by John Darer CLU ChFC MSSC CeFT RSP CLTC
Bad news for investors in structured settlement payment rights in Maryland
You aren't going to get any protection from the Maryland Life and Health Guaranty Corporation in the
event the insurance company issuing the investor's checks goes insolvent and liquidates. To be clear, the latest revision to Maryland law affects investors who buy other people's structured settlement payment rights.
EFFECTIVE DATE: July 1, 2020
SENATE BILL 186 / HOUSE BILL 141 (CHAPTER 74 / CHAPTER 73) - LIFE AND HEALTH INSURANCE GUARANTY CORPORATION ACT -- REVISIONS
- Revises the Life and Health Insurance Guaranty Corporation Act.
- Incorporates the 2017 changes to the NAIC’s Life & Health Guaranty Association Model Act (#520) whose purpose was to provide a mechanism to more fairly assess for receiverships involving long term care insurers.
- Includes health maintenance organizations (HMOs) as assessable ‘member insurers.‘
- Excludes coverage for a person who acquires rights to receive payments through a structured settlement factoring transaction.
Guaranty Fund Exclusion of Investors in Acquired Structured Settlement Payment Rights Is a Thing
The Maryland move is part of a trend to exclude such investors and rightly so, in my opinion. According to the National Association of Life and Health Guarnty Associations (NOLHGA) "State life and health insurance guaranty associations provide a safety net for their state’s policyholders, ensuring that they continue to receive coverage (up to the limits spelled out by state law) even if their insurer is declared insolvent. Working together through NOLHGA, the guaranty associations form a national safety net, protecting insurance consumers all across America in their time of need".
Acquired structured settlement payment rights are often marketed to investors using terms such as SMA, SMIA, recycled structured settlements, used annuities and by the tertiary market scam label "secondary market annuities" (even though these instruments are most certainly not considered annuities, according to case law and the National Association of Insurance Commissioners).
Those marketing efforts have unfortunately have included a few corpulent "wolves in sheep's clothing" settlement planners who potentially endanger their personal injury victim and attorney clients with their intentional misrepresentation of such investments. Guaranty Fund coverage is limited as it is.
Clearly the purpose of the state guaranty laws is protect insurance consumers. Investors are not insurance consumers because what they are buying is not insurance.
Trustees of trusts for injury victims and fiduciary financial advisors also need to be vigilant of the new Maryland development and that it is reasonably foreseeable that the trend of exclusion of investors in acquired structured settlement payment rights will continue.
Postscript: As of July 2023, 80% of USA states had adopted the 2017 Revisions to the Life & Health Guaranty Association Model Act (#520), which contains the aformeentioned exclusion.