Medical Good Samaritan
A doctor, nurse or other medical professional who renders aid at the scene of an emergency is protected from liability, except in cases of intentional harm or gross negligence.

Veterinary Good Samaritan
A licensed veterinarian who renders emergency aid is immune except in cases of intentinal harm or gross negligence.

Use of an Automated External Defibrillator (AED)
Anyone trained to use an AED is protected from liability except in cases of intentional harm or gross negligence.

Criminal Victim Good Samaritan Act
Anyone who provides aid for a victim of a personal injury crime enjoys Immunity from liability absent intentional harm or gross negligence.

Nonmedical Good Samaritan
Anyone holding appropriate proof of training in first aid is immune from liability when rendering emergency care, first aid or rescue at the scene of an emergency absent intent to harm or gross negligence.

Manager, Coach, Umpire or Nonprofit Association Immunity
Anyone who, without compensation, renders services as a manager, coach, instructor, umpire or referee or who assists any of the above is immune from liability unless their conduct fails substantially below the standards generally practiced by similar persons and there was reason to know that there was a substantial risk of harm to a person or property.  A nonprofit association which sponsors a sports program enjoys similar Immunity from liability.

School Officers or Employees — Drug or Alcohol Abuse Reporting
Any officer or employee of a school who reports drug or alcohol abuse of a student to another person at the school, a parent, legal guardian or spouse of the student or who refers the student for treatment or disciplinary action shall not be liable for actions taken in good faith.  Only in cases of intent to harm or gross negligence can any action be taken against them.

School Officers or Employees — Emergency Care, First Aid and Rescue
Any school officer or employee who, in good faith, renders emergency care, first aid or rescue is immune except in cases of intent to harm or gross negligence and in the case of serious harm.

Donated Food and Grocery Products
A person is not subject to civil or criminal liability for the condition of apparently wholesome food or grocery products donated in good faith to a nonprofit, absent gross negligence, recklessness or intentional misconduct.

Employer Immunity — Disclosure of Information
An employer who discloses information about a current or former employee’s job performance to a prospective employer is immune unless it can be established by clear and convincing evidence that (1) the employer knew or should have known the information was false; (2) the employer knew it was materially misleading; or (3) the information should not have been disclosed because its disclosure was prohibited by a contract with the employee or another law.

It’s 9:00 a.m. and you have parked in the correct garage, walked to the Courthouse, passed through security and made it down to the basement of the Courthouse.  You enter the Jury Assembly Room and check in.  The Jury Commissioner provides orientation explaining jury selection procedures.  If time permits, you will be shown a jury orientation video.

Then, you wait until a judge needs a jury panel.  When that happens, you and about 40 other jurors are taken to a courtroom for Voir Dire — which is the Latin name for jury selection.  In the courtroom you are seated and are assigned numbers from 1 to 40.

During Voir Dire, the judge and/or the lawyers will ask you various questions to determine whether you can be fair and impartial jurors.  For example,  you will be asked whether you know the judge, lawyers, litigants or potential witnesses or whether there are other reasons why you might not be able to be fair and impartial.  Your job during Voir Dire is to be open and honest in answering the questions.  You will also be told the length of the trial and be given the opportunity to tell the judge and lawyers about any hardship you might have, like health, family or work, which would prevent you from serving.

After Voir Dire questioning is completed, the judge will excuse some jurors for hardship reasons.  Then, in private, the lawyers can argue that other jurors should be stricken from the panel “for cause,” meaning that they do not meet the criteria of being impartial.  For example, if one of the litigants or lawyers was a good friend of yours, you probably could not be impartial and, as such, should be stricken from the panel “for cause.”  Thereafter, each litigant is given a number of “peremptory strikes,” usually around 4, which allows that litigant to strike jurors from the panel who he or she believes will be unfavorable.  Once these strikes are used, the first jurors remaining become the jury.  There are normally 6 to 12 jurors, with 1 or 2 alternates.

The trial itself consists of several phases:  Opening Statements by the lawyers; the State’s witnesses and evidence (if a criminal case) or the Plaintiff’s witnesses and evidence (if a civil case); the Defense’s witnesses and evidence; Closing Arguments by the lawyers; Instruction of the Law by the Judge; and Jury Deliberations and Verdict.

As a juror, you will be instructed that, during the trial, you are not allowed to discuss the case with anyone, including fellow jurors and your family.  You also cannot have any contact with the lawyers, judges, litigants or witnesses.  If the trial runs for more than one day, you will go home each night, under strict instructions not to discuss the case with anyone or do any independent research or investigation into the facts of the case.  You are warned not to read, listen to, or watch any news coverage of the case.  In very rare cases, jurors are “sequestered” during a trial, which means that they are kept in a hotel and cut off from the outside world.

At the end of the trial, it is your job, as a juror, to decide the case.  This takes place in private deliberations in the Jury Room.  The jury must select a foreperson who usually leads deliberations and announces the verdict in Court.  However, the foreperson, like all other jurors, only has one vote.

During deliberations, the jury is asked to answer written questions on a Jury Verdict Form.  Your job is to answer the questions and explain your position to the other jurors.

In a criminal case, a unanimous verdict is required.  In civil cases, only a 5 out of 6 or 10 out of 12 majority is required.  If a verdict cannot be agreed upon, the judge must declare a mistrial and a new trial must take place in front of a new jury.

After you deliberate, you announce your decision in Court and your service is over.  After the trial, you can, but are not required to, discuss your decision with the lawyers, litigants or judge.

History of the American Jury System

Trial by an impartial jury has not always been used in the Anglo-Saxton justice system.  Early English trials involved witnesses to the event testifying in court and rendering the verdict.  Hardly an impartial jury!  In 1215, the Magna Carta provided that “no free man shall be taken or imprisoned or outlawed or exiled or in anywise destroyed, save by the lawful judgment of his peers.”  This right to a jury trial is guaranteed by the U.S. Constitution and the Pennsylvania Constitution.  In Pennsylvania, in a criminal case the accused can choose to have a jury trial or a trial decided only by a judge.  In a civil case (a lawsuit over money), either party has the right to insist on a jury trial.

Important Facts - Before the Day of Service

You can be called to serve as a juror if you are at least 18 (there is no maximum age), a U.S. citizen and a resident of Chester County.  The County uses the list of registered voters to summon jurors.  The jurors are randomly selected by the computer — meaning that someone might be called several times, while someone else might never be selected.  NO ONE is automatically exempted from jury service, not even the judges of the Chester County Court.  If you are not selected as an actual juror in a court case, service lasts two days.  If you are selected as a juror, service lasts the length of the trial, which is usually one to five days.  The juror summons which you receive by mail will instruct you to call a telephone hotline the night before, because there is a possibility that the court will not need you to come in.

If you believe that you have a hardship which precludes you from serving as a juror, you can write a letter to the Jury Commission Office and seek to be excused from serving.  You cannot telephone the office and ask to be excused.  Unless your written request is granted, you must appear to serve.  Failure to appear is considered contempt of court and is punishable by fine or imprisonment.

The normal business hours of the court are 8:30 a.m. to 4:30 p.m., but, if selected as a juror, your trial may run later and jury deliberations at the end of the trial often continue into the evening.

You are paid for jury service, but not much.  For the first three days you receive $9.00 per day; after the third day you get $25.00 per day.  The law also provides for payment of $.17 per mile for travel expenses which is calculated by using your zip code.  The County also pays for your parking.  Your employer is not required by law to pay you during jury service, but may have such a policy.  The County does not provide or pay for child care.

Conservative dress is suggested.  Suits and ties are not required but the judges do not allow blue jeans, shorts or tank tops.  You should bring something to read during waiting periods.

In my next article, I will discuss what happens when you arrive at the Chester County Courthouse for Jury Duty.

When someone is killed as a result of the negligence of another person, like in a car accident or because of medical negligence, certain legal claims arise.  Under Pennsylvania law the spouse, children and/or legal heirs of the deceased person (decedent) have the right to pursue those claims in court in order to receive monetary compensation to attempt to make up for the loss.

When Are There Legal Claims?

Legal claims for monetary damages only exist if someone else was responsible for the death.  If the death was caused by an accident due to the negligence (carelessness) of someone else, like a vehicle crash, medical malpractice or other accident, legal claims arise.  However, if the death came from natural causes or was the fault of the decedent, no legal claims can be pursued.

Who Can Pursue the Legal Claims?

The legal claims of the decedent must be brought by the legal representative of his “Estate.”  If the decedent had a Will and named an “Executor” or “Executrix” to handle the Estate, then that person would be in charge of pursuing all legal claims.  If the decedent had no Will, then an “Administrator” needs to be appointed by the court, and that person would manage the Estate and pursue any legal claims.  The surviving spouse usually serves as Administrator.  If there is no surviving spouse, then the parent, child or other appropriate relative usually serves as Administrator.

Wrongful Death Claims

Wrongful Death Claims are available to certain surviving family members such as surviving spouses, parents and children.  Assuming that the Estate is successful in proving that the death was caused by the negligence of the defendant, the following monetary damages can be recovered:

1. Hospital, medical, funeral, burial and estate administration expenses;
2. Compensation that will fairly and adequately compensate the family of the decedent (spouse, children and parents) for their loss of money the decedent would have spent on them for shelter, food, clothing, medical care, education, entertainment, gifts and recreation; and
3. Fair and adequate compensation for family for the loss of the value of services, society and comfort, such as work around the home, and other services like guidance and moral upbringing of children.

The monies received under the Wrongful Death Claim are divided between the surviving spouse, children and/or parents of the decedent.  The division is governed by laws regarding how an Estate is divided if a person dies without a Will.  The Wrongful Death proceeds are not taxable to the people who receive the money.

Survival Act Claims

The Estate of the decedent has claims which are independent of those of the family of the decedent.  These Survival Act claims are the claims of the decedent which “survive” his death.  The following are the money damages that can be recovered under the Survival Act:

1. Money to fairly and adequately compensate the Estate for the decedent’s mental and physical pain, suffering and inconvenience and loss of life’s pleasures endured from the moment of injury until the moment of death; and
2. The total net amount of earnings from the date of the accident until the end of the decedent’s life expectancy.  Life Tables from the United States government are used to calculate how long the decedent would have been expected to live but for the accident.  Net earnings are calculated as follows:  Gross earnings (wages expected to be earned plus value of fringe benefits) minus contributions to family for maintenance (this amount was awarded under the Wrongful Death Action) and cost of personal maintenance of the decedent (cost of necessary living expenses like food, clothing and shelter).  So, the net earnings to be awarded to the Estate are gross earnings less what the decedent would have spent supporting his family and what he would have spent on his own personal maintenance.

As can be seen, the bulk of the recoverable damages are based upon the probable earnings and life expectancy of the decedent.  The higher the earnings and longer life expectancy, the greater the value of the Survival Act claim.

The Survival Act claim is a claim of the decedent’s Estate.  The monies recovered become a part of the Estate and are subject to State and Federal Estate Tax.  The monies are distributed in accordance with the decedent’s Will.  If no Will exists, then the monies are distributed to the heirs, just like the Wrongful Death proceeds.

Purpose of the Workers’ Compensation Act

Under the Pennsylvania common law, a person’s right to receive compensation for injuries depends on proving that someone else caused the injury through their negligence or intentional wrongdoing.  Obviously, proving negligence or intentional wrongdoing is often difficult and it can take years for disputed cases to get litigated.

The Pennsylvania Legislature recognized that the traditional court system and negligence law did not operate well for workers injured on the job, so, in 1916, it passed the Workers’ Compensation Act.  The Act replaces traditional negligence law and makes claims under it the exclusive means of compensation for injured workers.  Simply put, a worker’s ability to file a lawsuit against his or her employer was eliminated in favor of quicker and more certain compensation under the Act.

The Benefits Available Under the Workers’ Compensation Act

If an employee is injured, maimed or killed at work or during the course of employment, the Act serves as a vehicle for that worker to receive compensation.  It does not matter whose fault the accident was; if it happened during work the Act applies.

For a work injury case, the Act provides that the employee’s medical bills must be paid by the employer.  Often, employees will be required to treat with company-approved medical providers for a period of time, but the employer must pay all of the bills with no deductibles or co-pays.  In addition to having medical bills paid, if the employee is disabled from work, the Act requires the employer to pay lost wage benefits, which are calculated in relation to the employee’s average earnings prior to the accident.  Unlike the traditional negligence law, the Act provides no compensation for non-economic damages, like pain and suffering, emotional distress, loss of life’s pleasures, etc.

The Act provides an additional method of compensation for accidents which involve the permanent loss of or loss of the use of parts of the body, such as arms, legs, fingers, toes, vision, hearing, etc.  The Act also provides specific compensation for permanent and serious disfigurement of the head, neck or face.  The Act provides a schedule of compensation for such losses, which multiplies a portion of the person’s wages by a set number of weeks for each loss.  The following are a few examples:

Loss of a hand:  two thirds of wages for 335 weeks

Loss of an arm or leg:  two thirds of wages for 410 weeks

Loss of a foot:  two thirds of wages for 250 weeks

Loss of an eye:  two thirds of wages for 275 weeks

Although the figures seem arbitrary and somewhat barbaric, the purpose of this “specific loss” compensation is to pay for the pain, annoyance, inconvenience and embarrassment relating to work accidents which cause serious and permanent injuries.

Finally, the Act has provisions requiring the employer to pay death benefits and burial expenses in the event that an employee is killed while working.  The death benefit is calculated based upon the employee’s wages and the Act provides for payments to specific beneficiaries, which are usually the widow or widower and children under 18, unless there are none of these.  In the case of no spouse or children, death benefits can be paid to parents, brothers or sisters under special circumstances.  The death benefit continues to be paid by the employer’s insurance company for the length of time designated by the Act.  Burial expenses of not more than $3,000 must also be paid by the employer.

What Was the Law Prior to Products Liability (Strict Liability)?

Before 1966 when the Pennsylvania Supreme Court adopted the concept of strict liability, a  person injured by a dangerously defective product had to prove negligence in order to obtain compensation.  Specifically, the injured consumer had to prove that the manufacturer of the product was careless in the way it designed, manufactured or provided instructions and warnings for its products.

In 1966, the law became more consumer friendly and put an obligation on all sellers of products to make sure that the products were safe for their intended use, or else be legally responsible for the consequences.  The purpose of the strict liability rule was to make sure that sellers had an incentive to provide safe products and to make sure that injured consumers would be compensated by sellers who could spread the cost out among all of the sales of the product.

How Does the Products Liability Law Work?

Under the strict liability law, any “seller” of a product, which includes the manufacturer and any retail seller of a product, faces liability if (1) a product was defective; (2) the defect existed when it left its hands; and (3) the defect caused harm to a consumer.  A product is considered defective if it does not have every element needed to make it safe for its intended use or contains any element making it unsafe for its intended use.

There are three types of defects:  manufacturing defects, design defects and defects from absent or ineffective instructions or warnings.

A manufacturing defect exists when, although the product was designed correctly, there was a flaw in its construction.  Examples include a ladder collapsing because of improper welds; a soda bottle exploding because of weak glass; or a tire blowing out due to bad rubber.  A manufacturing defect is proved by showing evidence of a malfunction and eliminating a claim of abnormal use or alternative causes for the accident.

A design defect claim alleges that a product lacked proper safety features or included unsafe elements which could have been eliminated by a change in design.  Examples include a power saw without a blade guard; a Ford Pinto with a gas tank in its crush zone which created an explosion hazard; or a three-wheeled ATV which is a rollover hazard.  A defective design is established through expert testimony criticizing the unsafe design and showing that a safer alternative design was feasible at the time the product was manufactured.

A product can also be defective if it lacks appropriate instructions or warnings.  Examples would include a hair dryer without warning of use near water or incomplete warnings or instructions about the use of dangerous power tools.

What Defenses Are Available to the Seller?

Despite the strict liability law, sellers of products have certain defenses to products liability cases including “Substantial Change” and “Assumption of the Risk.”

First, a seller is only responsible for defects that exist at the time the product leaves its control.  If the consumer changes the product, like removing guards, warnings or other safety features, and an injury results, the seller would not be responsible.

Regarding Assumption of the Risk, if the seller can establish that the injured consumer knew of the specific defect which caused his injury and, despite appreciating the danger, voluntarily chose to encounter the danger, he cannot recover.  For example, if a user of a machine designed to grind up tree branches knew that the opening was unguarded and knew of the danger of having his arm injured by the blades and yet voluntarily put his hand in the opening to try to clear a jam with the machine still on, he might be precluded from recovery due to the Assumption of the Risk defense.

Tim Rayne is a partner in the Kennett Square, Pennsylvania, law office of MacElree Harvey, Ltd., where he practices primarily Personal Injury and Civil Litigation law.  Tim can be reached at 610.840.0124 or trayne@macelree.com.  For news and information on Personal Injury law, check out Tim’s Blog at www.macelree.com/traynelaw.

The book, which is essentially a “how to” manual regarding Personal Injury cases in Pennsylvania, includes the following chapters:

• Ten Steps to Follow if You’ve Been Injured in an Automobile Accident
• How to Hire a Personal Injury Attorney
• Common Injury Cases - Automobile Accidents, Slip and Falls, Defective and Dangerous Products and Medical Malpractice
• Anatomy of a Personal Injury Case
• What We Do For You on a Personal Injury Case
• Ten Ways to Hurt or Kill Your Personal Injury Case

“I have been helping people who have been injured in accidents for over 13 years,” says Tim.  “During that time clients have asked the same questions about their cases and the legal process.  I have also found that clients can prejudice their legal rights with mistakes they make both before and after they hire an attorney.  I wrote this book to educate my clients about these important issues.”

Tim focuses his practice in helping people who have been injured in accidents deal with insurance companies.  He handles a diverse variety of cases out of his Chester County, Pennsylvania, office including car, truck, motorcycle and bicycle crashes; slip or trip and falls; medical malpractice cases; products liability cases (injuries caused by defective and dangerous products); and other injury cases.  Tim offers free initial consultations in his offices in Kennett Square or West Chester, Pennsylvania, Centreville, Delaware, or any location convenient to his clients.

Tim’s firm pays all expenses involved in litigating his cases and charges no attorney fees unless there is recovery or compensation for the client.

In addition to publishing “A Lawyer’s Guide to Personal Injury Cases,” Tim has also published another book titled “A Lawyer’s Guide to Purchasing Car Insurance,” which provides education and guidance on purchasing car insurance in Pennsylvania.  Tim is also the author of a Blog, www.macelree.com/traynelaw, which provides news and information on Personal Injury law in Pennsylvania.  He also writes a legal column titled “Legal Lines” for The Kennett Paper.

For a copy of either one of Tim’s books, contact Tim Rayne at MacElree Harvey, Ltd., 211 East State Street, Kennett Square, PA 19348; 610.840.0124; trayne@macelree.com; Blog:  www.macelree.com/traynelaw.

Busy court dockets can result in years passing before cases can get to trial.  Legal fees and expenses for a trial can total tens of thousands of dollars.  Trial requires intense involvement of the parties at great emotional cost, as well as prolonged periods of time away from work and family.  Trials are risky, with outcomes in the hands of a judge or jury.  Trials are open proceedings which can be viewed by the general public and covered by the media.

All of the above are potential pitfalls involved with taking a civil case to trial.  As a result, Alternative Dispute Resolution (ADR), including Mediation, Arbitration and High-Low Arbitration, have become popular and effective means of getting civil cases resolved without the time, expense, delay, stress and publicity of a trial.

Mediation 
Mediation is a form of ADR which is conducted by a third party, usually a retired judge or very senior and experienced attorney, who tries to bring the parties to a negotiated resolution.  In Mediation, the mediator does not have the power to impose a resolution on the parties.  Instead, the mediator acts as a facilitator who discusses the respective strengths and weaknesses of the case with the parties with the goal of reaching a final resolution.

Traditionally, the parties will submit materials to the mediator in advance of the Mediation session so that the mediator understands what issues are in dispute and the settlement positions of the parties.  The actual Mediation usually starts with a joint session with everyone present so the parties can explain their positions.  Thereafter, the mediator usually puts the parties in separate rooms and travels back and forth between the two to discuss the case and try to negotiate a resolution.

Although Mediation can be costly (the mediator usually commands a significant fee) and there is a possibility that the dispute might not settle because Mediation is non-binding, Mediation has proven to be a very effective means of settling cases.

Arbitration
Arbitration is a form of binding ADR in which an arbitrator (again usually retired judge or senior attorney) hears the case and imposes a decision.  Arbitration can occur either because it is required by a contract between the parties or because the parties voluntarily choose to arbitrate rather than proceed to a trial in court.  Some advantages of Arbitration over a trial include convenience for the parties (agreed upon location, date and time of hearing), less formality in the proceedings and finality (usually no appeals will be viable).  The risk of Arbitration as opposed to Mediation is that an arbitrator decides the case rather than tries to negotiate a resolution.

Nevertheless, with Arbitration, the parties can be assured of a swift and, usually, final decision.

High-Low Arbitrations
To reduce the risk of the final decision in an Arbitration, parties often impose “High-Low” parameters.  In a “High-Low” Arbitration, the parties will agree in advance that, regardless of the actual decision of the arbitrator, there will be High and Low parameters within which the award must fall.  If the arbitrator’s award is higher than the agreed upon High number, it will be changed to the High number.  If the arbitrator’s award is lower than the agreed upon Low number, it will be changed to the Low number.  For example, assume that in a Personal Injury case the injured party and insurance company agree that the “High-Low” should be $100,000-$10,000.  In such a case, if the arbitrator’s decision is between those numbers, it stands.  However, if the decision is lower than $10,000, the injured party gets $10,000.  If it’s higher than $100,000, the injured party only gets $100,000.

The advantage of a “High-Low” Arbitration is that it reduces risk.  The disadvantage is that it eliminates the chance of a “home run” victory for either party.

The Amos v. Commissioner Case
On January 15, 1997, Dennis Rodman was still in his heyday as a defensive specialist with the World Champion Chicago Bulls, and the Bulls were playing the Minnesota Timberwolves.  After scrambling for a loose ball, Rodman fell into a group of photographers on the sidelines.  As television cameras rolled, while getting up Rodman kicked a cameraman, Eugene Amos, in the groin.  Amos later sought treatment for groin and back injuries, filed a police report and retained a lawyer to pursue Personal Injury claims against Rodman.  Before a formal lawsuit was filed, the attorneys for Amos and Rodman negotiated a $200,000 settlement agreement, which included a Confidentiality Provision stating that Amos had to keep the nature and amount of the settlement secret.

The Tax Court Case
Relying on well-settled law that Personal Injury settlements were not taxable, Amos did not claim the $200,000 as part of his gross income on his 1997 tax return.  To his surprise, the IRS claimed that he should have claimed the money as income because his injuries were minimal and the monies were really paid for the Confidentiality Provision.

At the end of the case, the court determined that the $200,000 settlement had to be allocated between the amount paid for the personal injuries (which was exempt from taxation) and the amount paid for the Confidentiality Provision (which was taxable).  Ultimately, the court arbitrarily allocated $120,000 to the personal injuries and $80,000 to the Confidentiality Provision.

Practical Tips for Dealing with Confidentiality Provisions in Personal Injury Cases
Because, based on the Amos case, Confidentiality Provisions lead to tax consequences in Personal Injury cases, the following are some practical tips to avoid potential problems:

1.  Don’t Agree to Confidentiality.  A Confidentiality Provision leads to tax problems.  If you can avoid it, do not agree to confidentiality.  To avoid problems or misunderstandings, be sure to indicate in all settlement demands that no confidentialty will be agreed to without additional consideration ($) and agreed upon terms regarding tax issues.

2.  If a Defendant Insists on Confidentiality, Get More Money in Settlement.  If a defendant requires privacy, it should come with a price.  Get significantly more money for the confidentiality. 

3.  Allocate and Specify.  If money is being paid for injuries and confidentiality, make sure that a written settlement agreement allocates the money between the two.  In addition, be specific about the physical injuries which are being compensated for in the settlement.  Beware that all sums allocated to be confidentiality are taxable.  Also, beware that the IRS may challenge the allocation and seek more taxes.  If the specific injuries being compensated for are listed in the settlement agreement, that helps bolster the argument that a majority of the money was paid for those injuries, rather than for secrecy.

4.  If Possible, Have the Defendant Indemnify the Plaintiff for Tax Consequences.  Usually, parties wish to be done with each other upon the signing of a settlement agreement.  However, with the looming tax issues involved with Confidentiality Provisions, it is wise to try to get the defendant to indemnify your client for any unforeseen tax consequences.  That way, if your client pays taxes on the proceeds allocated to the Confidentiality Provision but later the IRS challenges the allocation and additional taxes are owed, the defendant must pay them. 

The General Rule About Income and Taxes
In the United States, nearly all exchanges of money result in tax consequences.  The Tax Code provides that all income is subject to taxation.  Accordingly, whenever someone receives money, it almost always leads to a tax bill.

The Rule About Personal Injury Recoveries 
Fortunately for people injured in accidents, there is an exclusion in Section 104(a)(2) of the Tax Code providing that income does not include “the amount of damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness.”

This exclusion makes Personal Injury settlements and verdicts tax free.  So, all monies received as compensation in a Personal Injury case, including amounts for lost wages, medical bills, other expenses and pain and suffering are exempt from taxation.

This exclusion only applies if there are physical injuries; emotional distress alone is not sufficient.  Even if the emotional distress results in related symptoms — like insomnia, headaches and stomach disorders — it would not qualify as a “physical injury” under the income tax exclusion.  So, settlements or awards from cases in which the injured party suffered emotional distress, but without physical injuries, are subject to income taxes.

Exceptions for Punitive Damages and Confidentiality Clauses
As the Tax Code specifically states, Punitive Damages are not exempt from taxation.  Punitive Damages are meant to punish and deter the defendant rather than compensate the injured party for physical injuries.  As such, Punitive Damages are taxable.

In addition, if the settlement of a Personal Injury case calls for confidentiality of the settlement terms, the portion of the settlement proceeds allocated to that confidentiality provision is taxable.