by John DarerⓇ CLU ChFC MSSC RSP CLTC
I was surprised to hear that certain plaintiff lawyers in Upstate New York are STILL routinely using single claimant qualified settlement funds when structured settlements are being considered. The status quo has changed. Could following the advice of single claimant "QSF jockeys" mean those attorneys may be unwittingly facing malpractice exposure for not looking out for the best interest of their clients?
Single claimant QSF promoting settlement planners have recommended it "as a method to get around insurance company approved lists and get a "full market survey". The reality is anything but in 2011. Unlike 2000, when this author believes the first QSF was done in Erie County ( in Buffalo), when many companies would accept qualified assignments from single claimant QSFs, in 2011 there is just one New York licensed company that will. While it is a quality company, unless you are sure John Hancock Life Insurance Company of New York has the best rates, or your case is of size where diversification beyond John Hancock is not a concern, your client's best interest may not be served. [ In March 2013 John Hancock stopped writing structured settlement annuities]
Plaintiff lawyers who think that their structured settlement broker will stand shoulder to shoulder with them SHOULD be concerned. Do the math! If a structured settlement broker carries a $1 million single limit policy, or even a larger aggregate that must be divided by multiple brokers it's painfully easy to see that there is simply not enough insurance coverage to adequately protect you or your clients.
n addition to the annuity market limitations, there is still tax controversy about single claimant QSFs. In his address to the Academy of Special Needs Planners March 11, 2011, noted settlement tax specialist Robert Wood said "The regulations seem to allow the possibility of a single claimant QSF. Indeed, they include language instructing that a QSF may be “established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability....”87 Nevertheless, the Regulations fail to address whether the doctrines of constructive receipt or economic benefit would be triggered on a transfer for the benefit of a single claimant. The IRS has, to date, failed to definitively answer this question. Hence, the best advice is to avoid the controversy by establishing a QSF with multiple claimants. (emphasis ours)
Some QSF jockeys will ply plaintiff lawyers with a "cocktail" of legal opinions written by other tax counsel who wax eloquently on the subject. Yet would an examination of their errors and omissions policy limits and the times the same advice was given, leave them, the brokers and the attorneys exposed if the advice proves to be wrong?
Then there are added costs to Plaintiffs with a single claimant qualified settlement fund. There are costs to set it up and costs to administer it. There are records that have to be kept and one or more tax returns to be filed. I recently spoke to a trustee on a settlement management trust who told me that the QSF trustee failed to file 3 years worth of tax returns on a case.
In a presentation labeled "Best Practices in Qualified Settlement Funds" to the Society of Settlement Planners in March 2006 RIchard B Risk, Jr., a Tulsa Oklahoma lawyer who offers legal advice on QSFs to attorneys and structured settlement brokers (he also administers QSFs), stated that QSF principal might need to be used to pay QSF expenses if earnings do not generate enough to cover them and that a structured settlement producer may pay all or part of funding administration costs. GIven today's virtually zero short term interest rates, who believes earnings will be sufficient in 2011? Risk cites the ABA Model Rules of Professional Responsibility, 1.8(f), independent judgment and client consent and even states that the plaintiff's attorney may pay all pr part of those fees. The presentation is still posted in the "Video and Graphic Pesenations" (sic) section of the Risk Law Firm website at the time of writing (August 24, 2011 at 1:48pm EDT). However, when mass marketing of "no cost qualified settlement funds" by Buffalo based structured settlement firmto NYSTLA members came to light in 2007, an opinion was sought from the New York State Insurance Department Office of General Counsel which opined on September 24, 2007 that it was illegal to do so under New York State insurance law. Here is a copy of the opinion.
Judges in Erie County, Onondaga County, Monroe County, Chautauqua County, Niagara County, Albany County and counties in between should be vigilant for infant compromise submissions where there is a single claimant qualified settlement fund.
The single claimant QSF is sometimes simplistically marketed to defense interests by the QSF jockeys under the "pay one price and get out of Dodge" theory. I've spoken to attorneys who see an appeal in that, but if you are a municipal government, hospital or business in the community why would you want the negative PR when the parents of some poor child realize that their child was taken advantage of for the financial gain of the structured settlement broker or settlement planner who recommended it, that the QSF represented a needless increase in costs with little to be gained in terms of better structured settlement rates or prudent diversification. This could be a child of one of your taxpayers, your voters, your clients , customers or insureds.
There are still plaintiff lawyers in Update New York who believe (perhaps because they have been told) that the QSF is necessary to get around rebates paid by structured settlement brokers to insurance companies. But has anyone asked their sources to prove it?
If you are a plaintiff and your attorney is suggesting that you participate in a single claimant qualified settlement funds, pay close attention because you might not be able to avail yourself of the best choices when it comes to structured settlement annuities.
Do the math!
Single Claimant QSF= Single Structured Settlement Market