by John Darer® CLU ChFC MSSC RSP CLTC
John H. Fisher, a New York state trial lawyer from Kingston, NY has a good old whinge about structured settlement annuities.
Fisher makes several claims in a blog post summarized below, which are then followed by my response and critique:
- That liability insurers will almost always bombard the personal injury victim with proposals for structured settlement annuities
- That liability insurers have routine practices that they use in almost every case to mislead you into believing the annuity has far greater value that it really has.
- That "defendants and annuity providers" routinely violate the New York State General Obligations Law 5-1702 and blames failure to comply on his fellow personal injury lawyers and annuity providers
- That structured settlement annuities make sense in only a few cases and in those cases "where a structured settlement annuity makes sense, there are hidden costs and deceptful marketing practices used by the liability insurers and life insurance annuity providers".
- That 4% is a lot of money for a commission for the "routine task" of establishing an annuity but declares there is nothing wrong with this if it is fully disclosed. Fisher acknowledges that the standard commission charged by all life insurance annuity providers for their services and the commission is the same for every structured settlement annuity
- as an example, "if the personal injury victim agrees to pay $300,000 for an annuity, the "cost of the annuity" should (sic) $300,000. However, in some cases, the actual cost of the annuity will be less, i.e., the defendant will fund the annuity with $275,000 instead of $300,000 and that is never disclosed to the personal injury victim".
- That the use of "expected" payouts on annuity proposals is misleading.
- Generally, the annuity company will only make the payments while the personal injury victim is alive and thus, the company's obligation to pay the annuity is dependent on the life expectancy of the beneficiary.
1. Fisher's general complaint is about disclosure. I covered the subject in this August 18, 2010 blog post. New York Structured Settlements: Defense counsel Don't Blow Your §5-1702 Disclosure Obligation!
2. Regarding Fisher's complaint about expected payouts we've dealt with this subject several times:
- This September 11, 2008 post Structured Settlement Internal Rate of Return
- Structured Settlement IRR-Fact of Fiction? FAQ from the 4strucures.com, LLC website, which includes, among other things, my November 2009 video on the subject
3. As I've pointed out in the blog post cited in #1, the obligation to make the disclosure under §5-1702, is the Defendants or the Defendant's legal representative, NOT the annuity issuer.
4. While enforcement of the New York General Obligations Law is certainly a good idea, an even better way to protect plaintiffs, is for attorneys like Mr.Fisher to simply retain an experiemced settlement consultant to be part of their team.
5. There are different types of structured settlement payments. One of the greatest things about a structured settlement is the ability to contractually guarantee payments that the plaintiff needs or wants for as as long as the person lives. The majority of such payments include some form of guarantee, which assures that payments will be made whether or not the plaintiff survives the payment schedule. Where such payments are life contingent the measuring life is the annuitant, NOT the beneficiary.
6. With all due respect, did the erudite Notre Dame graduate, Mr. Fisher, intend to use the word "deceptful" twice, a word whose definition is apparently only found in the Urban dictionary? Download Definition deceptful - Google Search
7. A structured settlement annuity is but one settlement planning solution, with a plethora of applications and technique. Although Mr. Fisher has not discussed any alternative products to structured settlements, it must be noted that such financial products and solutions may have up front fees or ongoing fees that can be significant in the aggregate. For example alternate or complimentary solutions like trusts may carry substantial up front fees, and a trustee earns his/her/its annual fee regardless of investment performance.
8. While the establishment of a structured settlement annuity may seem to be routine, because the efforts of a capable settlement consultant make it appear seamless, and setting aside the consideration of the settlement planning or financial planning value proposition that the many qualified settlement consultants bring to the table, It's not just writing an annuity application! Fisher fails to consider the impact of moving parts in involved in the settlement of a personal injury or medical malpractice case, particularly when minors or incompetents are involved; and/or when there is a need for a supplemental needs trust; and/or where the defendant or insurer will not prefund the structured settlement, and/or where diversification of annuity issuers is prudent due to case size and daily rates are being quoted, or where several iterations of a 50A or 50B analysis have been required.
9. A defendant, or its insurer, has the right to make a settlement offer in whatever form it chooses. A plaintiff may choose to accept, or not. A plaintiff may make whatever demand it wants and the defendant or insurer can choose to accept, or not.
10. Fisher offers no substantiation to his claim that the defendant will fund for less than the amount agreed to.
11. It should be noted that Mr. Fisher's Federal and state trial lawyer associations solicit and accept substantial financial contributions from structured settlement firms which offer and place structured settlement annuities. Those firms make the same 4% commission (or a share thereof) that Fisher derides. It is ultimately from the commissions that they make those contributions. If Mr. Fisher is truly concerned about annuity commissions perhaps he should start a lobby to legalize rebating by insurance agents in the State of New York. Then agents could legally divert part of their commissions to injury victims instead of going to fight tort reform. I'll bet THAT would go over like a lead balloon at the New York State Academy of Trial Lawyers which is sponsored by FOUR structured settlement firms according to its website!
Once again and in conclusion, attorneys would be wise to retain an experienced and qualified settlement consultant as part of their team.