by John Darer CLU ChFC CSSC RSP
Got to hand it to "newbie" BIll Tilley, law firm financier with Amicus Capital Services, LLC turned settlement planner, for staying on top of "current trends". On September 29, 2009 Tilley reported as "recent" that "The New York Supreme Court recently caught a defense retained structured settlement broker with his hand in the cookie jar".
Tilley's "cautionary tale" references the matter of Lyons v. Medical Malpractice Insurance Association, 730 NYS 2nd, (A.D. 2 Dept. 2001) Download LyonsvMMIA286AD2d711 which, to those in the know, has been widely cited for 8 years by structured settlement industry professionals and settlement planners as one of the reasons for plaintiffs to retain their own settlement consultant.
The gist of the New York Appellate Division's decision in 2001 was that contractual privity exists in a settlement, and intentional or negligent misrepresentation of a structured settlement annuity’s cost by the defense constitutes fraud". What happened with the plaintiffs in 1987 that gave rise to the issues decided in Lyons v MMIA, is highly unlikely to happen today in New York because of New York State General Obligations Law 5-1702, labeled Initial Disclosure of Structured Settlement Terms**. 5-1702(b) of the statute places the burden on the defendant or the defendant's legal representative attorney to disclose in writing, among other things, the amount of premium payable to the annuity issuer. In addition there may be local jurisdictional requirements. For example New York Supreme Court for Bronx County requires a sworn structure broker's affidavit.
Further, Tilley's representation that the defense retained broker was "recently caught" with "his hand in the cookie jar" is false. Somebody please inform Bill Tilley that the Rhode Island based structured settlement firm, Broker's Services Corporation, the implied subject of the "hand in the cookie jar", has been defunct for MANY years! The trail on Timothy P. Daugherty, the "villified" BSC representative goes cold after 1992. Try Googling it/him! The Lyon's plaintiff attorney Lonn E. Berney is also off the radar. Furthermore, the New York Appellate Division (2d) decision Tilley cites makes no mention of a "defense retained structured settlement broker"and solely directs its punishment to former medical malpractice insurer MMIA.
More importantly the case signalled to plaintiff attorneys that they must pay attention. Tilley states that MMIA contended that the plaintiffs could have and should have independently determined the value for themselves (as if that's a negative thing)! And I couldn't agree more. This author understands that the plaintiff recovered damages from their own attorneys for THEIR FAILURE in this regard.
Back in the day there were some in the settlement community and legal community who muddled up the financial terms "present value" and "cost". Back in the day you'd hear lawyers muttering non existent financial terms like present day cash value, present day value and others. Indeed MMIA, through its claims examiner, Joseph T. Sullivan, represented in a letter to plaintiff lawyer Lonn E. Berney, dated March 26, 1987, “[t]he Present Day Value of the above package, including the cash payment, is $940,180.”. Back in the day much misinformation was spread (through ignorance or otherwise) that knowledge of the cost of a structured settlement was "constructive receipt". It isn't now, and wasn't then (according to a 1983 IRS Private Letter Ruling).
"Present value" is a financial term that describes the result of a financial calculation which reduces a future sum or series of future cash flows to its worth today using a discount rate. If you truly understand what present value is it can be a useful tool for wide variety of financial decisions.
The discount rate used to determine present value is supposed to represent the fair cost of capital when comparing two or more series of alternative cash flows. That being said, one will observe that the higher the discount rate the lower the present value. Conversely the lower the discount rate the higher the present value. A modern day example of cause and effect with this is what one observe with offers from factoring companies for structured settlement payment rights. Another example is the results of present value calculations required under New York CPLR Articles 50A and 50B (although post July 2003 Article 50A matters peg the discount rate to a specific Treasury Bond).
Tilley has come on the blog scene at a thousand miles an hour and according to one of our sources he is "finding his way". My advice to Tilley, if "his way" is to "empower" and not to "the egress", is to do just a little bit more research and avoid scare tactics using latter day information.
Other Structured Settlements 4Real Posts Concerning New York Structured Settlement Protection that may be of interest
Structured Settlement "Standard of Care" in New York February 16, 2009
** Several other states have similar disclosure obligations to New York at or before the time of the creaton of the structured settlement.