Sometimes in Texas a child suffers injury in a car accident that results in medical bills, injuries and other losses. Like other personal injury claims it may be prudent to seek settlement of the child’s claims rather than file a lawsuit. In most cases the insurance company will insist upon court approval of the settlement because children cannot enter into contracts. That is true even if the child is represented by a personal injury attorney.
Court approval requires a special type of lawsuit knows as a “friendly lawsuit”. A friendly lawsuit allows the judge an opportunity to investigate the claim and whether the settlement is in the child’s best interests. Rather than have the judge investigate personally or require costly hearings the judge may appoint a guardian ad litem. The guardian ad litem has special duties to the judge in these lawsuits.
In these cases a guardian ad litem’s role is more narrow than other cases involving a guardian ad litem. In personal injury cases the guardian ad litem (often abbreviated GAL) investigates and informs the judge in a hearing. Unlike other GAL hearings the GAL does not present testimony or draft a report unless the judge requires it. The guardian ad litem’s role is usually to review relevant documents and speak with the parties in the case. The GAL will then share his or her conclusions with the judge at a prove up hearing.
Under Texas law a judge must appoint a GAL if the parties involved have adverse interests to the child. A judge may appoint a GAL at the agreement of the parties. Insurance companies usually want an iron clad court approval of the settlement so they may insist upon a GAL. Some judges also always insist upon a GAL in these friendly lawsuits and make an appointment automatically.
Topics discussed today:
- How does a guardian ad litem in a custody case differ from a personal injury case?
- What law requires a guardian ad litem for a Texas personal injury case?
- What is the role of a guardian ad litem?
- Does a guardian ad litem represent my child in a personal injury case?
- Who can represent a child in a personal injury case in Texas?
- Why would a next friend have adverse interests to the child in a personal injury settlement?
- What makes a minor’s injury claim different from any other personal injury case?
- What is the statute of limitations for a child’s personal injury case in Texas?
- Why do you need minor court approval in a personal injury case with a child?
- Can I settle my child’s personal injury claim without court approval?
- What is a friendly lawsuit?
- What does the guardian ad litem do in a friendly lawsuit?
- What is a prove up hearing in a friendly lawsuit for minor court approval?
- What happens to the money after the court approves a minor settlement in a personal injury case?
- Do other states require court approval for minor settlements?
- Should I hire a Texas personal injury attorney for my child’s case?
How does a guardian ad litem in a custody case differ from a personal injury case?
In many ways a guardian ad litem in a custody case functions the same as a personal injury case. In both cases the GAL represents the child’s best interests in the proceeding. The GAL is an appointment by the judge to assist the court investigating the case and advising the judge. In both cases the GAL is not a legal representative of the child. The guardian ad litem represents the child’s interests regardless of the child’s requests.
However, there are important differences. In a custody case the GAL has broad duties to investigate the child and the child’s environment. The GAL is usually a medical or psychological expert in custody issues. A GAL may testify or present a report to the judge or jury as a witness. The GAL is a meaningful participant in determining how custody and parental rights apportion in the custody case.
A guardian ad litem in a Texas personal injury claim
In a personal injury case the GAL has a more limited role involving two issues. First, the GAL must determine if the child’s personal representative to the court (called “next friend”) has an adverse interest to the child. Under Texas law a party with adverse interests to the child’s interests may not act as the child’s representative. Second, the GAL must determine whether the settlement terms are in the child’s interests.
Generally a GAL does not testify or present evidence in a trial or otherwise participate in litigation. Another important difference is that a GAL in a personal injury claim has privilege over communication between the GAL and involved parties in the case. What the GAL is told cannot be disclosed to anybody else. In a custody case anything the GAL is told by anybody could be evidence in a custody case.
What law requires a guardian ad litem for a Texas personal injury case?
Under Texas law there are several statutes and rules involving appointment of a guardian ad litem in different cases. The Texas Family Code establishes rules for a GAL in a family court proceeding. The Texas Estate Code establishes rules for GAL appointments in probate and other non-custody child issues. In a child’s personal injury settlement it is Rule 173 of the Texas Rules of Civil Procedure that determines a GAL’s appointment and duties. Although this is not a statutory appointment, the Texas Rules of Civil Procedure govern civil court activities including approval of minor settlements in personal injury cases.
Under Rule 173.2 the judge must appoint a GAL for a party represented to the court by a next friend or guardian only if the child’s representative appears to have an adverse interest in the judge’s opinion or the parties agree to the appointment of a GAL. Often insurance companies insist upon a GAL to prevent the minor from turning eighteen and undoing the settlement.
What is the role of the guardian ad litem?
A guardian ad litem does not represent your child in pursuing their personal injury lawsuit. The GAL represents the child’s interests which generally means the financial interest in the injury claim and settlement. A GAL cannot negotiate a settlement or tell anybody, including the child, whether to accept the proposed settlement. The guardian ad litem’s job is to investigate the child’s personal injury claim and settlement terms to determine whether the child is fairly compensated by the settlement amount and terms. The GAL also considers related financial issues for the child and whether settlement terms provide the child fair compensation.
A GAL is an extension of the judge rather than any party or attorney involved in the settlement. The GAL advises the judge of any concerns about the settlement or tell the judge the settlement should be approved. By using a guardian ad litem the judge effectively conducts an investigation without requiring the parties to present evidence in a trial. It also avoids a hearing in which the parties represent their interests as the child’s interests. The GAL is a disinterested individual and likely is a separate attorney who understands the legal issues involved.
Considerations for the Texas guardian ad litem
In assessing the fairness of the settlement to the child the GAL must consider the overall value of the claim. This involves reviewing medical records and bills, other evidence of injuries, any other financial losses to the child, pain and suffering, disfigurement and so forth that make up the value of any personal injury claim. The guardian ad litem also should consider whether the child’s proposed settlement is reasonable by comparison to other parties with claims if there is not enough insurance coverage to fully compensate the child.
A guardian ad litem should carefully consider financial issues involving the settlement beyond the gross amount the child will receive. In a personal injury settlement there are usually medical providers or payors of medical bills who have a right to repayment. The GAL must consider who needs to be paid to determine what net amount the child will receive. The GAL should also consider if the settlement will affect any public benefits the child receives, such as Medicaid. If it affects access to benefits then what accommodations have been made to protect the child’s access to public benefits. Your GAL should consider what will happen to the funds between the time the judge approves a settlement and the child becomes an adult. The options to address settlement funds is governed by the Texas Property Code.
Does a guardian ad litem represent my child in a personal injury lawsuit?
No, a guardian ad litem does not represent the child as a person. The guardian ad litem does not act as a personal injury lawyer representing you or your child. The GAL may be a licensed attorney but does not act as legal counsel for anybody involved. The guardian ad litem is not bound by your child’s instruction as an attorney would. Your child might want to settle but if the GAL believes it is not in the child’s best interests the GAL will tell the judge not to approve the settlement.
The guardian ad litem represents the child’s legal and economic interests in the settlement. The guardian ad litem can investigate and present an opinion but the judge is not bound by the opinion. If the judge disagrees the GAL has no authority to approve or reject a settlement.
Usually the judge in a minor settlement court approval process appoints an attorney. An attorney is reasonably experienced and trained in evaluating settlements and the interests of parties. In Texas any attorney who seeks appointments as a guardian ad litem must obtain guardianship certification by the Texas judiciary. This ensures the attorney has training specific to guardianship issues beyond experience representing clients in personal injury cases. Nevertheless, an attorney appointed as a GAL is not legal counsel for the child or anybody else in the case.
Who can represent a child in a personal injury case in Texas?
In Texas a child involved in a judicial settlement approval or lawsuit must be represented by another person. This somebody else is referred to as a “next friend” to the child. A next friend is somebody with the legal authority to represent the child in legal proceedings. Usually this will be a parent or other legal guardian. The next friend has a duty to participate in the legal proceeding in the child’s interests. If the judge believes the next friend is incapable of making decisions solely in the child’s best interests then the judge appoints a GAL. The next friend generally will continue representing the child.
Why would a next friend have adverse interests to the child in a personal injury settlement?
This happens more than you would think. A parent or guardian for the child often has competing financial interests with the child–even unintentionally. If the parents paid for the child’s treatment then the parent might be motivated to settle the case quickly. Parents also sometimes look at the child’s case as an opportunity to relieve themselves of the costs of raising the child.
Parents sometimes have other motivations to resolve a case quickly rather than what is best for the child such as:
- The parents want to move and resolve any unfinished business in the area;
- The parents spent a lot of time dealing with their own injuries and do not want relive the wreck;
- Parents have their own ideas about how to spend the money that may not be for the child at all;
- The parents are in the middle of a divorce and the child’s claim is another issue to work out;
- Each parent has different ideas about how the case should resolve which creates marital problems;
- Settling the kid’s case for as little as possible puts more money in their pockets;
- Parents do not like to think of their children as injured; or
- Parents fear a trial would be difficult on the child and not worth the emotional distress.
Not all of these are selfish or unreasonable concerns; however, the child has the right to recover in a car accident or other negligence claim. Just because the child cannot make legal decisions does not mean the child does not deserve justice.
What makes a minor’s injury claim different from any other personal injury case?
In many ways a minor’s personal injury case is no different from any other. Children mostly suffer the same types of injuries as adults. They may suffer injuries that affect their development and may suffer permanent effects for a longer period of time but their injuries are generally similar. They incur medical bills, may have other economic losses and suffer similar non-economic damages like pain and suffering. These are all similar to personal injury cases for adults.
What makes these claims different are primarily two-fold. First, most of the economic losses are incurred by the child but paid by other people like parents. The parents have a desire to receive compensation for bills they paid even though the claim belongs to somebody else. Second, the injured person is a minor who is unable legally to make legal decisions for themselves. Minors cannot enter into contracts and meaningfully contemplate their case, legal advice, or the effect of a settlement. Court approval balances these issues by allowing a neutral party–the judge–to evaluate these issues and determine whether it is fair for the child and protect the settlement proceeds for the child.
What is the statute of limitations for a child’s personal injury case in Texas?
Generally the rule for a statute of limitations for an injury case is that the SOL starts to run when an injury occurs or when an injury is discovered. Under the Texas Civil Practice and Remedies Code the normal statute of limitations for a bodily injury is two years from the date of injury or discovery of injury. Tex. Civ. Prac. & Rem. Code § 16.003.
A child lacks the legal ability to make decisions to settle a claim or file a lawsuit. As a result the statute of limitations does not start to run until the minor becomes an adult or emancipated. At that point the normal two year statute of limitations begins to run. Tex. Civ. Prac. & Rem. Code § 16.001.
Although the statute of limitations on a child’s claim does not begin to run while the child is an unemancipated minor it may still make sense to try to settle the case shortly after the injury. The witnesses and evidence in the case may not survive until the statute of limitations begins to run. That means if the case does not settle in a reasonable time then filing a lawsuit within the normal statute of limitations may make sense. The child may also have been injured with parents or other adults and resolving the child’s claim by settlement or lawsuit may be necessary within the normal statute of limitations.
Why do you need minor court approval in a personal injury case with a child?
There is actually no Texas law requiring a court approve settlement of a minor’s personal injury claim. The parents or other legal guardian can settle a minor’s claim and receive settlement proceeds. (This might include a grandparent or sibling awarded conservatorship rights by a family court to manage the child’s estate.) Despite the lack of legal requirement most minors will obtain court approval for a settlement.
Although a parent or legal guardian may settle the minor’s personal injury case the tricky issue is that the claim belongs to the child alone. Well in Texas, like all states, a minor cannot enter into a contract–including a settlement agreement. When the minor becomes an adult the minor can reject the settlement agreement. At that time the personal injury claim revives.
That is a really bad situation for the insurance company because they may pay twice on the claim. This is particularly risky for the insurance company if the parents take the money and spend it before the minor becomes an adult and has the opportunity to access the funds. The insurance company could agree to hold the claim until the minor becomes an adult but if that is years away usually the insurance company wants to resolve the claim early and move on. (The personal injury attorney and other parties due funds probably also want to be paid sooner rather than later.)
To avoid either holding injury cases open for years or paying twice the insurance company will require court approval over the settlement. If a court approves the settlement then the case resolves once the funds are tendered to the court’s registry.
Can I settle my child’s personal injury claim without court approval?
Sometimes insurance companies will pursue settling a child’s personal injury claim without court approval. Often this is done by settling the claim with the parents and part of the settlement is an agreement that if the child ever decides to pursue the claim then the parents will indemnify the insurance company and at-fault person. The parents will be responsible for paying to defend the insurance company and at-fault party against the child. If the child wins a favorable verdict at trial well the parents will have to pay for that, too.
This is not a great process for the child for several reasons. First, the child might not see any money from the case because the parents get the money and spend some or all of it. Second, the parent might be self-interested in settling quickly or undervalue the claim. That is especially likely if the parents do not hire a personal injury attorney. Third, if the child decides to file suit and wins at trial then he or she will have to pursue the parents for money. That is an uncomfortable situation.
This is not really a good outcome for the insurance company, either. An indemnification agreement might require the parents to pay but if the parents choose not to pay the insurance company still has to fulfill its duties under the insurance policy to defend and potentially pay on the claim. Unless the parents are wealthy it is tough to collect a judgment against individuals in Texas. So the insurance company might pay twice anyway. For these reasons insurance companies usually insist upon court approval unless the settlement amount is extremely small.
What is a friendly lawsuit?
The legal mechanism in Texas to obtain court approval of a child’s personal injury case is a “friendly lawsuit.”
A friendly lawsuit is a civil lawsuit initiated by the insurance company that has two opposing parties (the insurance company versus the child) but both sides have the same goal of agreeing to a settlement of the underlying injury claim. The friendly lawsuit is a compromise procedure that avoids courts having to invent a completely new judicial process but creating special modifications to the normal civil lawsuit for this purpose.
The friendly lawsuit invokes the court’s authority to render an enforceable judgment on the settlement. Special rules like T.R.C.P. 173 govern appointment of a guardian ad litem for these particular lawsuits but otherwise the court can rely upon its normal operations to guide this case to a conclusion. There are also special rules for what happens with the funds after the court approves settlement that generally do not apply in a normal personal injury lawsuit. (See below.)
What does the guardian ad litem do in a friendly lawsuit?
Unlike family law or probate proceedings, the guardian ad litem’s role in a friendly lawsuit is much smaller. The GAL is tasked with assessing the value of the claim, the terms of the proposed settlement and advising the judge whether the settlement is appropriate. If the guardian ad litem provides testimony at a prove up hearing it is usually informal testimony confirming that the GAL investigated the claim and settlement and then provides an opinion. If the guardian ad litem opposes the settlement then the GAL might provide more testimony. Practically, if the GAL opposes the settlement then the parties work to find a suitable agreement that the GAL approves.
What is a prove up hearing in a friendly lawsuit for minor court approval?
A prove up hearing is a hearing in which one or more party presents evidence to the judge to create a record that satisfies the procedural and substantive law to create a legally enforceable order. Under Texas law any final judgment in a case that requires the judge (or a jury) to make a fact-based decision must be based on evidence presented to the judge (or jury). In a settlement approval for a minor the judge must hear at least a minimal amount of evidence on all the elements in the statute that proves the settlement is in the child’s best interests.
In a prove up hearing a small amount of testimony will accompany documentation of the settlement to present enough evidence to establish a factual basis for every element of the court’s approval. The hearing is usually short–sometimes just ten minutes. Usually one attorney will ask a series of questions on the record to the guardian ad litem and the next friend to create sufficient evidence to allow the judge to approve the settlement. In a minor court approval this is to determine whether the settlement is fair and in the child’s interests.
Typical issues addressed in a prove up hearing in Texas
Generally the judge will need to hear basic facts about the case and the settlement including:
- Basic facts about how the child became injured;
- The injuries suffered by the child;
- The overall terms of the settlement, including the amount;
- Whether the total settlement amount is appropriate in light of the type and severity of injuries and other losses;
- Whether the child receive appropriate medical evaluation and treatment for injuries;
- Is the medical evaluation sufficient to avoid the possibility that there are undiscovered injuries not factored into the settlement;
- The distribution of the settlement between the child, the next friend and other parties involved in the collision;
- Whether the distribution between the child and next friend or other claimants is fair;
- Whether the personal injury attorney representing the child charged a reasonable fee for representing the child.
The prove up hearing is primarily a legal formality. It is not anything to worry about–there should be no surprises at the prove up hearing. It is more of an scripted play for the court’s record than an inquisition. Even if you appear without a personal injury attorney as the next friend, the attorney for the insurance company will usually take care of the hearing if he or she is the only attorney at the hearing.
What happens to the money after the court approves a minor settlement in a personal injury case?
When a court approves a settlement agreement for the child the funds the court will approve what happens to the money as well. Some portion of the money can be paid immediately from the settlement while other funds must be protected until the child becomes an adult.
The court can approve immediately releasing settlement funds for:
- Court costs and expenses accrued by the child’s personal injury attorney to pursue the claim;
- Reasonable attorney’s fees approved by the court;
- Past medical expenses accrued as a result of the injuries.
Sometimes judges will approve the immediate release of funds to the parents or guardian for exceptional purposes. Typically these involve education expenses the parents could not otherwise afford or a particularly expensive item for the child’s exclusive use that the parents could not afford. This is extremely rare in Texas.
The remaining settlement money must comply with chapter 142 of the Texas Property Code which governs property recovered in a settlement or lawsuit on a child’s legal claim. Under chapter 142 of the Texas Property Code the court can approve a plan involving five options for the funds:
- Investment of settlement proceeds by the next friend or guardian ad litem;
- Investment of settlement proceeds by the clerk of court;
- Commercial annuity or structured settlement;
- Formal guardianship; or
- Section 142 Trusts.
Investment of settlement proceeds by the next friend or guardian ad litem
The judge may approve allowing the next friend, usually a parent, or less commonly the guardian ad litem, to invest the funds on the child’s behalf until the child becomes an adult. By selecting this approach the next friend for GAL must abide by investment restrictions outlined in Chapter 142 and must post a bond to protect the funds in the event of mismanagement. The upside to this approach is the child can obtain investment gains (or losses) and if the child has a need for some of the proceeds before reaching eighteen the next friend or GAL can petition the court for approval to remove some of the funds and spend it.
Investment of settlement proceeds by the clerk of court
The court may order the insurance company to deposit the settlement proceeds into the registry of the court for the court clerk to manage. The court’s registry involves any property placed in the court’s possession for safekeeping. In this option the court clerk must deposit proceeds into a savings account or certificate of deposit (CD) until the child becomes an adult. The opportunity to enlarge the amount through investment is slight but the risk is also virtually nonexistent and the costs of maintaining a CD or savings account is similarly low or nonexistent. Courts dislike this approach unless the settlement amount is very low or a suitable alternative is unreasonable. Primarily this is because the court would rather allow the child to gain the benefit of investment returns.
Commercial annuity or structured settlement
The Texas Property Code also allows the court to approve an annuity or structured settlement to satisfy the settlement terms. An annuity or structured settlement is the same thing. An annuity or structured settlement pays the funds in periodic payments beginning when the child reaches eighteen until funds exhaust. After purchasing the annuity contract the proceeds earn interest so the amount of money received will increase like investment by the next friend but at potentially less cost and less complication. Some parents like this approach because it means the child-turned-adult will receive the proceeds over a longer period of time instead of handing a freshly minted adult a lump sum of money.
Another important reason to consider a structured settlement is to protect access to government benefits. Government benefits like Medicaid and CHIPS have low income and asset limits. If the child has assets in an account that could be released by the court then it may place benefits for the child at risk. A structured settlement that begins payments after the child becomes an adult is inaccessible until that time. They generally will not affect any public assistance. In unique situations in which the structured settlement pays while the child is still a minor the amount can be adjusted (by prolonging the payment period) to maintain income below the threshold for benefits the child receives.
Section 142 trusts
Chapter 142 establishes a special kind of trust to protect a minor’s settlement proceeds called section 142 trusts. These trusts have special requirements about who can manage the trust which either may be an individual if the amount is less than $50,000 or a financial institution for larger amounts. The trust may disburse funds while the child remains a minor for the child’s education, health and other financial needs. The child must be the sole beneficiary of the trust and only terminates if the child dies, reaches the age stated in the trust, or age twenty-five if the trust does not state a different age.
The benefit of this option is the trust can establish a process to distribute funds for the child’s well-being without requiring a court order for every disbursement. This does not allow the parents or guardians to conduct an end-run around judicial oversight of the funds. The court must approve the trust document and its specific guidelines for disbursements.
Formal guardianship of settlement proceeds
For many judges this is the least favorable option because it is the most technical and requires the most continued involvement by the court. The cost and complexity can make sense when the settlement proceeds are substantial or the child has unique circumstances that require extensive oversight of the funds. In this case the civil court transfers the proceeding to a probate court who has jurisdiction over guardianships in
Texas. The probate court will order a person to serve as legal guardian of the settlement proceeds which comes with significant requirements for the duties of the guardian and how the proceeds may be invested, assets sold and the extent proceeds may be disbursed or spent in the guardianship’s own interests. The probate court remains involved with oversight of the guardian’s oversight of proceeds until the probate court orders dissolution of the guardian’s appointment. The probate court may appoint a parent or guardian but a better choice may be a financial or legal entity more experienced with guardianships.
Special needs trusts and settlement proceeds
It may be necessary to combine one of the above options with a special needs trust. A special needs trust is a unique type of trust that preserves settlement proceeds without jeopardizing Medicaid or Supplemental Security Income (SSI). Medicaid and SSI have income and asset thresholds easily surpassed by even a reasonably small settlement. If the child suffered disabling injuries he or she may need lifelong public assistance through Medicaid and SSI for basic financial needs. A special needs trust secures the settlement proceeds for specific purposes related to the child’s well-being and medical needs even after the child becomes an adult. By operating as this particular kind of trust Medicaid and SSI are not at risk.
Typically a special needs trust will involve a structured settlement. The insurance company will buy the annuity with the payments due to the special needs trust. That allows the proceeds to obtain returns while the trust continues to serve its legal and financial purpose.
What is the best way to approach settlement funds in a minor court approval?
There is no one size fits all answer to this question. What is right for a particular minor depends on many factors including:
- The amount of the settlement;
- What needs the child may have for settlement proceeds before turning eighteen;
- Ongoing medical needs for the child after settlement;
- The family’s financial situation;
- Whether the child receives or will need to receive public assistance;
- Whether there are appropriate family members capable of managing proceeds until the child obtains them.
One function of the guardian ad litem, and the judge, is to consider the allocation of settlement proceeds so that the approved settlement best serves the child. The guardian ad litem may disagree with the next friend, insurance company, or even the attorneys about the best approach. The guardian ad litem will offer a recommendation to the judge but the judge will make the final call. The child’s personal injury attorney should consider all of the options and factors involved when advocating for a particular approach.
Do other states require a guardian ad litem or court approval for minor settlements?
Yes, all states have rules to approve a minor’s settlement agreement. State laws vary in their rules and procedures but if you live in Texas but suffer an injury in another state you may need to follow that state’s rules for court approval. For example, if you live in Texas but your child suffers an injury in a car accident in Colorado then you may need to seek approval in Colorado or in Texas. Whether one is a better option than the other is a legal question for your personal injury attorney.
Should I hire a Texas personal injury attorney for my child’s case?
Yes–it is generally a good idea to obtain legal counsel for your child even if the guardian ad litem and judge will consider the fairness of a settlement agreement. The judge and guardian ad litem will consider fairness but can only rely upon the information at their disposal. They do not investigate the value of the claim in great detail nor do they take any action to build value in the case. They do not investigate coverage, hire experts, assure the child obtained necessary medical treatment and evaluation, negotiate the case with the insurance company, or other tasks typically performed by personal injury attorneys. The GAL and judge only have a duty to explore whether the settlement satisfies a minimum level of fairness. They are not advocates for the child.
Insurance companies are not on your side
Insurance companies have an incentive to pay as little as possible on claims so without an advocate for the child the insurance adjuster or attorney has the upper hand to reduce the potential value of the claim for your child. That is their role for their employer. If you let the insurance company take control of the value of your child’s claim then your child may receive an undervalued settlement–even with court approval.
In very small cases it may not make sense to incur the costs of a personal injury attorney but most firms offer free consultations to review the case so there is no cost to speak with one or more personal injury attorneys to see if it makes sense to hire an attorney for your child.