Aiming to reduce the costs of paying a damage award, about 35 states have enacted "period payment" laws allowing or requiring defendants to pay out damages in installments rather than in a lump sum. (See Medical Malpractice Law and Strategy, May 1991.) This legislation is thought to benefit injured plaintiffs as well, as it has been noted that most plaintiffs are unable to manage large lump-sum recoveries wisely: "[L]ump-sum awards are often dissipated by improvident expenditures or investments before the injured person actually incurs the future medical expenses or earning losses." American Bank and Trust v. Community Hospital, 36 Cal. 3d at 366.

While the benefits to plaintiffs seem clear, in many cases, these laws paradoxically increase costs to defendants. Confusion seems to be the common denominator in the statutory schemes allowing or mandating periodic payments. The benefits of structured settlements that the legislatures seem to have been trying to institutionalize appear to have been lost, by and large, in the structured-award context.

Despite experience with structured settlements, attorneys and the courts seem to be having trouble applying the structured judgment statutes. Questions have arisen that the courts must clarify. For example: What are appropriate instructions to the jury? How should damages be itemized? What determinations does the jury make? And what determinations and computations must the trial judge make after the jury's verdict? How these issues are resolved may be critical in determining whether defendants receive a true cost benefit.

As one court, about to embark on an application of " a periodic-payment law, stated, "The complexity of the statute is exceeded only by the complexity of its application. Reviewing this judgment is an honor the court would rather have avoided." Lieberman v. Perez, 142 Misc. 2d 223 (1988).

Here are some common problems arising under these statutes: Itemization of Awards. Most periodic-payment statutes require an increase in the number of damage items the jury must consider. But it is generally accepted that the more damages categories a jury must determine, the higher the verdict will likely be. The extra items are necessary because many costs must be paid out over different periods of time -- for example, a plaintiff might require home care for only a year but might need special medications for the rest of his life.

In California, courts encourage the use of the special-verdict procedure outlined in the Code of Civil Procedure Sec. 625. Not only should the jury indicate which portion of its verdict is for past damages and which is for future damages, but it should designate the portion of the future damages award that is intended for lost future earnings, since damages for future earnings must continue to be paid to a plaintiff's dependents after the plaintiff's death. American Bank and Trust, supra at 377. The courts further have instructed juries to separate awards into categories for loss of earnings, medical expenses, pain and suffering and other personal needs.

Similarly, the Missouri statute (Sec. 538.215.1 RSMo) requires five itemization categories. In New York, itemization not only is required, but the categories are unlimited; in fact, the statute (CPLR 4111) actually encourages further itemization -- e.g., pain and suffering, loss of earnings, loss of services, custodial care and medical expenses, which then may be itemized into physical therapy, prosthetic devices, future surgery and drugs. These categories are doubled when the jury separates past damages from future damages, as required.

Ironically, New York's highest court has restricted plaintiffs from requesting damages for both pain and suffering and for loss of enjoyment of life, believing this would stimulate even higher awards for non-economic damages. But with periodic payment of damages, this non-economic loss must be divided into past and future damages.

Reduction to Present Value. Expert economic witnesses typically reduce future damages to present value, providing a great benefit to the defense while remaining fair to the plaintiff. Under periodic payment laws, this "benefit" has been taken away from defendants, since paying damages over time is another kind of reduction to present value. Thus, the defense does not enjoy any significant new benefit in terms of reduction to present value, and actually may be penalized by the additional itemization required under the periodic-payment laws.

In California, defendants may request that future damages be paid periodically or in a lump sum. Therefore, the jury can be instructed to determine the gross value of each item of future damages as well as the present value. If the present value is sufficiently low, the defendant may choose to pay future damages in a lump sum.

In New York, defendants do not have a choice. The jury is told not to reduce future awards to present value. Hence, defendants have traded off the reduction to present value for structured awards -hardly a clear benefit.

Treatment of Inflation. How inflation is handled under these statutory reforms also is critical in determining the true cost benefit to defendants. In some instances, inflation alone can contribute to higher verdicts.

In New York, periodic payments must be increased by 4 percent each year. Arguably, this is intended to account for inflationary growth, but the statute is not clear on the 4 percent escalator's purpose. One court recently held that the increase is not a built-in inflation factor and thus permitted the plaintiff's economist to testify that several factors - one of which was inflation - would increase the plaintiff's future earnings. The net result was to increase the plaintiff's future lost earnings from $2.5 million to $5.5 million. Gambardelli v. Allstate Overhead Garage Doors Inc., N.Y.L.J. Nov. 20, 1991.

Under the new New York law, the jury may not reduce lost earnings to present value, so the $5.5 million must be paid out over time, with each payment increased by the mandatory 4 percent each year. It is difficult to see the benefits and cost savings to defendants here.

In New York, discount rates must be determined by the court after verdict and before entry of judgment. In California, this task is left to the jury. With the bench and bar so confused, can jurors handle such duties under these new statutes?

Set-Offs and Releases. Another thorny problem is the proper handling of set-offs when there is a settling defendant. It is not easy to devise an appropriate method of setting off a settlement, especially when a settlement includes a lump sum payment and a structured settlement. The problems of allocating remaining liability of the non-settling defendant are increased exponentially.

Interest. The new laws further complicate the calculation of interest on future damages. There should be no post-judgment interest on unpaid periodic payments. Interest on future awards makes no sense, yet some states have not clarified this and permit interest calculation on full damages awarded. E.g., Ursini v. Sussman, 143 Misc. 2d 727 (N.Y. Cty.).

Economist's Role. Under these statutory reforms, the role of the economist at trial is unclear. Some states have given them broader roles; others require limitations. Defendants have always been reluctant to use economists, believing it to be an admission to the jury of liability by focusing on the damages the plaintiff should receive. However, defendants now may find it necessary to use an economist to dispute the plaintiff's economist's testimony regarding inflation and interest rates.

Periodic payments do offer defendants one potential cost benefit: Generally, payments cease upon the plaintiff's death. In New York, by statute, and in California, by case law, upon the plaintiff's death, payments of damages cease, except for damages for loss of future earnings, which continue to be paid to the plaintiff's dependents. In Missouri, all future damages, except future medical damages, continue to be paid after the plaintiff's death. Thus to the extent that the annuity company evaluates the plaintiff's life expectancy to be less than the life expectancy determined by the jury, the defendant will realize a reduction in the cost of the annuity that it must purchase.

In commenting on the Healthcare Liability Reform and Quality of Care Improvement Act of 1991, President Bush encouraged the states to adopt a statute permitting healthcare providers to pay damages for future costs periodically rather than in a lump sum. Thus, periodic-payment laws may be here to stay, despite the tremendous confusion and overall lack of benefits to the defense.

If periodic payments of future damages awards are the wave of the future, then work must be done to clarify the confusion surrounding their implementation. Also, a careful analysis must be done to ensure that these laws are addressing not only plaintiffs' rights to just compensation, but the prime objective of reducing defendants' costs.

* Jerome Staller is the president of The Center for Forensic Economic Studies in Philadelphia.