by Structured Settlement Watchdog
In 1983, Nicole Herivaux's medical malpractice case against New York City Health & Hospitals Corporation was settled. She is now 37. The lawsuit was brought by her mother Marie Herivaux, as parent and natural guardian, as well as a derivative claim. Part of the settlement of Nicole's Erb's Palsy case included periodic payments funded with an annuity issued by Alpine Life Insurance Company (now ACE LIfe Insurance Company). The structured settlement broker was Robert Reid, then of Structured Benefits, Inc. (then part of AETNA) and the periodic payments were funded with $320,813 on or about July 20, 1983. It was unclear whether Reid represented the plaintiff or defendant in the original case.
Nicole Herivaux's Structured Settlement
The structured settlement contained what was, in my opinion, a questionably designed payment schedule:
$2,200 per month for the life of Nicole Herivaux with a 20 year certain. [ Why were payments certain only through early 20s, with a child having a normal life expectancy, when the difference in cost to extend the certain period to 35 or 40 years, would have been negligible?] It is ridiculous that shortly after Nicole Herivaux became an adult her monthly paymnets became life contingent.
Guaranteed Lump Sum Payments
$100,000.00 on August 1, 1998
$200,000.00 on August 1, 2005
$200.000.00 on August 1, 2015
$200,000.00 on August 1, 2025
Payments were to be made to the mother on behalf of Nicole, jointly with an officer of several New York City area banks. in the event of Nicole's death the payments were due to be made to her Estate.
The unsigned Settlement Agreement filed with the New York County clerk expressly states that periodic payments are to go to Nicole Herivaux and that her mother Marie Herivaux was only entitled to a $25,000.00 recovery.
The settlement agreement did not specify which insurance company was going to be used to fund the future periodic payments, but it turned out to be Alpine Life Insurance Company
While the Periodic Payment Settlement Act of 1982 was signed into law by President Ronald Reagan effective January 20, 1983 and the PPSA established IRC Section 130 which permitted qualified assignments, the annuity in the Herivaux case was a so-called buy and hold, where New York City Health and Hospitals/ NYC Department of Finance remained the owner of the annuity.
The 1995 Reinsurance Transaction
According to the a legal complaint by Nicole Herivaux filed in 2017, Alpine did pay the monthly payments on schedule to the various banks through 1995. Up until that time, according to exhibits attached to the plaintiff's complaint, Marie Herivaux was compliant submitting requests for withdrawals to the New York judge and such withdrawals were routinely granted.
In 1995, when Nicole Herivaux was about 14 years old, Alpine entered into a reinsurance agreement with Metropolitan Life Insurance Company for a block of deferred annuities. Reinsurance is insurance purchased by an insurance company and allows insurance companies to remain solvent after major claims events. In addition to its basic role in risk mitigation and risk management, reinsurance is sometimes used for tax mitigation and other reasons like running off a discontinued product line. The company that purchases the reinsurance policy is called a "ceding company" or "cedent" or "cedant" under most arrangements. The company issuing the reinsurance policy is referred simply as the "reinsurer".
It is unclear whether Nicole Herivaux or Marie Herivaux ever signed off as a party to a reinsurance deal releasing the City of New York.
The Alleged Error by Metropolitan Life Insurance Company
Following the reinsurance transaction payments began to be paid to Marie Herivaux, allegedly due to an error and it is alleged that Marie concealed these payments from her daughter, the rightful payee even beyond the age of 18. She is now 37. It is unclear about the cause of the error. It could have simply been a limit on the number of characters in data entry when the block was re insured by Metropolitan Life. Unfortunately, the event precipitated a series of events that were devastating financially to Nicole Herivaux that need to be made right. The question is by whom? Please read on.
The Mother's Structured Settlement Factoring Transaction of Daughter's Annuity AFTER Nicole Was an Adult
On January 20 2009, Nicole's mother entered into a structured settlement factoring transaction with Novation Capital, now known as Novation Settlement Solutions to sell $100,000, representing half of the 2015 lump sum payment for $35,000. A Transfer Petition was filed by Jose Manuel Camacho Jr, the disbarred Miami lawyer convicted in forgery who admitted to forging judges' signatures on over 100 legal documents with the signatures of 7 Broward County judges. The complaint insinuates a concern over Camacho, but the judge in the factoring deal was not one of the 7 judges whose signatures that Camacho is known to have forged. The Broward County Court records however, shows entries where on February 6, 2009. the NYC Department of Finance, NYC Legal Department and MetLife were served with notice of the structured settlement transfer petition, in which Marie Herivaux allegedly represented to the Broward Court she was the Payee.
In its responses to Plaintiff's amended complaint, the city seeks to time bar claims prior to 2011.
Governmental Accounting Rules Require Ongoing Reporting of Contingent Liabilities
Pursuant to the accounting rules of Governmental Accounting Standards Board Statement No. 10, the contingent liability would need to be footnoted on the balance sheet. To wit...
" Paragraph 61 of GASB 10 provides that if an annuity contract is purchased in the claimant's name to satisfy a claim and the likelihood that the government will be required to make the future payments (for example because the insurance company or institution may not fulfill its obligations on the annuity) is remote then the government should remove the annuity and the covered liability from the balance sheet. A government usually pays a lump sum for an annuity contract. That lump sum plus the earnings on it are used to make the periodic payments, fixed or available in amount, to the claimant under the terms of a settlement with the claimant. However the government is not completely relive of responsibility. It should evaluate whether the insurance company or institution from which the annuity contract was purchased can fulfill its obligations to pay out the required annuities.
Unless the claimant provides the entity with a signed agreement releasing the government from any further obligation, the government should include the liability in the disclosure of aggregate outstanding liabilities removed from the balance sheet as required by paragraph 77(d)(3) Source: GASB Guide to Implementation of GASB Statement 10 on Accounting and Financial Reporting for Risk Financing and Related Insurance Issues p35 Q&A #97
An annuity contract is said to be "in the claimant's name" if the government cannot unilaterally change that designation according to GASB rules.
Potentially Responsible Parties
The plaintiff's initial complaint simply went after MetLIfe Inc, and 2 of its subsidiaries. Following MetLife's response, plaintiff filed an amended complaint and enjoined Marie Herivaux and the City of New York. One way or another the situation must be made right.
1. Marie Herivaux clearly appears to be the central bad actor. She signed a release and had a Court Order that said payments were to go to her daughter and took advantage of the situation. Unfortunately she likely has little to assets to repay her daughter. If she convicted of a criminal act she should go to jail.
2. While Metropolitan Life appeared to have made Marie Herivaux the Payee and it appears to have precipitated what followed, it's easy to jump to conclusions about Metropolitan Life Insurance Company and its culpability. Without looking at the reinsurance agreement and the associated documents at the time of the 1995 transaction it's not easy to say conclusively. MetLife is certainly a deep pocket and the recent allegations against it concerning retirement payees that it could not locate make it an easy mark for journalists. While not diminishing the predicament of Nicole Herivaux, a call was recorded by MetLife on October 28, 2012 when a "family member" called MetLife to inquire as to whether she has a contract with MetLife. Was that Marie or Nicole? Why was a complaint not filed until 2017?
MetLife has already indicated that it will pay the back payments when it has an order directing it to do so since it was not a party to the original agreement.
3. What were the City of New York's responsibilities? (1) They own the annuity (2) there is a lifetime payment obligation as well as government accounting responsibilities and may have recovery rights against Metropolitan Life. Why would the file be destroyed? (3) they appear to have contingent liability in the event of insolvency because it appears there was no qualified assignment (4) was the City of New York noticed about the reinsurance transaction. what information was provided. As owners of the annuity, what would or should they have done to record the transaction in their records? (5) it is significant, in my opinion, that they were noticed as an interested party in advance about the 2009 sale of structured settlement payment rights by Marie Herivaux and chose not to intervene in the structured settlement factoring transaction which was a clear chance to notice the incorrect payee and to mitigate the loss for Ms. Herivaux. Why would the City of New York to go for a time bar from 2011, when it had a clear ability to mitigate in 2009 when it was noticed?
4. The sale of structured settlement payment rights by Marie further complicates things. It may be time barred, but someone should be looking into the structured settlement factoring transaction in Broward County. If it was procured by fraud, can the order might be vacated and recovery made against the originator? Investors would have something to say about that to add to the quagmire.
What Can Be Learned About the Herivaux Matter?
- Clear settlement documentation is critical. The settlement documentation on the case was very sloppy by today's standards, but let's learn from history and put it in context (1) The Infant's Compromise Order, presumably drafted by the Herivaux's original lawyer, includes the term "for the benefit of the infant plaintiff" without naming her or who the payee is. This continues even after she reaches the age of majority. The Settlement Agreement, which is incorporated, does; (2) uses arrange for the payment of annuity income, rather than create a promise to pay; (3) Settlement Agreement says with respect to lifetime payments that payments are guaranteed for at least twenty years. in the next paragraph, when describing the lump sum payments guaranteed is defined as " in the event plaintiff does not survive any or all the aforementioned payment dates; (4) does not list a beneficiary for the lifetime payments if Nicole dies within "at least 20 years", but does list a beneficiary for the lump sums ; (5) does not say who has the right to change beneficiaries (6) does not identify an annuity issuer or minimum ratings, nothing. Watch my video on Structured Settlement Documentation
- Where a Defendant owns annuities and has contingent liability, essential documents related to its establishment should be retained until the annuities complete their payout.
- That insurers may keep records for a shorter period of time than you. Plan accordingly.
- Stories like these make sensational news, but represent a very small percentage of insurer's overall transactions.
- Life insurance carriers who issue structured settlements "strain" settlement documents today much better than they did in 1983. I doubt any life insurer would issue a policy against the documents in the Herivaux case if submitted on a 2018 case.
- Hire your own settlement expert.
For more information Nicole Herivaux v Metropolitan Life Insurance Company, Marie Herivaux, Supreme Court of the State of New York Index 650783/0217