How Are Personal Injury Settlements Paid Out in Tennessee?
In Tennessee, personal injury settlements are generally paid through a lump sum payment or a structured settlement.
If you have legal representation, the insurance company typically sends the settlement check through your personal injury lawyer. Legal fees, case-related costs, medical provider liens, and valid reimbursement claims may need to be addressed before personal injury settlements are distributed.
How Are Personal Injury Settlements Paid After a Claim Settles?
Personal injury settlements paid through an attorney usually follow several steps.
The parties agree on the settlement amount and material terms, the insurer commonly requires a release form, and the defendant’s insurance company issues payment.
The law firm deposits settlement funds into a client trust account. After authorized deductions and valid claims against the recovery are handled, the remaining balance is paid to the injured person.
What Does a Release Form Do?
A release form is a document commonly used to finalize injury settlements. By signing a valid release, the injured person generally gives up further personal injury claims against the released parties within the scope of that document.
Insurers commonly require a signed release before payment, although enforceability can depend on the agreement and circumstances. Because the release should reflect the agreed terms and its wording can affect future rights, an experienced personal injury attorney should review it before signing.
How Does a Lump Sum Payment Work?
A lump sum payment provides the net settlement money in one payment after applicable deductions. It gives the recipient immediate access to settlement funds and may help cover medical bills, lost wages, medical treatment, or unexpected expenses. The recipient is responsible for managing the lump sum, including future medical expenses.
A lump sum settlement differs from a structured settlement because the available net recovery is paid at once rather than through scheduled payments.
What Is a Structured Settlement?
A structured settlement provides structured payments over time instead of one lump sum payment. Payments may continue for a fixed period or, depending on the arrangement, for life. This can provide a steady income stream for someone with long-term needs.
Tennessee regulates later transfers of structured settlement payment rights. Under Tenn. Code Ann. § 47-18-2603, a transfer generally requires advance authorization by a court or responsible administrative authority.
Where Does the Settlement Check Go?
When a client is represented, the settlement check is commonly delivered through counsel. A personal injury lawyer who receives client or third-party funds must keep them separate from the lawyer’s own money.
Tennessee Rule of Professional Conduct 1.15 requires lawyers to safeguard those funds and promptly deliver money a client or third party is entitled to receive. If part is disputed, the lawyer must keep that portion separate while promptly distributing the undisputed portion.
That is why personal injury settlements distributed through counsel usually pass through a trust account before the client receives the final payment.
Are Medical Bills and Medical Liens Paid From a Settlement?
Medical bills do not automatically become liens, and not every outstanding medical bill must be paid before a client can receive settlement money. The key issue is whether a healthcare provider, insurer, government program, or another party has a valid lien or reimbursement right.
Under Tennessee’s Hospital Lien Act, qualifying hospitals may have a lien for reasonable and necessary charges related to the injury. The lien cannot apply to more than one-third of the damages recovered and is subordinate to an attorney’s lien.
Medicare may have a Secondary Payer recovery claim for conditional payments for injury-related care. Medicaid or TennCare and some health insurance plans may also have reimbursement rights.
A personal injury attorney may negotiate certain medical bills where appropriate, as resolving valid medical liens can affect how much of the entire settlement amount reaches the client.
How Are Attorney’s Fees and Legal Fees Deducted?
Many personal injury attorneys work on a contingency fee basis. Tennessee Rule of Professional Conduct 1.5 requires a contingency fee agreement to be in writing and signed by the client.
As there is no standard contingency fee for every Tennessee personal injury case, the agreement must state how the fee percentage is determined, how litigation expenses are deducted, and whether expenses come out before or after the contingency fee.
Clients should review the agreed-upon percentage and case-related expenses such as expert witness fees in their own agreement. At the end of the case, the attorney must provide a written statement showing the recovery and how the client’s payment was calculated.
How Long Does It Take to Receive Settlement Money?
There is no universal Tennessee rule determining when a third-party personal injury settlement must be paid. Tennessee insurance regulations contain a 30-day payment requirement for certain first-party claims after liability is affirmed and the amount is determined and undisputed, but that is not a blanket deadline.
Timing can depend on the release, when the insurance company issues the check, bank processing, medical provider lien resolution, health insurance reimbursement, and required court approval.
Do Settlements Involving Minors Require Court Approval in Tennessee?
Sometimes. Tenn. Code Ann. § 29-34-105 requires a court hearing for a minor’s tort settlement when the settlement is $10,000 or more, is a structured settlement, or the minor is not represented by a Tennessee-licensed attorney.
The statute also says a tort settlement does not otherwise require court approval merely because it involves a minor, and the court may determine whether proceeds are paid to the legal guardian or held in trust.
Are Personal Injury Settlements Taxable?
Personal injury settlements are not automatically taxable or tax-free, and federal tax treatment depends on what the payment was intended to replace.
Under Internal Revenue Code § 104(a)(2), compensatory damages received because of personal physical injuries or physical sickness are generally excluded from federal gross income. This can include medical expenses, pain and suffering, and lost wages when those lost wages result from the physical injury.
Punitive damages and interest are generally taxable. Emotional distress damages not arising from physical injury or physical sickness are generally taxable, subject to limited medical-expense rules. Previously deducted medical expenses can also affect tax treatment.
Because a settlement agreement may allocate money among different categories of damages, recipients should obtain tax advice when necessary.
What Can Delay the Personal Injury Settlement Process?
Common delays in a personal injury settlement include an unsigned release form, insurance adjusters awaiting payment authority, unresolved liens, Medicare recovery claims, disputed medical expenses, required court approval, or settlement check processing.
Secure Timely Fair Compensation
Understanding how personal injury settlements are paid out can make the legal process easier to follow. The gross settlement amount is not always the amount the client receives because contingency fee obligations, legal fees, outstanding liens, and valid reimbursement claims may reduce the final disbursement.
At Grissim & Waterman, we can review a proposed settlement agreement, explain lump sum and structured payment options, address liens and medical bills, and account for deductions from the recovery. Contact us to discuss your claim with an experienced personal injury attorney in Nashville. Call 615-255-9999 for a free consultation.
