Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Structured Settlement Advertising and Solicitation: Guaranty Funds No No Redux

by John Darer CLU ChFC MSSC RSP CLTC

The website of the National Structured Settlements Trade Association includes a Financial Security document that is available for download by members of the public and members of the trade association who are subject to the insurance laws of the various states in which they hold licenses.

As I wrote in January 2009, NSSTA members must exercise extreme caution in downloading and using in a solicitation or offering of structured settlements, the financial security handout or they may face being in hot water with state insurance departments.

This author sought and received an opinion on this very subject in October 2008 and the State of New York Insurance Department's opinion in response in January 2009 was:

" Insurance Law Sec 7718 broadly prohibits any person from using the existence of the LIGCNY for the purpose of sales, solicitation or inducement to purchase annuity contracts, including structured settlement annuity contracts, However, the statute has no application to 1) the LIGCNY itself; 2) any other entity that does not sell or solicit insurance; or 3) an insurer that responds directly to a policyholder upon written request and on a form prepared by the corporation and approved by the Superintendent.

Life insurance agents and brokers clearly come within the scope of the prohibition contained in Insurance Law 7718. The fact that the statement "state insurance guaranty funds provide additional level of protection for future structured settlement recipients" is general in nature, and does not specifically reference the LIGCNY is irrelevant. When the statement is directed at New York residents, whose only coverage is from the LIGCNY if a life insurer fails its obligations, it is an implied reference to LIGCNY, and thus prohibited by Insurance Law 7718 in the absence of any statute's express exceptions. And based on the facts presented, none of the exceptions is applicable here"

Download Opinion About Use of LIGCNY in Solicitation of Structured Settlement Annuities 1-26-2009

For those who believe that the disclaimer at the bottom of the NSSTA brochure is a source of comfort, please consider the following. The New York State Insurance Department expressed to this author that it was not even comfortable with one structured settlement industry website that contained a list of state insurance guaranty funds and their phone numbers designed to help consumers get to those who can legally answer their questions AND which included a similar disclaimer to NSSTA about not being an offer or solicitation for the purchase of insurance.

I'm sure there are those that do not appreciate my highlighting these points, but I didn't write the law. I am just reporting what I know for those that seem to conduct their business in blissful ignorance of the law the seat of their pants".

I have continued to hear from lawyers that members of the settlement profession are using the existence of guaranty funds in their solicitation of structured settlement annuities (in violation of state insurance law).

 

 

 

 

 

 

Can Your Agent Legally Yap Up State Insurance Guaranty Funds in Insurance Sales Pitches?

Is there a change in New York State law afoot on the use of the state guarantee fund by an agent in a sales situation?

Link to January 26, 2009 New York State Insurance Department Office of General Counsel (OGC) and our post of January 29, 2009, click here. This opinion letter was published by the OGC in January 2009 and that spot is now blank

NSSTA reported to its members that at National Association of Insurance Commissioners (NAIC) Spring 2009 National Meeting, the Annuity Disclosures Working Group of the Life Insurance and Annuities (A) Committee began considering a proposal by its Chairman, Jim Mumford of the Iowa Insurance Division, to develop "guidelines . . . for more specific disclosure of guaranty fund coverage and limits thereon" that could be made available prior to delivery of an annuity contract. As an active participant in the 2008 NAIC Advisory Group on Structured Settlements in the Insolvency Context, NSSTA reported to its members that Jim Mumford is familiar with structured settlements and the importance of Guaranty Association coverage as a safeguard for structured settlement payees.

NSSTA indicated to its members that it has submitted a comment letter supporting Chairman Mumford's proposal and agreeing that structured settlement professionals should not be prevented from giving settling claimants the information necessary to make informed decisions about the comparative risks of annuity contracts and other financial products.

There has been no announcement about whether or not such rules have been eased specifically for structured settlement solicitors or for all life insurance and annuity transactions or any indication that NSSTA contacted the New York State Insurance Department to have the opinion removed pending the outcome of the NAIC working group.

This author supports NSSTA's move and what appears to be the intended result (provide a measure of confidence as did the FDIC when it increased its limits to $250,000 through 12/31/2009), provided such result, if achieved, IS NOT used as a hammer to force plaintiffs into any annuity issuer with shaky financials up to the limits of a guaranty fund and deny diversification where prudent. Given the veritable "tin cup" funding status that is most state guarantee funds I don't think it serves the interest of plaintiffs to have the potential for irresponsible agents or consultants implying that the "safety net" is "just like the FDIC", UNLESS it really is.

How Big Is The Tin Cup?  March 16, 2009

Stay tuned!