LawyersUSA

Personal injury lawyers are scrambling to reassure jittery clients and each other that insurance-based settlements are not jeopardized by the near collapse of insurance giant American International Group.

"I'm getting a lot of calls from clients, and a lot of calls from insurance agents," said Philadelphia personal injury attorney Jeffrey Reiff, a partner at Reiff & Bily.

The federal government's $85 billion bailout of AIG earlier this month has sparked concerns for plaintiffs.

"People are just nervous," Reiff said. "When they have a claim out there, whether it's personal injury, disability or property/casualty, their concern is whether they are going to be okay. They call their insurance agent, but they don't trust their agent, so then they call their lawyer."

Reiff, who has posted information about AIG on his blog, http://www.philadelphiainjuryattorneyblog.com, is advising clients to remain calm.

"I'm not concerned at all," he said. "There are a lot of safeguards in place. But people are panicked about whether they are going to get their claims paid."

Lawyers' income at risk?

The health of the insurance industry has a major impact not only on plaintiffs in accident cases, but also on personal injury lawyers. Most work on a contingency fee basis and rely on insurance-funded settlements and jury awards for their income.

Eric Turkewitz, a solo personal injury lawyer in New York, said he is worried that the financial turmoil that crippled AIG may spread to other insurers.

"The personal injury bar likes to think of itself as recession proof. Regardless of whether stocks go up or down, people still get hurt because other people do dumb things.
But with the meltdown of mega insurer AIG, we could see something different," he recently commented in his blog (http://www.newyorkpersonalinjuryattorneyblog.com).

"A bankrupt insurance company would mean that the business end of lawyering could see some issues related to actually being able to get paid on a claim," he noted.

Turkewitz and other personal injury lawyers are hoping the nation's economic upheaval won't result in a widespread insurance industry crisis.

"AIG may be the tip of the iceberg," he said.

While all states have insurance guaranty funds to protect shareholders from insurance company insolvencies, claims take longer to process when an insurance company goes under.

Personal injury lawyers complain that insurance payments are already slow. Financial problems in the industry could delay payments even further, several said.

"We put up our money for years" while waiting for payments, Turkewitz told Lawyers USA. "From a cash flow perspective, this is a lousy business. The prospect of waiting even longer is daunting."

Reiff agreed: "The insurance companies are much more frugal. They're not paying claims as expeditiously as they used to. It's deny, defend and delay."

Structured settlements safe?

In addition to questions about the viability of insurance policies in accident and injury cases, plaintiffs' lawyers are also receiving calls about structured settlements.

Attorneys sometimes recommend that clients who receive large settlements be paid via a tax-free structured settlement, rather than in a lump sum. A structured settlement is an insurance company annuity that makes periodic payments over time.

Bryan Milner, a structured settlement planner in Van Nuys, Calif., said many of the plaintiffs' attorneys he works with are checking the financial health of insurers before recommending structured settlements to their clients.

"Most of my attorneys now want financial documents from all the life insurance companies," he said.

In the wake of AIG's problems, several large life insurers, including Hartford and Met Life, have supplied financial statements to brokers, Milner said.

Milner was recently asked by several lawyers to respond to questions about structured settlements. His article is posted on North Carolina personal injury lawyer Christopher Nichol's blog (http://www.nctriallawblog.com).

If the worst happens, all states protect policyholders in insurance insolvencies up to specified limits. In North Carolina, for example, the State Guaranty Association pays up to $300,000 per annuity policy.

Milner noted that when insurer Executive Life collapsed in the early 1990s, settlement recipients received all of their money, because it was determined that their annuities were settlements, rather than investments.

He suggested that clients split structured settlement amounts among different companies to stay under state guaranty limits.

Questions or comments can be directed to the writer at: nora.tooher@lawyersusaonline.com