the presence of cocaine and benzodiazepines in his system, and poor brakes on his truck.  The police also faulted an unknown vehicle that had merged onto Route 3 eastbound, possibly encroaching into Furlong’s lane, that caused Furlong to veer into Bogomolsky’s lane.

Bogomolsky’s estate sued Furlong’s estate, and sought an attachment of $100,000 in uninsured motorist proceeds that Commerce Insurance Company had agreed to pay to Furlong’s estate in settlement of the uninsured motorist claim–resulting from the negligence of the driver of the unidentified third car.  The court in Bogomolsky v. Furlong denied the attachment, properly ruling that, under Massachusetts law, the proceeds of the wrongful death claim belonged not to Furlong’s estate, but to Furlong’s daughter, who was the beneficiary under the wrongful death statute.  It sounds strange, but the court got it exactly right.

One of the interesting features of the Massachusetts wrongful death statute, G.L. c.229, ss. 1 and 2,  is that the personal representative of the estate has the authority to bring a wrongful death case, but that any recovery is distributed to the so-called statutory beneficiaries–the heirs at law.  The damage recovery never becomes an asset of the decedent’s estate, but instead is held by the personal representative in trust, with the obligation to distributed it directly to the beneficiaries.

What that means in the Bogomolsky case is that the $100,000 uninsurance proceeds, which were being paid on account of a claim by Furlong’s estate against the unidentified driver, never became a part of the estate, but instead, would go directly to Furlong’s daughter, the statutory beneficiary.  Since the proceeds were not an asset of Furlong or his estate, they were not subject to attachment by Bogomolsky’s estate.  In contrast, if Furlong had a bank account or a house in his name at the time of his death, those would be assets that the plaintiff could attach as security for a personal injury judgment.

This principle has important consequences that I’ll discuss in the next post.

Read the opinion in Bogomolsky v. Furlong here.

Yes, It’s Really Confidential

It’s quite common for personal injury lawsuits, among others, to be settled with a confidentiality agreement.  The precise terms vary, but usually the plaintiff is required to keep the financial terms, and sometimes even the existence, of a settlement confidential.  The usual provisions include permission for disclosure to family, financial advisors, courts and government agencies.

For many people, the confidentiality agreement isn’t that big a deal.  Most of our clients who receive a significant financial settlement have no desire to spread the news beyond immediate family members.  The confidentiality clause provides an easy excuse not to answer prying and personal questions.  The clause generally doesn’t prohibit them from talking about what happened to them–just that the case was settled, and more importantly, the amount of the settlement.  It’s generally the lawyers who–selfishly–hate these agreements, because they can’t brag to the media about their success.

But even though confidentiality clauses usually have little impact on the clients’ post-settlement lives, they need to be taken seriously.  A Boston College student and her family found out the hard way that indiscriminate blabbing can be extremely costly.

Patrick Snay, a former headmaster at a Florida private school, brought an age discrimination lawsuit against Gulliver Academy, the school where he’d worked for many years.   When he reached a successful settlement with the school, he signed a settlement agreement that included a confidentiality clause, prohibiting him from discussing the existence or terms of the agreement  with anyone except his wife and his advisors.  Understandably, he wanted to tell his daughter Dana, who’d been a student at the school.  And so he did.

But Mr. Snay either didn’t impress upon his daughter the seriousness of the confidentiality clause, or she didn’t listen.  Because within a few days, she’d posted this rather snarky comment on her Facebook page: “Mama and Papa Snay won the case against Gulliver.  Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”  The school’s attorneys got wind of the post, probably through one of Dana’s 1200 Facebook friends, many of whom were students or former students at the school, and refused to pay Patrick Snay $80,000 he was supposed to receive under the agreement.

A Florida appellate court held last week that the school was entirely within its rights to withhold the payment.  The court noted that the agreement specifically prohibited the type of disclosure that both Patrick and Dana Snay had made.  Key to the court’s decision was a somewhat unusual provision in the confidentiality clause setting the penalty for unauthorized disclosure as the sum paid to Mr. Snay.  This type of penalty, called a liquidated damages clause, is rarely a part of confidentiality clauses, but it usually enforceable.

The Snays’ experience serves as a reminder to families who receive settlements that all members must be told about any confidentiality requirements, and must understand and comply with their obligations.  Even though the agreement technically precluded Patrick Snay from telling his daughter about the settlement, it was the ill-advised and widespread Facebook posting that truly caused the problem.

Read the Florida court’s opinion in Snay v. Gulliver Schools here.

Will the IRS Take My Money?

One of the common concerns our clients have is that they will end up losing a large part of their personal injury settlement to income taxes.  One of the happiest moments is when they first learn that that’s not true.  Most personal injury recoveries are not subject to income taxes.  The Internal Revenue Service considers that money received because of a personal injury is replacement for something that has been lost, and so does not count as income.  If you find that hard to believe, you can read about it here.  Many states, including Massachusetts, follow the same rule.

Compensation for a physical injury, whether it results from a settlement or a jury award, and whether it is paid as a lump sum or as a structured payout, is simply not considered income.  This can make structured settlements advantageous in some cases.   The easiest way to remember this principle is that the money is not taxed when it first comes into the victim’s hands, whether as a lump sum or an annuity payment.  Once the money is received, future investment income from that money is treated the same way as any other investment.

However, there are some exceptions for other types of tort settlements.  If the injury is strictly emotional and not physical, the monies are generally taxable income.  Likewise, the proceeds of an employment discrimination case, where compensation is received for lost wages, is considered income.  If an award includes interest, the amount of interest must be reported as income, because the money it replaces (the amount that might have been earned on the compensatory damages) would have been taxable.  And punitive damages are also taxable, because they are intended to punish a wrongdoer, rather than as direct compensation for a loss to the victim.

The taxation of recoveries for wrongful death cases is more complicated, and depends upon state law and the allocation of the settlement proceeds among different claims.  Some states provide that some or all of the recovery goes directly to beneficiaries or family members, without ever passing through the decedent’s estate, and thus these amounts are not subject to income or estate taxation.  Other portions of the recovery, usually for conscious pain and suffering or for the decedent’s own losses (where permitted by law) become assets of the estate, and may be taxed where the size of the estate is such that it is subject to tax.

Lawyers and clients should take these general rules into account when negotiating settlements.  However, it’s also important that clients consult with their own accountant or tax professionals, to make sure that there is nothing about their individual situations or cases that would create an exception to these general principles.  It’s also important to remember that different rules may apply to family law issues such as alimony or child support issues–so just because the IRS doesn’t consider a settlement taxable income doesn’t meant that its receipt can be completely ignored.


Honoring the Value of Human Life

burning cigaretteMost of the newspaper headings describing the Supreme Judicial Court’s recent decision in Evans v. Lorillard Tobacco Co., a much-watched cigarette liability case, focused on the negative: that the Court vacated part of the judgment.   “Court Throws Out $81 Million in Damages Against Lorillard in Smoking Death Suit,” brags one business website.  “SJC Overturns Part of Award in Tobacco Case,” writes The Boston Globe.

Yet the much bigger news for personal injury victims and their families is that the SJC affirmed an award of compensatory damages totaling $35 million. As affirmed by the SJC, the award consisted of $25 million to Marie Evans’ estate for her conscious pain and suffering, and $10 million to her adult son, Willie, under the wrongful death statute.  Both amounts had been the subject of a remittitur by the trial judge from the jury’s award of $50 million to Mrs. Evans and $21 million to her son.

Even as reduced, the award is the largest compensatory award in a wrongful death case in Massachusetts, and validates the opinion of many plaintiffs’ lawyers that juries value suffering and death much more highly than insurance companies think.  And the fact that the SJC approved the judge’s decision shows that the Court, too, places a high value on human life.  So while the facts in Evans were extraordinary and even inflammatory–a cigarette company’s plan to entice African-American children to develop a smoking habit by giving them attractively packaged free samples–the Court is clearly willing to respect large awards as appropriate compensation for wrongful death and pain and suffering.  Nothing in the Court’s opinion or the applicable law suggests that such large recoveries are limited to extraordinary situations.

The rest of the SJC’s opinion is likewise encouraging to plaintiffs.  The Court rejected Lorillard’s various arguments that it should not be responsible for the addictive properties of its cigarettes and the consequent health effects.  The Court also gave short shrift to the defendant’s argument that Evans should have known that smoking caused lung cancer as far back as the 1960s, noting that the company’s CEO had, under oath in a congressional hearing, denied any connection as recently as 1994.

Even the Court’s reversal of the punitive damages award, which led most of the news stories, is hardly fatal to the plaintiffs: the court held that the issue of punitive damages must be retried because of confusion about whether impermissible legal theories may have contributed to the jury’s award.  Certainly the plaintiff would have preferred to hold his verdict, but a new trial on punitive damages, with liability and a $35 million compensatory award already established, is not the end of the world.

Case Law Update: Death Damages in Massachusetts

cut dollar signIn a previous post, I discussed the recent SJC case of Klairmont v. Gainsboro Restaurant, Inc., in which the Court held that building code violations that were significant and longstanding might serve as a basis for liability under the Consumer Protection Act, Chapter 93A.   That decision is also important for its extensive (and somewhat confusing) discussion of the interaction of damage claims available in wrongful death and survival actions.

As the Court noted, both parties mistakenly assumed that the wrongful death statute, G.L. c.229, Section 2, provides the sole avenue to recover damages for wrongful conduct that results in death.  Instead, the Court recognized that there may be other statutory causes of action–including 93A claims–brought on behalf of the decedent for his own losses.

The damages available to the decedent’s estate (so-called survival claims) recognize the loss to the decedent himself, while the wrongful death statute permits recovery for consortium-type losses to the designated beneficiaries.   Thus, claims for medical expenses and the decedent’s conscious pain and suffering preceding his death belong to the estate.  On the other hand, the Court held that loss of consortium damages were available only under the wrongful death statute, and not as part of the estate’s claim under 93A.

The Court then focused on the related claims for lost earnings and loss of earning capacity.  In a somewhat confusing exposition, the SJC decided that the decedent’s estate could recover only for lost earnings actually sustained in the time between the injury and the death.  Any claim for future lost earnings, the Court held, would impermissibly duplicate the statutory beneficiaries’ claim for loss of reasonably expected net income as provided in G.L. c.229, and thus would not be allowed.

This result ignores the reality that many statutory beneficiaries under the wrongful death statute are not financially dependent on the decedent–as was likely the case of the college student in Klairmont.  In such cases, the SJC’s claim that an award to the estate for loss of future earnings would duplicate the beneficiaries’ recovery under the death statute is factually incorrect.  Thus, the decision leaves Massachusetts plaintiffs in death cases with a continuing bar to recovery of damages for future earning capacity, except to the extent that there are financially dependent beneficiaries.  And defendants whose victims are children, unmarried adults and even non-working parents, escape liability for an important category of financial loss.

The end result in Klairmont was a virtual evisceration of the trial court’s damage award made pursuant to G.L. c.93A, striking more than $2 million in damages awarded for the decedent’s economic loss and the decedent’s parents loss of consortium, as well as $2 million in attorney’s fees.  The SJC instructed the trial court that the damage awarded had to be recalculated in light of its opinion, and that the amount of the legal fee should be reviewed in light of the dramatic reduction in the final damage award.

The discussion of damages in Klairmont is an important reminder to examine all available causes of action so as to insure the decedent and his family a full recovery.  There may be practical reasons not to bring all of these claims, but that decision should be made reflectively, not reflexively.

The Supreme Judicial Court’s opinions are available on its public website.