by John Darer® CLU ChFC MSSC RSP CLTC
What is a structured settlement guarantee? This important question has an answer that should be part of the fundamental body of knowledge possessed by any qualified structured settlement consultant that a lawyer, plaintiff, defendant, or insurer, chooses to engage. I continue to be disappointed when I see settlement consultants spreading inaccurate information to the public. Lawyers who then promote such inaccurate information simply foment financial illiteracy. That's not good.
Christopher R. Nicholls' NC Trial Lawyer Blog posted a piece by a North Carolina licensed insurance agent on or about September 16, 2008. It still appeared at the time of posting. This author acknowledges that while the spirit of the piece was pure, the inaccuracies bring its continued posting by both the NC Trial Lawyer Blog and the NC licensed insurance agent.
Here's an excerpt, followed by my comments on the inaccuracy:
"Q: If the life insurance company holding my annuity fails, what happens to my structured settlement?
A: The insurance companies are subject to regulations that require them to have assets set aside and earmarked solely for the purpose of meeting their obligations to policyholders . Even in bankruptcy, these funds are not touchable, and would still be there for the purpose of honoring their commitments. In addition, each life company that offers structured settlement annuities provides a guarantee from their holding assignment company that the scheduled payments will be made to the claimant. A document with the details of the guarantee are included in each structured settlement annuity policy. "
If there is a structured settlement the life insurance company is not "holding" the annuity, nor is the assignment company its holding company. If your structured settlement involved a "qualified assignment" and is funded with an annuity, THEN the annuity is "held" or "owned" by the qualified assignment company. If your structured settlement did not involve a "qualified assignment" THEN it is owned by the defendant or the defendant's insurer. Click for details of how structured settlement work, including a structured settlement flow chart/diagram
When there is a qualified assignment the defendant or its insurer's obligation to make periodic payments to you or your client is transferred to the qualified assignment company. This is done with your consent and knowledge and should be reflected in the settlement documents It's important to note that with a few exceptions the qualified assignment company is a special purpose entity that only holds annuities funding the periodic payment obligations it has assumed. Thus the putative value of a putative "guarantee" from the "holding assignment company" is worthless.
In the case of New York Life Insurance Company structured settlements the qualified assignment company is an actual insurance company. It is the only one. Its assumed obligations under qualified assignments are further guaranteed by the annuity issuer, New York Life Insurance Company.
Most structured settlement annuity issuers guarantee the performance of the qualified assignment company by the annuity issuer. Others offer guarantees from another member of a family of insurance companies or a guarantee from an upstream holding company. At the time of posting, all but four of the currently writing annuity issuers of structured settlements have a guarantee of the qualified assignment company by the annuity issuer.
- The assumed obligations of American General Life's qualified assignment company are guaranteed by AGC Life Insurance Company, an upstream holding company
- The assumed obligations of Pacific life and Annuity Company's qualified assignment company are guaranteed by Pacific Lifecorp, an upstream holding company
- The assumed obligations of Allstate Life Insurance Company of New York's qualified assignment company are guaranteed by Allstate Life Insurance Company
- The assumed obligations of American International Life Assurance Company of New York's qualified assignment company have no guarantee.
- The assumed obligations of Liberty Life Assurance Company of Boston are not guaranteed by its qualified assignment company, Liberty Assignment Corporation. Liberty Mutual Insurance Company, not the qualified assignment company, guarantees that payments will be made by the annuity issuer
The same postings include a discussion about state guaranty funds. There is a strict prohibition against insurance agents using the existence of state guaranty funds in any solicitation for insurance, including structured settlements which, when funded with an annuity, are a form of insurance.
Finally, insurance companies in general, MAY NOT file for bankruptcy. 11 U.S.C. § 109 governs which entities are permitted to file a bankruptcy petition. Special state and federal laws govern the liquidation or reorganization of domestic American insurers. In a U.S.context, it is inaccurate to refer to an insurer as being "bankrupt". The terms "insolvent", "in liquidation", or "in receivership" would be appropriate under some circumstances.