by John Darer CLU ChFC MSSC CeFT RSP CLTC
Should the Structured Settlement Annuity Issuer or Qualified Assignment Company Intercede in a Structured Settlement Factoring Transaction?
Lawsuits against structured settlement annuity issuers or associated qualified assignment companies for failure to enforce anti assignment provisions, have so far had little success for plaintiffs and illustrate the high hurdles that need to be overcome where structured settlements have been decimated by multiple improvident structured settlement factoring transactions.
A. Parents of Injured Child (Now Adult) With Structured Settlement
Louise Taylor and Phillip Taylor Plaintiffs, vs. New York Life Insurance Company and New York Life Insurance and Annuity Corporation Defendants. United States District Court Southern District of New York 1:19-cv-06830 Dismissed without Prejudice February 9, 2021 Download Taylor v New York Life Dismissal Without Prejudice 2-9-2021
Plaintiffs Louise and Phillip Taylor (“Plaintiffs” or “Taylors”) sued New York Life Insurance Company (“NYLIC”) and New York Life Insurance and Annuity Corporation (“NYLIAC,” and collectively with NYLIC, “Defendants”) for breach of contract, breach of implied contract, promissory estoppel, tortious interference with contract, and breach of fiduciary duty. (See “Complaint,” Dkt. No. 1, ¶¶ 64-126.)
In April 1988, Louise Taylor activated a defective space heater that caused a fire in Plaintiffs’ home. As a result of the fire, Plaintiffs’ son, Terrence Taylor (“Terrence”), suffered severe and permanent injuries, including scars on his face and limbs, the loss of his right leg and several digits, and limited cognitive abilities. The Taylors sued the manufacturer of the space heater in 1989. That litigation (the “DeLonghi Litigation”) was resolved through a structured settlement agreement, which provided for a lifetime of periodic payments to Terrence paid out on an annual and monthly basis, increasing annually. A condition precedent of the settlement that was very important to the Taylors, their counsel, and the trial court was that the defendants of the DeLonghi Litigation use a NYLIC annuity policy to fund the periodic payments. Louise Taylor “took great solace” in knowing that NYLIC would be the steward of her son’s periodic payments given NYLIC’s professional reputation.
The settlement agreement entered into in the DeLonghi Litigation included an anti-assignment provision. This provision is titled “Payee’s Rights to Payments” and states typical language that "The Periodic Payments cannot be accelerated, deferred, increased or decreased by the Plaintiff or any payee; nor shall the Plaintiff or any Payee have the power to sell, mortgage, encumber, or anticipate the Periodic Payments, or any part thereof, by assignment or otherwise".
The defendants in the DeLonghi Litigation subsequently paid the amount of the settlement to NYLIAC, which then purchased an annuity contract from NYLIC. On December 19, 1989, NYLIAC was assigned all of the obligations imposed on the defendants of the DeLonghi Litigation under the settlement agreement.
Beginning in 2012, Terrence “fell prey to the high pressure sales tactics of several factoring companies.”(Complaint ¶ 40.) Over the course of twenty-four months, Terrence sold each one of his (certain) periodic payments, as well as his life-contingent payments through 2042, in ten factoring transactions all concluded in Portsmouth Circuit Court (Virginia), where a separate litigation brought by Terrence Taylor, has been pending for since March 2015. The Terrence Taylor story was subject of a Washington Post expose on December 27,2015.
Alleged in the Complaint:
- Defendants NYLIC and NYLIAC received notice of each of the ten petitions, and one or both companies received fees from factoring companies in exchange for their consent to each of the transactions.
- Defendants knew that the transactions violated the anti-assignment provision of the settlement from the DeLonghi Litigation, but NYLIC and NYLIAC.
- After consenting to eight transfers without contacting Plaintiffs or Terrence, NYLIC required Terrence sign a stipulation waiving the anti-assignment provision in connection with a transfer petition filed on March 18, 2014. Although the stipulation was purportedly signed by Terrence, he has no recollection of signing it and believes his signature may be a forgery. Terrence was not represented by counsel at the time of signing. NYLIC also required Terrence sign an identical stipulation in connection with a June 2014 petition, the last petition at issue.
- NYLIC failed to oppose the petitions. Louise Taylor notified NYLIC of the improper factoring transactions before the last periodic payments were sold, but NYLIC refused to intercede and informed Louise that because Terrence was no longer a minor, she could not prevent the sale.
- After consenting to eight transfers without contacting Plaintiffs or Terrence, NYLIC required Terrence sign a stipulation waiving the anti-assignment provision in connection with a transfer petition filed on March 18, 2014. he has no recollection of signing it and believes his signature may be a forgery. Terrence was not represented by counsel at the time of signing. NYLIC also required Terrence sign an identical stipulation in connection with a June 2014 petition, the last petition at issue.
Five Causes of Action
The Complaint includes five causes of action.
- First, Plaintiffs allege that NYLIAC breached the anti-assignment provision of the settlement agreement from the DeLonghi Litigation, the obligations of which NYLIAC assumed. Plaintiffs specifically claim that “[a]s the owner and obligor under the Annuity Policy, [NYLIAC] was obligated to enforce the anti-assignment provision of the Settlement Agreement for the benefit of Plaintiffs.” (Complaint ¶ 72.)
- Second, Plaintiffs allege breach of implied contract against NYLIC because it “was the issuer of the Annuity Policy and had knowledge of the Settlement Agreement and the Qualified Assignment [by which NYLIAC assumed the DeLonghi Litigation defendants’ obligations] and knowingly breached the anti-assignment provisions of these agreements.” (Complaint ¶ 84.)
- Third, Plaintiffs’ Complaint includes a claim for promissory estoppel. In its Opposition, however, Plaintiffs and therefore agreed to withdraw it.4 (Dkt No. 12, at 4.)
- Fourth, Plaintiffs allege that NYLIC tortiously interfered with the settlement agreement. Plaintiffs’ claim centers on the allegations that NYLIC required Terrence sign stipulations waiving the anti-assignment provision in connection with the March and June 2014 transfer petitions.
- Fifth, Plaintiffs allege that NYLIC breached the fiduciary duty owed to Plaintiffs. This duty stemmed from NYLIC’s “unique background, experience, and knowledge of how structured settlements are designed to protect injury victims, and by virtue of how important NY Life’s role was in effectuating the Settlement Agreement.” (Complaint ¶ 110.) Plaintiffs claim that NYLIC violated its fiduciary duty by choosing to collect administrative fees from the transfers and “extort[ing]” stipulations from Terrence instead of speaking up to protect the interests of Terrence and Plaintiffs. (Id. ¶ 124.)
Southern District of New York Dismisses Without Prejudice
In dismissing the Complaint without prejudice, the Southern District of New York ruled that "there is no provision in the settlement agreement that requires NYLIAC to oppose or investigate Terrence’s attempted transfers. Plaintiffs seek to rely on the anti-assignment provision of the agreement, but an anti-assignment provision is typically “for the benefit of the obligor.” Nor can the implied duty of good faith and fair dealing give rise to an obligation to intervene in the assignment attempts. Virginia courts have refused to use the implied duty of good faith and fair dealing to read new obligations into a contract. See, e.g., Ward’s Equip. v. New Holland N. Am., Inc., 493 S.E.2d 516, 520 (Va. 1997) (“Generally, such a covenant cannot be the vehicle for rewriting an unambiguous contract in order to create duties that do not otherwise exist.”).
The Southern District of New York cited Cordero, a Southern District of Florida case with similar facts
In its decision, the Southern District of New York points to at least one other court dealing with a factually similar case reached a similar conclusion. In Cordero v. Transamerica Annuity Service Corp., 452 F. Supp. 3d 1292, 1296-97 (S.D. Fla. 2020) , plaintiff Cordero was, like Terrence, a beneficiary of a structured settlement agreement who then sold his monthly payment rights to factoring companies in exchange for reduced lump-sum payments. Cordero alleged that the legal owner and servicer of the annuity contract, Transamerica, violated the implied duty of good faith and fair dealing by allowing the transfers to proceed without investigation or other protection. [Id.at 1300] The district court identified no case obligating an annuity issuer to investigate a proposed transfer and held that under New York law, it was impermissible to impose a new obligation to do so through the implied duty of good faith and fair dealing. Id.at 1302. Download Cordero v Transamerica Annuity Service Corp.
Although not binding precedent, the Southern District of New York finds Cordero to be persuasive authority given that court’s legal reasoning and the similarities between New York law and Virginia law with regard to the implied duty of good faith and fair dealing.
The difference between the two cases is that Cordero brings the case on behalf of himself, while the Taylor case in the Southern District is on behalf of the parents for their economic loss.