Personal Injury Settlement and Release Agreements: Confidentiality, Tax Liability, Indemnity and Other Complex Issues

Description

Most personal injury claims are resolved via settlement, so personal injury counsel must have a keen understanding of the legal complexities and potential pitfalls involved in drafting and negotiating settlement and release agreements. Failure to thoughtfully approach confidentiality, tax and indemnity issues could significantly diminish the injured party’s damages recovery.

Confidentiality provisions, which are frequently requested by defense counsel as a part of the settlement agreement, are controversial and heavily negotiated. An injured party’s inadvertent disclosure of a confidential settlement down the road could result in litigation against that party and a demand for return of the settlement proceeds or other damages.

Settlement agreements also pose potential tax law pitfalls. While settlement funds allocated to medical bills, property damage and pain and suffering are not taxable, settlement damages for lost wages, income and punitive damages are taxable. Settlement funds negotiated in exchange for the injured party’s confidentiality agreement are also taxable.

To minimize tax liabilities, counsel should carefully consider how the language of the settlement agreement is worded regarding taxable damages and should use indemnity language requiring the defendant to cover any adverse tax consequences the injured party suffers.

Listen as experienced personal injury attorney Wyatt Wright examines potential pitfalls as well as best practices for personal injury counsel negotiating and drafting settlement and release agreements for injured clients. Mr. Wright will discuss considerations and tactics regarding confidentiality, tax consequences and indemnity.