by John Darer® CLU ChFC MSSC RSP CLTC
Judicial procedure for Infant's Compromise in one part of Bronx County New York City, includes the requirement that plaintiff lawyers submitting a petition for Court approval of infants' settlements must obtain least 3 structured settlement quotes from 3 separate structured settlement brokers. With all due respect to the judiciary and its wish of the judiciary to streamline procedure, the current set up is fraught, in my opinion, with inefficiency, potential deficiencies and a sense of unfairness that could seriously undermine the people that the judges are duty bound to protect.
The purpose of this post is to apply my 24 years of knowledge and experience to examine what flaws exist in the current approach and to assist the judiciary in the New York City counties [Bronx, Brooklyn, Queens, New York/Manhattan and Staten Island], in addition to other areas of the country where similar procedures exist.
New York General Obligations Law on Structured Settlements
The New York State General Obligations Law at Section 5-1702(e) requires the defendant and/or defense lawyer negotiating a structured settlement to issue a statement that the claimant is advised to obtain independent professional advice relating to the legal, tax and financial implications of the settlement, including any adverse consequences and that the defendant or defendant`s legal representative may not refer any advisor, attorney or firm for such purpose. According to the statute "independent professional advice" means advice of an attorney, certified public accountant, actuary or other licensed professional adviser.
What Must Happen Before a Petition for Infant Compromise Gets to a New York Supreme Court Judge?
From a practical standpoint we should take a step back and examine what it takes to get to the point where the judge is reviewing the case. Following are abbreviated steps:
Step 1 Plaintiff and/or Plaintiff Attorney seeks independent financial advice through structured settlement broker, settlement planner. The advisor retained may have been selected based on prior experience, special qualifications, or a formal vetting process.
Step 2 Structured settlement broker or settlement planner gathers all relevant facts from the plaintiff, and the plaintiff attorney, including, if applicable, life care plans and cost of care analyses, digests them, performs research, if applicable, and then comes back with recommendations. In some cases there is a need to coordinate one or more additional advisors or entities (e.g. the CFP, the CPA, tax attorney, trust attorney, trust company). There may also be suggestions for vertical and/or horizontal diversification of periodic payments across several annuity issuers. Furthermore, the Defendant or Insurers may have staggered funding dates. Consider that the New York Liquidation Bureau takes up to 9 months to disburse funds after receipt of papers. Other cases involve insurers who will not pre-fund structured settlements. Try planning around that during periods when interest rates are in flux!
Step 3 The structured settlement broker or settlement planner's recommendations are either accepted or rejected or tweaked by the plaintiff and/or his/her attorney. If there is any rejection or tweaking the plan is revised and then Step 3 is repeated
Step 4 The structured settlement broker or settlement planner's works with the plaintiff attorney to accurately memorialize the accepted recommendations (subject to Court approval) into the attorney's affirmation and the plaintiff's petition and proposed order. This may involve multiple drafts and rewrites and or separate reports to the Guardian Ad Litem if applicable.
Step 5 The attorney submits the Petition to the Court and waits for the hearing date. The settlement planner may be asked to appear in Court to help explain the plan to the judge.
Step 6 The court may approve, reject or modify the proposed distribution plan.
Step 7 Upon Court approval the structured settlement broker or settlement planner implements the plan in conjunction with other applicable advisors or entities. Ongoing monitoring may be required depending on the characteristics of the different elements in the settlement plan.
There could be hours of work involved in any of these steps which could vary based on the peculiarities of the particular attorney or plaintiff. The structured settlement broker or settlement planner may also have to operate in a world of unknowns such as when final numbers or not fully known due to outstanding liens or whether there is Medicare involvement. My work and that of others like me helps injured parties make critical life impacting financial decisions in a dignified way when they may not be fully through a grieving or anger process or other form of transitions stress.
On the larger brain damaged infant cases and others involving minors and incompetents it's not always about the annuity. In fact the placement of a structured settlement annuity may represent a small part of the overall plan. It takes the skills and intellectual capital of the settlement planner that the plaintiff or his/her lawyer has engaged to help weave together all the "moving parts" of the settlement plan.
The current system in the one county could serve to reduce the end product to a beauty contest with all of us wearing the same 10 colors of "bathing suit"(annuity issuer)? Please pardon the sub reference but, its what's behind the suit (the intellectual capital) that's important!
Most structured settlement brokers or settlement planners are compensated via commissions. A firm such as mine discloses this up-front and its structured settlement affidavit which is submitted with the Petition to the Court. This method of compensation is what allows those who don't normally have access to such advice to get it without having to pay a substantial hourly fee. For an advisor to lose standing after one advisor has met with the lawyer, interviewed the plaintiff, explored the issues, presented the issues and hours of time is patently unfair. A comprehensive settlement planning process which the plaintiff understands when the structured settlement is created AND the ongoing relationship with that settlement professional is what is likely to buffer the susceptibility to irresponsible factoring of those payments which you judges (and I) love to hate.
The one dimensional "3 separate quote/ 3 broker " requirement is possibly borne of the fact that certain property and casualty companies have approved lists of both acceptable annuity issuers to fund structured settlements and brokers to place them. In the old days and even today some of those lists are limited in number. It is important to note that the limitation in number does not mean a limitation in quality. One P&C company has 5 companies on its New York list, of which 3 have AM Best's highest rating of A++(Superior). A highly publicized argument put forth by certain plaintiff advisors is that the plaintiff is not receiving "full market access" and therefore the plaintiff might be getting short changed. There are a number of ways to handle that, but apparently the 3 quotes/3 brokers approach was selected by the judiciary in the New York county in question.
Some have attempted to use a qualified settlement fund as a way to get around these lists. But then the dilemma continues as the use of qualified settlement funds on single claimant cases may in fact give the plaintiff and even more restrictive selection.
A skilled structured settlement broker or settlement planner should be able to run a "full market survey" and invariably get one of the companies on the property and casualty company approved list to match one of the companies not on its list.
Other practical considerations which highlight the flaws in the current "3 bid/3 broker" judicial approach:
Settlement documents , including Court approval MUST set forth specific periodic payments as partial consideration when a structured settlement is to be part of the settlement. The back log of cases in the New York City counties often means a considerable delay in obtaining a hearing date. If a judge is reviewing a petition in which 3 non-locked in quotes are submitted with the petition they are absolutely useless. If rates have fallen during the delay period (again often caused by the Court's schedule) the periodic payments will NOT be able to be maintained for the same price. This requires more quotes and less efficiency. More of the Court's and the taxpayers' time is needlessly eaten up. On the other hand if they want to keep their appointments with the 10 New York structured settlement annuity issuers, the brokers should not lock annuity quotes in UNLESS they are sure to be brokering or co-brokering the case. A lock in with an anticipated funding date permits the Petition, Affirmation and the Court Order to comply with the appropriate tax principles and protects the injured party against adverse interest rate fluctuation. Then additional language can be inserted into submitted documents to account for Court delays which also makes things move more smoothly with the annuity issuer when Court approval is eventually obtained.
In my opinion the Bronx judiciary should consider the following approach:
- A structured settlement affidavit executed by ALL structured settlement brokers participating in the case.
- The plaintiff's settlement planner should be required to prepare and submit a settlement plan that sets forth the rationale for the recommendations (which include the structured settlement being considered) to show that the plaintiff has obtained advice in response to New York State General Obligations Law 5-1702(e). Part of such report should include the market survey of the specific structured settlement cash flow proposed. This report can be appended to the Attorney Affirmation and Plaintiff's Petition. It can also be helpful to the guardian ad litem, if applicable. I recently prepared one such report that included 6 pages of detailed explanation and 12 exhibits. The level of detail of the overall plan and how the structure fits into it makes the guardian ad litem's and the judge's job that much easier and is often appreciated.
The judiciary is to be commended for trying to facilitate its work flow. But the current system places too much emphasis in the wrong area because any large structured settlement broker or settlement planner has access to all 10 of the annuity issuers admitted in New York State. With respect to larger cases more emphasis should be placed on the quality of the plan presented along with the petition. The current concerns of the judiciary on the structure pricing can be addressed by having one broker show that the market was shopped.