by John Darer CLU ChFC CSSC RSP CLTC
New York CPLR 5041 states "The court, as part of its judgment, shall direct that the defendants and their insurance carriers shall be required to offer and to guarantee the purchase and payment of such an annuity contract"
In order for a qualified assignment to receive the appropriate tax treatment, it must first comply with Internal Revenue Code Section 130(c) which states " for purposes of this section, the term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—
(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen’s compensation...."..
The guarantee of payment requirement in CPLR 5031/ 5041 appears to preclude qualified assignment of the structured judgment obligation. The qualified assignment is designed to create a novation of a periodic payment obligation which is not the case with a structured judgment. There is an ongoing obligation
The first decretal paragraph of the typical qualified assignment agreement reads something like this:
"Subject to qualification under section 130(c) of the Code, Assignor hereby assigns and Assignee-Debtor hereby assumes all of Assignor's liability to make the Periodic Payments. Assignee-Debtor assumes no liability to make any other payment. Releasor hereby accepts and consents to the assignment by Assignor and the assumption by Assignee-Debtor of the liability to make the Periodic Payments, and upon the Effective Date Releasor releases Assignor from all liability to make the Periodic Payments".(emphasis added)
Notwithstanding CPLR 5031/ 5041, how likely is it that a Defendant or Insurer is willing to guarantee the performance of a third party entity over which it has no control?
Note that there IS is an assignment provision in CPLR 50-A 5039 and CPLR 50-B 5048. This is not an assignmment to an assignment company, but expressly states that an agreement to assign any right to periodic installments for future damages contained in a judgment entered under this article is enforceable only as to amounts: (a) to secure payment of alimony, maintenance, or child support; (b) for the cost of products, services, or accommodations provided or to be provided by the assignee for medical, dental or other health care; or (c) for attorney's fees and other expenses of litigation incurred in securing the judgment
Other sections of CPLR 5031-5039 (Artcle 50-A) and CPLR 5041-5049 (Artcle 50-B) that mght be helpful with respect to this question: