by John Darer® CLU ChFC MSSC RSP CLTC
While some insurers choose to pre-fund structured settlements before they have a signed release, and/or before Court approval of the settlement has been obtained, they are under absolutely no legal obligation to do so.
The New York State Insurance Department stated in its opinion released April 21, 2011 (OGC Op. No. 11-04-01) there is nothing in the New York Insurance Law or regulations promulgated thereunder that prohibits an insurer from requiring a third-party claimant to execute a release before the insurer will pay a settled claim, as long as the release comports with § 216.6(g) of N.Y. Comp. Codes R. & Regs. tit. 11, 216 (2003) (Regulation 64), which prohibits the insurer from requiring execution of a release on a first or third-party claim that is broader than scope of the settlement.
In its analysis the Office of General Counsel wrote " Claimants and insurers often resolve disputes through settlement. Settlement is most commonly achieved through a binding contract in which a party with a potential legal claim is compensated in exchange for executing a release or covenant not to sue. See 1 Dunham, New Appleman New York Insurance Law, Second Edition § 7.02[b] (Matthew Bender). By settling, a party achieves finality, avoids the time and costs of litigation or arbitration, and eliminates the risk of an adverse judgment in litigation or arbitration. See id.
While there is nothing in the Insurance Law or regulations promulgated thereunder that requires an insurer to use a release in settlement of a third-party claim, there is also nothing that prohibits it. As stated previously, an insurer often requires a third-party claimant to execute a release when settling a claim to achieve finality and ensure that the third-party claimant will not subsequently sue the insured. Thus, an insurer may require a third-party claimant to execute a release before the insurer will pay a settled claim as long as the release comports with 11 NYCRR § 216.6(g), which prohibits the insurer from requiring execution of a release on a first or third-party claim that is broader than the scope of the settlement (emphasis added)
Often insurers DO prefund structured settlements as a convenience BUT, for example:
- Structured settlement involving City of New York may take 90 days from the time all its requisite documents have been submitted
- Structured settlements involving the New York State Liquidation Bureau may take up to 9 months following receipt of the required settlement documents.
- The State of New York will not prefund structured settlements, although it will require the qualified assignee to sign the qualified assignment before it will release funds.
- One insurer will stagger funding
- One self insured defendant negotiated a 90 day from receipt of documents structured settlement funding date.
- Even If a qualified settlement fund were used in a minors or death case, where Court approval or decree is required prior to any distributions, the funding of the structure is contingent on the approval of the QSF, the funding of the QSF, approvals for Supplemental Needs Trusts (if applicable) and any subsequent distribution orders.
The single most important point that needs to be made (and I can't emphasize this enough) is this...It's common sense but needs to be said. Make SURE your broker is not an a**hole. Bullying insurers or their claims adjusters to prefund a structured settlement is not the answer. It's the matter of education and trust. More importantly, it is the matter of planning accordingly.
"Date Slide" language inserted into a Court Order and settlement documents may be helpful in cases where a funding date has been anticipated but timing of funding is not completely certain, whether due to the reasons above, or in consideration of the workload and workflow of the plaintiff lawyer to submit papers for Court approval and the concomitant workload and workflow of the Courts. Most of the structured annuity issuers I have encountered have shown the propensity to be flexible in this regard.