Lawsuit and payment for injuries
Payments will be through a settlement agreement or a judgment as a result of a trial. Settlements can be either lump-sum or as a structured settlement in which the payments are made over a period of time.
Additional damages for mental injury without a physical injury are less clearly covered, as the insurance policy typically states that it covers only bodily injury. For example, in general liability as of 2001 a minority of courts included emotional distress within the definition bodily injury.
In insurance "personal injury" as typically defined does not include bodily injury damages and instead refers to mental injury damages, particularly as a result of defamation, false arrest or imprisonment, or malicious prosecution; for example, the Insurance Services Office standard general liability form has a section providing this coverage. Similarly, some home insurance policies include personal injury coverage.
Despite the general distinction between bodily injury and personal injury in insurance contracts, auto insurance known as personal injury protection (PIP) does cover medical expenses from bodily injury.
In the United States, typically, the money awarded in a personal injury settlement is not taxable. The official statement from the IRS regarding the tax-ability of personal injury settlements is as follows: "If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income." However, there are exceptions. If a portion of the settlement draft is specifically allocated to wage loss, the settlement then becomes taxable. Similarly, if you itemize deductions, and you claimed medical expenses in previous years as an itemized deduction that were later reimbursed by the settlement, then that amount would be taxable
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