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

Split Funding Structured Settlements Requires Very Careful Documentation

by John Darer CLU ChFC MSSC CeFT RSP CLTC

The McMickle Pickle

In Patterson v. McMickle, 191 S.W. 3d 819 (C.A. Tex 2006), the administrator of the Estate of Daniel Myracle sued the attorney and his structured settlement broker Gary McMickle for negligence, breach of fiduciary duty, fraud, and violations of the Texas Deceptive Trade Practices Act.

1. The administrator alleged that the attorney and broker obtained two annuities for Daniel Myracle, the second of which did not have a guaranteed refund of the premium and was to be deferred for 15 years.
2. However, Daniel died a year after the settlement and 14 years before the second annuity was to begin monthly payments. Because the annuity did not have a guaranteed return of premium, the estate was not entitled to any payment or refund.
3. In granting McMickle’s motion for summary judgment, the trial court found that McMickle owed no duty to Sharnae Myracle, Daniel’s mother, who had been displaced as Daniel’s personal representative before the settlement. McMickle argued that, at most, he owed duties to Daniel’s attorney and personal representative.

The Court of Appeals affirmed. Although the Court of Appeals did not have to decide whether McMickle owed a duty to Daniel’s attorney and personal representative, it seems clear that such a direct relationship would be sufficient to
survive a summary judgment motion, according to Philadelphia attorney Stephen Harris who wrote the
on his law firm's blog.

Split Funding of Structured Settlements is Not Uncommon

My apologies in advance for triggering nightmares of cramming for your last high school geometry test. Euclid of Alexandria, from

Euclid of Alexandria (Circa 300 BC), father of Geometry

his famous book Elements, Book I, Common Notion 5 says, “The whole is greater than the part.” In geometry, the Segment Addition Postulate states that given 2 points A and C, a third point B lies on the line segment AC if and only if the distances between the points satisfy the equation AB + BC equals AC.  How does this "classic" phyllo wrapped postulate relate to structured settlements and "McMickle's pickle"?

Depending on the state, there are at least 10 structured settlement annuity issuers, and they all have their pricing sweet spots.

Read more about structured settlement quotes

Some insurers are better on short term durations from 5 to 15 years and others may be better on long term cash flows. Some have competitive rated ages and others don't.   Daily rates may or may not be available.

By combining two or more segments from different structured settlement annuity issuers it may be possible to receive more than one would with a single company. In Euclidian terms AB+ BC equals AC plus!

In the "McMickle pickle", it's clear that a 15-year certain annuity was combined with a life annuity to create a "15 years certain and life" cash flow.  Instead of 15 plus 0, the combination of annuities could have had a longer certain period (15 and 5, 15 and 10, 15 and 15 for example). The longer combined certain period would have reduced the amount of income to the decedent. Without seeing the entire file, my best assumption would be that McMickle's intention was to maximize the income to the child from the settlement money while the child was living. McMickle 

Carefully Document the File When Split Funding Structured Settlements

When using split funding in any combination, whether a mixed duration split, annuity company split, or a product split, it's a good idea to have a simple summary of the documentation delivered to the client.

Allstate Way of Issuing Annuities with Period Certain and Life Was Bound to Cause Confusion and It Did

Unrelated to McMickle but on the topic of split funding, in 2015, I received a call from a concerned Allstate annuitant whose benefits had been suddenly "cut off". The annuity was the annuitant's share from a divorce settlement and naturally they were concerned. I did not write the policy. 

Unfortunately, the outsourced customer service rep service at a Phillipine call center was neither knowledgeable, nor helpful, and set the annuitant into a state of panic. Fortunately, the annuitant contacted me, someone with enough experience to know the history and peculiarity of how Allstate's policies were established (i.e. split the certain and life contingent portions into two separate policies). 

What happened was the periodic certain policy stopped and the switch to the life contingent policy did not click in as it was supposed to.  It took some calling to find someone at the home office of Allstate who could take remedial action but eventually the situation was rectified. It would have been helpful however and have saved the annuitant a bit of agita, if the original broker had placed a summary in with the delivery of the policy.

Settlement Agreement Language to Protect Annuitants From Structured Settlement Protection Act Abuse

by Structured Settlement Watchdog

Connecticut attorney Edward Stone who has provided legal advocacy for structured settlement annuitants who have been victims of structured settlement factoring companies, suggests some language that he says should be inserted in settlement documents to better protect structured settlement annuitants.

Help avoid bad secondary market outcomes. Consider this protection clause for structured settlement agreements

"You do this by stating, ‘Neither the beneficiary of this structured settlement nor any other assignee shall have the power to assign the periodic payments to any third party without a genuine hardship and even then only with the advice of counsel.  Any purported assignment in violation of this provision shall be void ab initio. This provision has been inserted at the insistence of plaintiff’s counsel to protect the periodic payments described in the structured settlement agreement from dissipation.”

Stone, who is a supporter of structured settlements and says "Structured settlements are an excellent way to ensure long-term financial stability. But there are bad apples in every industry. Accident victims and their attorneys must protect themselves".

Eddie Stone is quoted from an article by H. Dennis Beaver, Esq, an attorney from Bakersfield California published by Kiplingers painting a dire picture of the bad apples of the structured settlement secondary market.

"We have all seen television, radio or internet ads which urge cashing in structured settlements.  There are times when it makes sense to sell a small part of the structured settlement payment stream, but what I find so cruel are companies that buy every last dollar from someone with serious injuries, very poor judgment, and little or no financial experience who then winds up as a ward of the state.

"Families need to always keep in mind that the structured settlement was created to provide a stream of tax-free payments over many years to help the injury victim live as normal a life as possible. It was not intended to help someone with no business experience, who has had serious injuries and possible mental impairment, put that secure tax-free income stream at risk in a business venture.”

Settlement Planners, Who Led the Charge For the "Right to Factor" in Settlement Documents Should Adjust Their Focus

In my opinion, settlement planners, led by failed AIG antagonist Richard B. Risk, Jr. who led the charge in 2003, to add "IRC 5891 enabling language" to somehow protect an annuitant's right to factor (and reduce malpractice exposure to plaintiff attorneys, to the point where it is now standard language in settlement documents and qualified assignments),  must now shift the focus to better advise and protect their clients in light of a reality of massive rip offs. Some have recommended that annuities be paid into trusts to accomplish the protection. 

Here's an excerpt from how Risk stated his case in an SSP QuickTopic communication from March 3, 2003 (extracted from the Internet in 2005)

"10/09/2005

Dick Risk 03-03-2003 07:46 PM ET (US)
SSP Press Release 2 - QuickTopic Document Review Page 5 of 10
http://www.quicktopic.com/19/D/dytdpCAFxHckn?inline=1 10/9/2005
1. Notifying claimants of their structured settlement rights;
14
2. Complying with all federal and state laws impacting structured settlement claimants;
15
3. Supporting the public policy behind structured settlements.
16
This would include, as a minimum:
1) Every assignment company has a duty to inform every payee of new rights under section 5891. (I suspect
many of the assignees take the position that there were no new rights granted if the contract prohibits the sale
of future payments.)
2) Acknowledging the rights granted by 5891 in the settlement agreement and in the "uniform" QA documents".

"Protect Them By having Structured Settlement Paid Into a Trust"?

While structured settlements into trusts might be a viable solution depending on the circumstances, it might add significant costs depending on the trust company that may render the solution unreasonable.

California Attorney Notification Rule

Stone's suggestion is of the same mind as the California law which requires that the plaintiff lawyer of record be notified of any attempt to sell structured settlement payment rights within 5 years of the establishment of a structured settlement.

Investor Benefits

Too many naive and unsophisticated people waive their rights to independent professional advice sometimes through the encouragement of unethical and what may sometimes be illegal activities of structured settlement factoring origination firms and their representatives. Factoring representative grooming such structured settlement annuitants for financial rape and inducing them to commit fraud about where they live is unfortunately more common than a few isolated incidents. This potentially puts investor money in jeopardy. Acquisition of structured settlement payment rights might be a bit safer if Stone's suggestion is implemented at the time a structured settlement is established.

 

United States Owned Structured Settlement Annuity Saves The Day in TX for Estate over Ex-Hubby

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Not reviewing and/or updating and confirming the beneficiary designation on your structured settlement can have unintended  consequences as I wrote October 30, 2018 in Unintended Consequences Can Result From Not Updating Beneficiary When Life Changes.

It could mean leaving the residuals to your long gone ex-spouse, over your children or parents.

Review your beneficiary with any life change

The United States District Court for the Southern District of Texas (Houston Division) was tasked with resolving competing claims in an interpleader for remaining certain payments after the death of a North Carolina woman in 2017.

Background

In 1987, Jennifer Lauren Wheatley settled a medical malpractice lawsuit against the United States through a settlement stipulation. The settlement provided in part that the United States would purchase an annuity that would pay Wheatley $1,000 “per month, increasing at 4% compounded annually, for life, commencing at age 18, guaranteed for 30 years.” Pursuant to the settlement, as is common practice with settlements with the government, the United States entered into an annuity contract (the “policy” or “annuity policy”) in 1988 with John Hancock Life Insurance Company.

In the typical structured settlement there is a qualified assignment of the future periodic payment obligation, pursuant to IRC 130. The qualified assignee is the applicant and owner of the structured annuity policy that is purchased of the so-called qualified funding asset.

The annuity policy provided for both lump sum payments and monthly payments. Only the monthly payments are at issue in this case. Per the original terms of the annuity policy, Wheatley was the annuitant who was to receive the monthly payments throughout her lifetime. Wheatley’s “executors or administrators” were designated as the beneficiary who would receive the monthly payments after Wheatley’s death. 

Change of Beneficiary Filed Without Policyowner's Consent, But John Hancock Accepted

In December 2008, Wheatley submitted a Beneficiary Designation-LIFE form (the “change of beneficiary form”) to John Hancock. This change of beneficiary form revoked previous beneficiary designations and named Ward, Wheatley’s spouse at the time, as the primary beneficiary.  The secondary beneficiary was Annie M. Hall, Wheatley’s then mother-in-law. John Hancock confirmed this change in beneficiary in January 2009. 

Wheatley died in October 2017, before the end of the period certain on the annuity. Her father was appointed Adminstrator of her Estate by the General Court of Justice of Guilford County, North Carolina. 

Shortly thereafter, John Hancock began receiving conflicting claims to the annuity proceeds. In November 2017, John Hancock received a letter from the Estate Defendants claiming that they were entitled to payments from the annuity. Then, in May 2018, John Hancock received a claim form from Wheatley's ex Jeremy G. Ward also seeking payment as the beneficiary of the annuity for the period from December 2017 through May 2018. John Hancock remitted $12,468.06 to Ward for the monthly payments under the annuity from December 2017 through May 2018 (the “Disbursed Payments”).John Hancock continued receiving correspondence from the Estate Defendants claiming that they were the entitled beneficiaries because the United States as the designated owner of the annuity was required to approve any change of beneficiary, and it did not consent to Wheatley’s 2008 change of beneficiary.

Due to the conflicting claims, John Hancock began withholding the monthly payments in June 2018. John Hancock filed the present statutory interpleader action in this Court pursuant to 28 U.S.C. § 1335 in August 2018. John Hancock is currently paying the monthly annuity funds to the Court pursuant to 28 U.S.C. § 1335.The Estate Defendants and Ward both asserted counterclaims and crossclaims in their Answers. The Estate Defendants asserted counterclaims for declaratory judgment, breach of contract, and negligence against John Hancock arising from the wrongful payment of the Disbursed Payments, and a crossclaim for declaratory judgment as to the Disbursed Payments against Ward.. The Estate Defendants subsequently requested leave to amend their Answer to include a fourth counterclaim against John Hancock for failure to pay and a delay in payment of the annuity benefits under Texas Insurance Code § 542.058 and attorneys fees.

The annuity policy unambiguously requires the owner’s written consent to change beneficiary designations. Under the policy, a “beneficiary” is “a person who is to receive, after the death of the annuitant, any annuity payments due.” The policy explicitly provides a mechanism for changing the beneficiary: in its “Change of beneficiary” provision, the policy states that “[d]uring the annuitant’s lifetime you can change the beneficiary; you must give us [John Hancock] notice in written form satisfactory to us.”  “[Y]ou” is defined as the owner of the annuity policy. Furthermore, the application for the annuity, which is deemed to be part of the annuity policy,

Source: Memorandum Decision and Order November 13, 2019 in JOHN HANCOCK LIFE INSURANCE CO. Plaintiff, VS. THE ESTATE OF JENNIFER LAUREN WHEATLEY, et al,Defendants.  US District Court Southern District of Texas 4:18-cv-02689

Lessons to Be Learned

1. Periodically review and if necessary, update beneficiaries on insurance policies, annuities and other financial accounts with any life change. 
2. If you are receiving structured settlement payments, you are NEVER the owner of the annuity or other asset funding the obligation to make the structured settlement payments to you. You only have the right to receive the periodic payments. This is for tax purposes. The owner is most often a qualified assignment company or a non qualified assignment company.  With United States government cases under the Federal Tort Claims Act  (FTCA), the United States is usually the owner.
3. In assigned cases the owner, the assignee, gives you the ability to update/change your beneficiary but submitting request using their form.
4. If your structured settlement payments arise out of legal settlement with the United States, you must get the consent of the United States, as owner to change the beneficiary. Address the procedure upfront when you settle the case.

 

 

Have Lessons Been Learned Or Are Structured Settlement Brokers Going Retro in Pay to Play?

by Structured Settlement Watchdog

Back in the day, pay to play schemes were part of the regular cost of doing business for certain brokerage firms whe interacting with certain national accounts

Is Pay to Play Rearing Its Ugly Head Again?

So called "3 and 1" deals involved 25% of the commission being funneled back to the insurer or a subsidiary in exchange for an agreement to work exclusively with a particular structured settlement brokerage firm, or a group of firms. This sort of business practice of a few led to class action lawsuits against The Travelers in the 1990s and The Hartford (ending in 2010 with a $72.5MM settlement). The shortsighted self-serving actions of a few did nothing to instill confidence in structured settlement industry. Years after this nonsense went on a long hiatus, plaintiff lawyers were still skeptical about undisclosed kick backs. Undisclosed "kickbacks" also defraud excess insurers when the primary paid its limits but received the financial incentives on the back end.

In 2000, my firm and several others began voluntarily using a Structured Settlement Affidavit, a form of which is required in Bronx County New York and the 5 boroughs of New York City and Westchester County. It was out of a sense of pride in what we do and how we do it that led to this differentiator.

Deja Vu All Over Again?

Now, years after carriers that were participating in such practices abolished them, sources say that at least one NSSTA member brokerage firm is offering similar financial incentives to insurers and to service providers such as TPAS as an inducement to cop an exclusive brokerage agreement. At least one carrier has refused them. It begs the question about how many other insurance carriers have been offered financial incentives by the NSSTA member firm, how many insurers have accepted them in exchange for those financial incentives and whether or not those deals have been disclosed  in negotiations with plaintiffs. This is shortsighted, self serving and not in the best interest of the industry and those that it serves and serves an investigation.

New York Department of Insurance Office of General Counsel Opined in 2007 that Advertising Contributions to Trial Lawyer Associations Was Also Unlawful

Pay to play schemes and shake downs, including the solicitation of national, state and local level trial lawyer associations for massive donations by structured settlement brokers and settlement planners, heavy handedly encouraging lawyers to give work to the big donors, without disclosure of such contributions to their plaintiff clients, are arguably not doing their clients any favors either. The New York Department of Financial Services, in a legal opinion letter by the Insurance Department's Office of General Counsel in September 2007, in response to a Buffalo structured settlement firm's full page advertising that it was the largest non law firm contributor to the ATLA (now AAJ) endowment), emphasized it was unlawful to advertise contributions to trial lawyer associations. Yet some big donors that are structured settlement brokers often do, even in New York.

In a 2002 article which quotes officers of Creative Capital entitled "Structured Kickbacks: The Fraud Within Structured Settlements"  it was said "There are defense oriented brokers such as CCI who don't play funny games with the numbers and give both sides a square deal,” added (Jeff) Borow. “It would be a shame if CCI and other honest brokers kept quiet just as the rebating scandal became public knowledge.” CCI's stated position, however, is that such commission/kickback arrangements amount to transparent and feeble attempts to thwart the anti-rebating laws on the books in most states...The Alleged Abuses: Rebating of commissions Illegal as it might be for an insurance broker, agent or company to provide a financial incentive to the purchaser of an insurance product, such arrangements do exist and in effect reduce the cost of the premium paid for that annuity. (Marty)Jacobson pointed out that a partial return of the premium paid, or the payment of some of the commission earned on the placement of a structured settlement annuity from the broker placing the annuity to the casualty company paying the premium, amounts to the payment of a rebate. Labeling the rebate as a “service fee” or as an “administrative fee” is legally ineffective, he observed. Paying the rebate to a subsidiary of the carrier is also improper. “Remember, if it looks like a duck, waddles like a duck, and quacks like a duck, it is a duck, regardless of what someone tries to convince you it is,” added Jacobson".

 

 

 

 

Is " Best Interest Test" Adequate in Structured Settlement Factoring? Would Suitability Rules Help?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Is The Best Interest Standard Adequate?

Is the "Best Interest Test" in state structured settlement protection acts adequate to determine the suitability of a structured settlement factoring transaction, or should a uniform suitability standard be established that that places an obligation on the settlement purchaser and/or their brokers or affiliates, on par with other segments of the financial service industry?

A Defining Moment For the Structured Settlement Secondary Market

We're observing a defining moment with the structured settlement secondary market, where just horrible business practices are rampant. Forum shopping and churning of structured settlement annuitants into multiple costly and financially devastating transactions is an unfortunate reality.  Why are state governments, letting unlicensed merchants., some of whom fraudulently pose as "financial advisors" dispense financial advice. Why is there no concern for the consumer by state legislators who could put a damper on the miscreants though a licensing standard? 

While New York judges are doing a good job, judges in some states are simply not getting it done, to the detriment of people they are supposed to protect, resulting in financial devastation in some cases. More judicial education is sorely needed.

When annuities are sold to consumers by licensed and appointed insurance producers  (agents or brokers) there is an obligation to determine suitability.  There is an obligation on the producers and the insurers as well.

There is debate over whether suitability standards should apply to structured settlements and it is my opinion that they should. But they should apply to all aspects of the structured settlement market. A recommendation to sell a structured settlement payment stream that is producing stable income to an individual or family in conjunction with an investment recommendation for mutual funds or an investment in commercial real estate, as many factoring companies try to orchestrate is an action that should be subject to regulation, including licensing and a suitability standard.  

Suitability Standard | Time to Make a Fuss?

A structured settlement Factoring Uniform Suitability Standard should include a mandatory questionnaire that gives a judge quality information reducing the opportunity for structured settlement factoring companies to manipulate judges concocting a story or manufacturing reasons to sell, or sell for second or third time, with few details.  Some petitions literally have a kitchen sink of reasons listed without regard to whether executing on them is even mathematically possible. A suitability questionnaire would be helpful

Today I received a call from an individual associated with a Florida based structured settlement factoring company who called me about "selling my annuity". They contacted both my office phone and cell phone and during the course of the conversation without knowing anything about me or who I was they talked about putting the money into investments or real estate. I asked the person how it works and if they had a license and they said no.  I got to thinking what if this sales call was received by someone without the professional qualifications that I have?   This is the kind of call that is being made to 18 years kids and other young adults in New York, CT and all over the United States by vultures trying to peck their pocket. It's time that suitability standards hold them accountable in public view.

Two Florida structured settlement buyers' reps have used unreasonable investment projections on company letterhead as part of sales pitch to wrest structured settlement payments from unsophisticated annuitants at significant discounts.  Upon information and belief none of the signatories of those letters had any investment or financial planning credentials.

State Attorney General Alert on Structured Settlement Factoring | Is This Part of Your Investigation?   4/4/2018

Was Client First Settlement Funding Show Of 8% Investment Projection to Structured Settlement Annuitant A Permissible Inducement?  7/24/2016

Are there any limitations on the obligations of insurers or producers to determine suitability pursuant to the Model Suitability Regulation?

Sec. 6D states that neither a producer nor an insurer has any obligation to a consumer under the provisions of this regulation if:

1.  No recommendation is made;
2.  the consumer provided materially inaccurate information which led to an unsuitable recommendation;
3. a consumer fails to provide relevant suitability information and the transaction is not recommended; or
4. a consumer enters into an annuity transaction that is not based on the recommendation of an insurer or a producer. However, an insurer’s issuance of an annuity is to be reasonable under all circumstances actually known to the insurer, even if the situations listed above apply.  

Structured Settlement Constructive Receipt | Avoid This Fatal Settlement Document Mistake

by John Darer® CLU ChFC MSSC RSP CLTC

What is Destructive Receipt?

If a General Release has been signed and delivered to the defendant's legal representative, the tax benefits of a structured settlement may be lost. The ramifications may be costly for both the plaintiff his or her lawyers. Constructive Receipt is "destructive receipt" from a financial standpoint.

Why Would a General Release Be Fatal to a Structured Settlement?

A standard general release fails to satisfy the requirements to establish a structured settlement because of the fatal words "receipt of which is hereby acknowledged". Even though money has not yet changed hands constructive receipt has occurred.  Where constructive receipt has occurred in a case involving taxable damages such as an employment or commercial damage case, there is potential for tremendous tax exposure that could have been easily avoided and a potential malpractice exposure for the attorney.

A promise to pay future periodic payments to establish a periodic payment obligation is a critical component to establish a structured settlement

A promise to pay future periodic payments to establish a periodic payment obligation is a critical component to establish a structured settlement, regardless of whether the structured settlement is (1) qualified (medical malpractice, wrongful death, workers compensation, auto, product liability involving damages on account of personal physical injury or physical sickness); or (2) non qualified structured settlements (wrongful termination, harassment in the workplace, discrimination in workplace, intellectual property and other commercial claims. Even in mass torts where a qualified settlement fund has been established to aggregate settlement money in a big pot for claimants similarly situated, an obligation to pay on the part of the QSF is a critical component of the establishment of a structured settlement.

Structured Attorney Fees Best Practices to Avoid Unexpected Timing of Income

by John Darer® CLU ChFC MSSC RSP CLTC

When structuring attorney fees or taxable damages in the second half of the year, it is common to push the first payment out until January of the following year so that it is not received in the same tax year as the settlement.  An attorney who is already having a great income year can use this strategy to delay receipt (and thereby some of the taxes) on the fee. In some cases this may result in a lower tax bracket.

Timing is everything when it comes to structured attorney fees and structuring taxable damages

 Care should be taken to avoid the tax planning strategy backfiring by not using a January 1 payment start date for structured attorney fee payments.  Many structured settlement annuity issuers automatically send out payments by check in advance, to assure they arrive on time. One company is known to send out payments as much as 10 days in advance! 

Even if you have direct deposit, you're not completely out of the woods with a January 1 payment date.  The annuity issuer has a contractual obligation to make payments on time.  This applies not just to your January 1 payments, but to likely to tens of thousands of other annuitants and policyholders with the same payment due date.  In 2016, January 1st was on a Friday and the next business day was Monday January 4, 2016.  If the insurer waited to pay the next business day,  payments for thousands of people would have been 3 days late.  Therein lies their dilemma.  So a number of insurers set their computerized payment systems to release direct deposit payments early so that they would be in good faith and timely.

It is possible that you will also receive a 1099 for that payment, in the year of settlement.  What a way to mess up your tax planning if you're not careful.

The same issue goes when using a structured settlement for taxable damages.
 
How to Avoid Getting Hit With Unexpected Income in the Wrong Tax Year  When Structuring Attorney Fees

• Select a first payment date no earlier than January 10th, if getting paid by check
• Select a first payment date a few business days into January, if being paid by direct deposit.

When Funding a Structured Settlement Before a Signed Release Makes Sense

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.

_____________________________________________________________________

SIDE BAR

Pre-funding only applies to the structured settlement funding amount, not the entire settlement.

______________________________________________________________________

 

Funding Structured Settlements

 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[1][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

1. Structured settlement involving City of New York may take 90 days from the time all its requisite documents have been submitted
2. Structured settlements involving the New York State Liquidation Bureau may take up to 9 months following receipt of the required settlement documents.
3. 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.
4. One insurer will stagger funding
5. One self insured defendant negotiated a 90 day from receipt of documents structured settlement funding date.
6. 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.

What is "Date Slide" or " Flex Funding" Language in Structured Settlement Agreements and Court Orders?

"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

Common Sense

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.

 

Cash For Annuity | Value of BBB Rating Questioned

by John Darer®. CLU ChFC MSSC RSP CLTC

Cash for annuity companies like to promote themselves using a rating from the Better Business Bureau because, despite criticism of the Better Business Bureau, many of these settlement purchasers have little else to offer. The reliability of BBB ratings is inconsistent throughout the United States.  The BBB runs on a franchise system where franchisees are in business to make a profit. Franchisees charge members a fee to be accredited but accreditation is not automatic.

For example, the BBB of Connecticut, which does a good job of enforcing BBB standards, in my opinion, clearly states and fully discloses thy following with respect to any accredited business:

"BBB has determined that (name of company) meets BBB accreditation standards, which include a commitment to make a good faith effort to resolve any consumer complaints. BBB Accredited Businesses pay a fee for accreditation review/monitoring and for support of BBB services to the public.

BBB accreditation does not mean that the business' products or services have been evaluated or endorsed by BBB, or that BBB has made a determination as to the business' product quality or competency in performing services."

Accredited businesses affirm that they meet and will abide by the following standards:

Build Trust
Establish and maintain a positive track record in the marketplace. An accredited business or organization agrees to: Have been operational (actively selling products or services) in any BBB service area for at least the most recent 12 months, unless the principal(s) previously operated a similar business with an eligible record (one that qualifies for BBB accreditation). Fulfill all licensing and bonding requirements of applicable jurisdictions; provide all license and bonding information upon application for BBB accreditation; and provide periodic updates upon request of BBB. Be free from government action that demonstrates a significant failure to support BBB ethical principles in marketplace transactions (this requires a determination by BBB as to the nature of any violation, whether it was caused or condoned by management, and actions taken to resolve underlying issues that led to the government action). Be free of an unsatisfactory rating and maintain at least a B rating at the accrediting BBB and the BBB where it is headquartered, if different. In its relationship with BBB: meet all applicable standards within this Code of Business Practices cooperate with BBB's activities and efforts to promote voluntary self-regulation within the business' industry honor any settlements, agreements or decisions reached as an outcome of a BBB dispute resolution process complete the required application and pay all monetary obligations to BBB in a timely manner
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In its E-Book on selling structured settlements,  Toronto based Strategic Capital says "you might have heard that certain structured settlement buyers have an A+ BBB rating, and you might assume that this means this company has few complaints. Actually, that is not necessarily true. Companies with good BBB ratings have many structured settlements complaints when it comes to buying payments. To earn a good BBB rating a company needs only meet some BBB specific criteria"  (see above).  Stratcap then focuses on the number of complaints associated with some of the bigegr players in the market to support its assertion.   To wit "When considering what a BBB rating means, think about this: if you look at J.G. Wentworth’s listing on the BBB you will find that they have an “A+” rating. This sounds great. But if you look further you will see that they have had 40 complaints filed against them, through the BBB. That is 40 complaints, but still a perfect rating? Stone Street Capital has an “A+” rating as well, though they have had 57 complaints as of this writing. Imperial Structured Settlements, on the other hand, has only an “A” rating (no plus), yet they have only two complaints filed against them. And Strategic Capital doesn’t even appear on the BBB website, presumably because no one has ever complained about them to the BBB"

Comment:  While nobody likes to receive complaints, valid complaints also help a business improve. The number of complaints should be looked at in relation to the number of deals that the company has done. For example if JG Wentworth did 2000 transactions over a 3 year period and had 57 complaints that's 2.85% of their customers.  The real question (and this is where the BBB comes in) is if a company resolved the complaints in timely fashion through the BBB resolution process. If complaints do appear on a BBB listing the BBB posts if there was a resolution or not. 

A classic example of improving from customer complaints is Coca Cola.  New Coke was the reformulation of Coca-Cola introduced in 1985 by The Coca-Cola Company to replace the original formula of its flagship drink, Coca-Cola (also called Coke). New Coke originally had no separate name of its own, but was simply known as "the new taste of Coca-Cola" until 1992 when it was renamed Coca-Cola II. The American public's reaction to the change was negative and the new cola was a major marketing failure. The subsequent reintroduction of Coke's original formula, re-branded as "Coca-Cola Classic", resulted in a significant gain in sales. This led to speculation that the introduction of the New Coke formula was just a marketing ploy; however the company has always claimed it was merely an attempt to replace the original product  [source: Wikipedia]

The BBB of Greater Maryland is unfortunately one example of why the credibility of the BBB is in question.  Despite being put on notice that David Springer, CEO of a now defunct Maryland based structured settlement factoring broker admitted, in a 2013 deposition and in trial testimony, to fabricated information in its BBB and other social media, to include people that did not even exist, BBB continues to give the company an A+ rating. It's a complete joke.  The same BBB office gives another company an A+ rating despite publicly available information from the Maryland Secretary of State that conflicts with the BBB listing for the company.

Strategic Capital suggests that you Google a company name and the words complaints to get a more revealing rating than BBB. 

Comments:

I'm surprised that Strategic Capital would in this instance, subscribe to and promote such refutable rubbish.

Here's a smattering of what I've uncovered over the past 3 years about the structured settlement secondary market.

A. Several structured settlement factoring companies have actually paid for positive reviews from video testimonial websites

B. Several structured settlement  factoring companies have used stock photos which they portray to consumers as real customers in order to drum up more business, such as Imperial Structured Settlements and DRB Capital until they were exposed.

C.  A number of cash now pushers proudly display their topconsumerreviews.com, a paid survey without disclosing the nature of the results  (i.e these were paid reviews). In September 2014 I posted how Topconsumerreviews.com was given a low trust rating by scamadviser.com  Download Scam adviser report for topconsumerreviews.com 9-18-2014.

D.  StructuredSettlement-Quotes(dot)com,  whose controllers are competitors of JG Wentworth and Woodbridge Structured Funding, posted negative reviews of these competitors and then promoted them with hundreds of spam links from all over the world.   Woodbridge is now suing Genex Capital and Genex Strategies, Inc. over what they allege is "a fraudulent and deceptive scheme". The complexity of the litigation is an illustration of sorts over what it would take for a consumer or investor to litigate against Genex, which essentially solicits US consumers from outside the United States. Its US address is merely a mailbox at a UPS store.  Canada does not permit sales of structured settlement payment rights.

E. Genex Capital itself has been promoted with a ridiculous amount of spam comment reviews, some of which are downright comical

F. " Complaints" on commercial complaint sites appeared against witnesses in federal lawsuit against one factoring company.  Those complaint sites hide behind the ironically named Communications Decency Act and charge hundreds and, in one case, thousands of dollars to conduct an investigation. Regardless of the results they will not remove the reports.

Strategic Capital shares Patrick Hindert's opinion that "one criterion to consider when selecting a purchaser is whether that purchaser belongs to the National Association of Settlement Purchasers (NASP), a professional association that promotes best practices among its members and provides industry education about the transfer process.”

Comment:  The NASP Code of Ethics is Pollyanna. Unfortunately I have shown that time and time again that some of the worst behaviors are exhibited by members of NASP.  Allegations in the matter of Lafontant v Imperial Structured Settlements,  portray a nightmare of abuse by a NASP member.  NASP does not speak for and does not control the behavior of the entire industry, let alone its own members.

Conclusion.

I understand where Stratcap is coming from, however a market place, like the structured settlement secondary market that lacks regulation of how consumers and investors are solicited and general marketplace business conduct that includes fines and where serious violations could result in the suspension or loss of license to practice,  is a marketplace that is fraught with dangers for both consumers and investors. Self-regulation is not possible based on a 12 year track record of wildly accelerating abusive behavior that shows that the "honor system" does not work.

Fortunately the muck is beginning to get raked.   Lawsuits have been filed and more are coming against structured settlement factoring companies over their business practices. Mainstream news media have taken an interest as have government agencies.

 

 

 

 

 

 

Structured Settlement Agreements | Avoid This Fundamental Flaw

by John Darer CLU ChFC MSSC CeFT RSP CLTC

When a structured settlement is part of the settlement package for your client's legal case, then the consideration MUST be cash and future periodic payments  (with the schedule expressly described). 

Language in a settlement agreement and release which does not create an obligation to pay future periodic payments is to be avoided. Without consideration being properly expressed the structured settlement could fail, with financial consequences to all parties, Defendant, Plaintiff and Insurers.

We sometimes see proposed settlement agreement language which says "Defendant or its Insurer will arrange for the purchase of an annuity". This is a potentially fatal mistake.  But why is it a fatal mistake? 

For starters, a properly formed structured settlement is not simply "buying an annuity"

There is unfavorable taxation on corporate owners of annuities, for which IRC 130 provides an express exclusion, if the requirements of IRC 130 are met. Most Defendants or Insurers do not want to retain the contingent liability of a long tail periodic payment obligation on their books and this is one of the reasons most structured settlements are created using qualified assignments. Lastly, the plaintiff or payee may not want to be tied emotionally or financially to the Defendant who harmed, them, or whose product or servce harmed them and the qualified assignment helps to accomplish this. .  

A qualified assignment is defined in the United States Internal Revenue Code of 1986, as amended, in Section 130.

IRC 130(c)

The term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—

(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen’s compensation claim, and

(2) if—

(A) such periodic payments are fixed and determinable as to amount and time of payment,

(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,

(C) the assignee’s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and

(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104 (a).   [emphasis added]

 

So if you want to use the "arrange for the purchase of an annuity" language, you're "batting 0 for 1 " out of the gate, violating  IRC 130(c)(1).

 

Look at any qualified assignment agreement and you will see the following:

 

A recital that includes:  "...under which the Assignor has liability to make certain periodic payments to or for the benefit of the Claimant" and (2) that the Assignor and Assignee wish to effect a "qualified assignment within the meaning of Section 130(c) of the Internal Revenue Code of 1986, as amended" and THEN

 

the first decretal paragraph which is usually titled Assignment and Assumption and states "Assignor hereby assigns to the Assignee, and Assignee hereby accepts and assumes, all of the Assignor's liability to make the Periodic Payments"

 

What are the consequences of violating IRC 130(c)

 

There is always a paragraph labeled "Failure to Satisfy Section 130(c)" in a qualified assignment agreement.  I sometimes refer to it as the "sneaky S.O.B. clause". The paragraph is designed to provide relief to the assignment company in the event it has booked an obligation that does not qualify for the tax exclusion that IRC 130 gives the assignment company.

 

If there is a IRC 130(c) failure the unwind provisions in every assignment agreement provide for the qualified funding asset or annuity to be placed in the hands of the Assignor. There is unfavorable taxation on corporate owners of annuities, for which IRC 130 provides an exclusion.  In trhe eveent of a qualifie assignment unwind  for failure to satuisfy IRC 130,  the Defendant or Insurer which has taken a write off for a novated claim in a prior year will likely have to recognize the value of the asset as income and there will be an asset liability mismatch after taxes have been taken into consideration.

 

For the plaintiff who has executed a qualified assignment release and pledge in the hope of getting secured creditor status, they can kiss that goodbye in the event of a IRC 130(c) failure. They become a general creditor of the defendant or insurer in the event of IRC 130(c) failure, or worse, if the qualified funding asset is placed in their hands following the unwind they have an asset which may now potentially produce some taxable income, with respect to interest.

 

            

 

The requirements of IRC 130 are not difficult to satisfy, so try not to get cute with settlement documents by inserting "arrange for purchase" language. Stick to what the tax code says. This is fundamental Structured Settlements 101.