by John Darer® CLU ChFC MSSC RSP CLTC
There are benefits to all parties for Defendants and/or Insurers to pre-fund structured settlements before a signed release has been obtained. 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.
What Does It Mean to Pre-Fund a Structured Settlement?
The Defendant and/or Insurer agrees to pay the cost of the structured settlement and fund the structured settlement prior to the receipt of a signed release and/or Court approval, with assurances that this money can be refunded if Court approval is not granted.
Note: Pre-funding only applies to the structured settlement funding amount, not the entire settlement.
Why Pre-Fund a Structured Settlement?
- Simplify the structured settlement process, where there are unpredictable time elements
- Lock-in benefits so that the court has specific benefits to review
- Avoid having to have a new hearing if the rates have shifted between the time a structure has been agreed to, Court approval has been obtained and funding has occurred
- No downside to Defendant/Insurer. If Insurer has a fully reserved claim ready to pay, they're probably not earning much interest
- Reduce stress levels.
How is the Defendant or Insurer Protected if it Funds a Structured Settlement Before Receiving an Executed Release and/or Court Approval?
- To facilitate the process, the life insurers currently issuing structured settlements will issue a letter which agrees to refund the premium paid if the court does not approve the structured settlement. Your structured settlement broker will be able to obtain the letter
- Generally these insurers will work with Defendants and their insurers, through their agents/brokers if there are specific concerns that can be addressed.
New York Law does not Mandate Pre-funding of Structured Settlements
The New York State Insurance Department (now Department of Financial Services) stated in an 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)
Examples of Where Defendant or Insurer Unwillingness to Pre-Fund Structured Settlements Presents Administrative Challenges
- 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.
- Wrongful Death case where approval of the settlement happens in one court and the approval of the distribution happens in another court, possibly in another state.
"Date Slide" or "Flex" 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 congestion on the Court docket. Structured settlement annuity issuers are generally willing to accept flex language for a "date slide". One carrier issues a letter with the delivery of each contract that details how the date slide has been applied
Bullying insurers or their claims adjusters to pre-fund a structured settlement is not the answer. It's the matter of education and trust. More importantly, it is the matter of planning accordingly. Your structured settlement broker will hopefully have knowledge of the Defendant or Insurer's policy on funding of structured settlements.