Rana Law Group Newsletter

• Tax Considerations for Injury Cases
• Car Insurance Review
• Good Luck with any New Year’s Resolutions!

1. Punitive damages, which may be awarded by a jury to punish bad behavior by a defendant, are always taxable unless the case involves a wrongful death.
2. Post judgement interest, which occurs when a jury verdict is awarded and the insurance company incurs interest on the judgement before agreeing to pay.
3. Emotional distress damages are typically taxable.  For example, if someone sues their employer for emotional distress due to discrimination or sexual harassment, the settlement or verdict would be taxable.  If the damages flow from physical injuries or physical sickness, however, the money becomes tax-free.
4. Economic losses (property damages, lost wages or business income) are also considered taxable UNLESS it is shown the money replaced lost or damaged property.

Overall, these rules can be difficult and confusing to interpret/navigate perfectly which is why we recommend reaching out to a tax professional if audited.  If applicable, a tax/financial professional can also help with structuring money in order to eliminate or minimize tax liability.  While getting money in an injury case presupposes something bad happened to the individual, hopefully knowing the individual will not have to pay taxes on the money obtained adds a little less insult to the injury!

*Note: Some insurance carriers write policies that deduct the amount recovered from the at fault driver from the underinsured coverage amount.  For example, let’s say you have $50,000 in underinsured motorist coverage and the at fault driver also has a $50,000 policy.  In this scenario, some of these policies determine you are not “under”-insured and exclude coverage (effectively only kicking in if the at-fault person had $25,000 in coverage, in which case it would only provide $25,000 in coverage).  I think this is exceedingly misleading because most people are led to believe they have $50,000 EXTRA coverage when, in reality, they do not.  These policies are typically enforced by the courts because it is a contract and, unless there is some ambiguity in the agreement, courts assume people understand what they agreed to in the contract.  While I hope insurers are hit with a class action lawsuit at some point for what I feel is a deceptive business practice, until then, it is important to know exactly what is in your policy and for what you are covered.  Ask your insurance salesperson if this applies to your policy and, as always, feel free to bring us your policy for a free review!

Medical Payments Coverage:
Medical payments coverage is no-fault coverage that pays for medical bills, regardless of whether an accident was your fault or someone else’s fault.  For instance, if you are driving with a passenger and you accidentally  rear-end someone else (meaning it is your fault, hence the no-fault aspect), if you and your passenger are injured and incur medical bills, your medical payments coverage will cover the medical bills up to your coverage.  This is useful when an accident is your fault OR if it is someone else’s fault but you are waiting for the at-fault insurance company to make a lump-sum settlement at the end of the case.  Your medical payments coverage can provide money to pay for bills to avoid going to collections if you are unable to pay those bills.

Typical coverage amounts are $1,000-$10,000 but I have seen as much as $25,000.  Many people do not have this coverage because insurance salespeople cut it out as a way to provide a cheaper quote for your insurance premium.  However, this is some of the cheapest, biggest bang for your buck coverage available.  Some of the people who have it do not know what it is and do not use it, even when it applies.  Some of my clients who begin the process through their insurance and then come to me later get frustrated because their own insurance company did not advise it was available and could be applicable to their situation.

I am happy to do a free review of your insurance coverage (auto/home/umbrella) to make sure you are getting the best value and the correct coverage to protect you and your family should something happen.

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