Protecting a Minor Child's Personal Injury Settlement

So many times we hear about personal injury settlements involving adults. But how are injury claims handled for minors? Is the minor's settlement protected? The general rule is that a personal injury settlement for a minor is not binding against the minor unless there is court approval of the settlement. If the parents settle an injury claim for their minor child, then that settlement is not necessarily binding against the minor child. Therefore, that minor child may re-assert the claim within two years after that child's eighteenth birthday. So you might ask: Why would an insurance company ever settle a personal injury claim involving a minor child if the agreement is not binding. Simply put, the insurance company can condition the settlement upon getting court approval through a "friendly suit."

Once the parties have reached a settlement agreement for the minor child, the insurance company refers the case to their attorney who prepares the court papers for a friendly suit. Once the friendly suit is filed, the judge then appoints an independent "guardian ad-litem," sometimes known as an "attorney ad-litem." This person is an attorney appointed by the judge to review and investigate the settlement to determine whether it is in the best interest of the minor child.

Prior to approving the settlement, the ad-litem also reviews the terms of the settlement agreement. The ad-litem will normally recommend that the settlement proceeds for the minor child be deposited and held in the court's registry until the child turns eighteen (18) years old. Sometimes, the parties will agree to have the proceeds placed into a private annuity where the funds might gain a higher rate of interest. Nevertheless, the funds are to be placed into such a fund for the protection of the minor child. Likewise, the parents are not permitted any access to these funds.

Once the ad-litem concludes the investigation, the attorney will recommend to the court whether the settlement should or should not be approved. Unless there is anything out of the ordinary, the ad-litem and the court will normally approve the settlement after a short hearing. The procedures in a friendly suit are usually very simple and routine.

There may be few situations where the court has permitted the parents to invest the minor's settlement proceeds into an investment of their choice, such as a college savings account. However, the parents would be required to follow the courts's order to invest those funds accordingly and not use the funds for their own use. After all, the purpose of the friendly suit is to protect the minor's settlement proceeds for the benefit of the minor child.

Once the settlement is approved by the court, then the settlement becomes binding against the minor child. Likewise, the child cannot reassert any claims arising from the injury. This is how the insurance company is assured that the settlement is final. However, a friendly suit costs money. And since the friendly suit is there for the benefit of the insurance company, then the insurance company pays the costs associated with the friendly suit, including the fees charged by the ad-litem. Therefore, on smaller settlements, the insurance company may not insist on a friendly suit. Under these circumstances, the proceeds of the child's settlement are tendered to the parents and are not legally protected.