New York 50A Operating Systems and Terms

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The already complicated method for calculating and valuing Awards in cases involving Medical or Dental Malpractice were made more complicated and convoluted when amendments to CPLR 50A were signed into law on June 26, 2003 for cases filed after July 26, 2003. The effect of the amendments is likely to sognificantly reduce the total value or equivalent payout per case.

The key provisions of the amendment are

1. Specification that Awards for future damages in wrongful death actions under Amended 50A will be paid in lump sums without further reference to the provisions of Sec.5031. Further, future damages for Loss of Services or Loss of Consortium are to be paid as lump sums. In those cases where all damages are to be paid in lump sums [future damages consist of Loss of Services, Consortium and Pain and Suffering of $500,000 or less], the payments will be made without further reference to Amended Sec. 5031.

Amended Sec. 5031 provides for reduction of Awards for

1. An increase in front end (lump sum) payments from $250,000 overall to the first $500,000 or 35% of future pain and suffering whichever is larger, and 35% of the net present value all other Award elements.

These are cash payments and, if structured to protect and preserve their value, they will presumably not qualify under Sec. 130 of the Internal Revenue Code.

2. Elimination of the 4% annual increase applicable to elements of economic and pecuniary loss. It is retained for future Pain and Suffering but the period for Pain and Suffering is reduced from 10 to 8 years.
3. Application of discount rates derived from the 10-Year Treasury Bond rate. The method uses the 10-Year rate for any element to be paid out within 20 years, and a weighted average of the 10-Year rate for 20 years and two percentage points above the 10-Year rate for each year thereafter. The Treasury rate to use is the one in effect on the date of the verdict, whatever that means.

There is a wide array of 10-year rates or yields in effect at any given time. There are the daily weekly and monthly market yields. There are the rates and yields associated with 10-year Treasury auctions. Excluding 10-year inflation indexed issues, these auctions occur twice a year. Daily market yields tend to fluctuate fairly widely, weekly or monthly rates seem to be more balanced. Auction rates tend to reflect the market at the time of auction. Recently, all rates have fluctuated fairly widely. This fluctuation is important because a ¼% change in the rate applied to a future periodic payment scheme extending more than twenty years into the future produces a change of 2 1/2% + in the value of that element, depending on the period.

As the original 50A and 50B were silent on how discount rates were determined, it is possible, and perhaps likely, that the Courts will take the direction in the amended 50A and apply it to all cases, even those under 50B.

4. Pro-rata reduction of lump sum payments and the value of future damages by litigation expenses.
5. Application of the sliding scale of contingent fees to the Total of past damages, lump sums and the net present value of remaining future damages, all reduced by pro-rata litigation expenses. The net amounts are then reduced on a pro-rata basis by the contingent fees. The net annual (monthly) payments are similarly reduced.
6. The amendment also incorporates provisions covering the payment of the full amount of economic losses independent of plaintiff's survival. The payments for other elements of pecuniary loss are for the periods specified, but only if the plaintiff survives.

This, of course, is our understanding of the amended CPLR 50A.

As far as any award or settlement is concerned, there is no easy way to calculate the award, or the contingent fees associated with it. If offsets and income taxes are taken into consideration, the difficulty is magnified. Finally, a large component of the net award or settlement will in a lump sum. In the case of minors or incompetents that value must be protected. In other cases, it should be protected.

Increasingly, plaintiff's attorneys are being tasked with the obligations of performing Due Diligence and gaining a client's Informed Consent. Those obligations suggest that any Award or settlement be fully and fairly evaluated with a built-in reconciliation back to the gross total award. Any proposals to protect (structure) lump sums should be independently valued. The entire award or settlement may warrant deployment in a manner different from that resulting from the net award calculation. Finally, protection or alternate deployment should be executed in a manner that either maximizes subsequent payments or protects them from taxes to the greatest extent possible.

We have developed an array of calculators that will

• Produce a Total Award,
• Generate and reconcile a Net Award in line with our understanding of the amended 50A,
• Generate a Net Award in line with 50A prior to amendment in line with our understanding of the statute and case decisions,
• Generate a Net Award in line with 50A prior to amendment, but extended for use of discount rates indexed to 10-Year Treasury Bonds, and
• Generate and transmit alternative proposals for deploying part or all of a net award.