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Use of Annuities on Present Value in California

When California courts consider the use of annuities in medical malpractice cases, it is as a means of satisfying judgments or making post-verdict calculations. Annuities have not been used in the pre-judgment context unless the plaintiff has agreed in advance. This is consistent with the general policy that annuities are used to pay judgments and not for determining the amount of damages. Further, in the pre-judgment phase, the cost of an annuity is not yet established.In Schneider v. Kaiser Foundation Hospitals (1989) 215 Cal.App.3d 1311, annuities were utilized because the parties agreed to the evidence during the arbitration. Schneider involved a fee dispute between an attorney and his clients in a Kaiser arbitration that arose at the time the arbitrator was deciding the case and after the presentation of the evidence. During that arbitration the parties agreed to the use of an annuity for payment of future periodic payments under Code of Civil Procedure section 667.7 to satisfy the judgment. (Id. at 1315) A decision was rendered in favor of the plaintiff that did not initially include a determination of present value of the gross award and attorney’s fees for the attorney. The attorney moved to establish the value of the award for the purpose of computing his fees. The Schneider court held that, since the parties had agreed to an annuity and “because the cost of the annuity is established beyond dispute on this record,” the cost of the annuity was appropriate for the post-verdict determination of the attorney’s fees. (Id. at 1320.) The court in Hrimnak specifically commented on Schneider’s use of annuities for determining present value, and emphasized that Schneider did not mandate replacing the traditional investment method with annuities. (Hrimnak, supra, 38 Cal.App.4th at 980.)Similarly, Nguyen v. Los Angeles County Harbor (1996) 40 Cal.App.4th 1433, involved a post-verdict attorney fee dispute in a medical malpractice case. The jury had calculated future damages and the future inflation rate, as the foundations of a present value calculation. (Id. at 1440) The parties agreed to use an annuity to fund the judgment. The plaintiff’s attorney complained that the lump sum payment would not cover the total attorney’s fees, and attempted to set aside the judgment. In that situation where the jury had not made a final determination of present value and the parties had agreed an annuity would satisfy the judgment, the court held that the cost of an annuity may (not must) be used as the present value to calculate attorney’s fees. (Id. at 1454)Thus, there is no legal justification for the use of annuities during the pre-judgment phase of a medical malpractice action to determine present value.Eustace de Saint Phalle is trial team leader of the Saint Phalle Trial Team at The Veen Firm, P.C. in San Francisco. He focuses his practice on civil litigation in a variety of areas, including industrial accidents, product liability, exceptions to workers’ compensation, premises liability, auto accidents, maritime accidents, as well as business disputes and copyright violations. Mr. de Saint Phalle has been listed as a Northern California Super Lawyer since 2007 and is rated AV-Preeminent by Martindale-Hubbell for ethics and legal ability. He will provide additional materials for briefs or motions in limine upon request.

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