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Post Settlement Structured Settlement Underwriting | The Good and The Bad Explained

by John Darer® CLU ChFC MSSC RSP CLTC

What is Post Settlement Underwriting?

Post settlement underwriting is a legitimate business practice** that has been alleged to have been abused by some structured settlement brokers representing casualty and liability insurers. The gist of the allegation is that AFTER a plaintiff has agreed to a specific benefit stream from a structured settlement, on occasion, certain "actors" in the structured settlement brokerage community will see if they can get a better rate for the Defendant or Insurer and go to a further step of allegedly concealing this from the unsuspecting plaintiff and plaintiff attorney,  sometimes by allegedly barring the Plaintiff from retaining a broker of their own.

**one might consider post settlement underwriting  "legitimate" where the case has settled,  the global settlement funding amount has been determined,  final terms of the structured settlement are being negotiated and additional medical information is submitted to see if a better price can be obtained on the structured  annuity or annuities, with full disclosure to both sides. Whatever savings there is on the annuity price has no impact on the global settlement funding amount.  Where a Medicare Set Aside is being considered, a better rated age could mean less is needed to fund the MSA, an attractive solution for both sides.

Why The Bad Aspect of Post Settlement Underwriting Is Virtually Impossible in New York

This alleged bad aspect of the practice of post settlement underwriting,  is a virtual impossibility in states with structured settlement protection acts, like New York, Florida, Massachusetts and Minnesota, whose statutes mandate a disclosure of cost to be made by the Defendant or Defendant's legal representative at the time structured settlement is negotiated  (See New York General Obligations Law §5-1702 and comparable statutes in the other states) .  Were post settlement underwriting to take place in New York, wouldn't the Defendant and the Defendant's attorney have significant personal exposure for fraud?

New York General Obligations Law §5-1702 and How it as Intended to Add To the Integrity of Structured Settlement Transactions

Watch John Darer's podcast on New York General Obligations Law §5-1702 which discusses New York's Structured Settlement Protection Act as it applies to the establishment of structured settlements and the burden it places on the Defendant or Defendant's legal representative.

Undisclosed post settlement underwriting is career suicide for a structured settlement broker. The rogue broker who goes down this path will eventually be found out.

Attorneys for both plaintiff and defense can protect themselves and their clients by utilizing the services of a structured settlement expert.

 

 

"If You Insist on Your Own Structured Settlement Adviser Your Case Goes on Back Burner"-Defense?

by John Darer® CLU ChFC MSSC RSP CLTC

A Long Island NY plaintiff lawyer purportedly, was recently told that if he insisted on his own structured settlement adviser with respect to any structured settlement,  the case would go on back burner and it would delay his getting paid.

First of all this notion is absolutely preposterous. The New York General Obligations Law  1705(e) creates an affirmative obligation on the part of the defendant or the defendant's attorney to make:

"a statement that the claimant is advised to obtain independent professional advice relating to the legal, tax and financial implications of the settlement, including any adverse consequences and that the defendant or defendant's legal representative may not refer any advisor, attorney or firm for such purpose.

Second, New York Senate Bill 8072A sponsored by Eric Schneiderman includes the following ad gives an idea of what the legislature is thinking:

  "Structured settlements are current public policy both in New York State and Federally, providing for significant tax exemptions to children and disabled citizens of our state as an incentive to enter into periodic payment obligations. Although we are protecting our citizens that are attempting to sell their current existing structured settlements, we have done nothing to protect their rights in establishing a structured settlement in the first instance. The marketplace of structured annuities is complex and diverse, this bill established transparency for plaintiffs entering into structured settlements as partl of the resolution of their lawsuits, and makes the brokers/agents accountable to them as part of the sale of insurance. Due to the natural opposition encountered between parties in litigation, the plaintiff, the real consumer of insurance, and beneficiary of the structured settlement needs representation from an expert in the field of structured settlements. This bill gives the plaintiff a right to representation, fairly compensates that expert, and eliminates the self dealing occasionally encountered when insurance companies settle cases with plaintiffs state wide. This policy will foster a greater confidence in structured settlements, and will further encourage their use by all parties to litigation. At a time when every financial transaction and insurance product is in question, we should not expect the citizens of our state to entrust their financial future to the agent of their opponent in litigation. To continue do so, controverts the public policy and undermines the entire existence of structured settlements".

This author believes that both parties deserve representation. Yet whatever side of the fence you are on this issue, or on any particular case, the behavior described above, is just plain silly. Consider the following questions:

1. Could the attempt to circumvent the law (actually in contravention to the disclosure that they are legally obligated to make) by the defendant or defendant's representative in appealing to the plaintiff lawyer's need to be paid, be considered an actionable unfair trade or claim practice?
2. If this occurred at a mediation and was witnessed by a mediator or a judge, or any other party present, if things later go wrong for the plaintiff, could that put the plaintiff lawyer in jeopardy for not seeking independent advice for his client?
3. Are there any conditions by which a defendant is exempt from complying with 5-1702?

This matter concerning the Long Island attorney is under investigation. 

Related reading

New York Structured Settlements: Defense Counsel, Don't Blow Your Sec 5-1702 Disclosure Obligation!

Plaintiff Structured Settlements New Rights In New York Senate Bill S8072A?

 

New York Structured Settlements: Defense Counsel Don't Blow §5-1702 Disclosure Obligation!

by John Darer® CLU ChFC MSSC RSP CLTC

When a structured settlement is part of the resolution of a New York personal injury case the New York General Obligations Law § 5-1702,creates a legal obligation on the defendant, or the defendant's legal representative to disclose a number of things in writing. To wit:

§ 5-1702. Initial disclosure of structured settlement terms.

In negotiating a structured settlement of claims brought by or on behalf of  a claimant who is domiciled in this state, the defendant or defendant's legal representative shall disclose in writing to the claimant or the   claimant's legal representative all of the following information that is not otherwise specified in the structured settlement agreement:

(a) the amounts and due dates of the periodic payments to be made
under the structured settlement agreement. In the case of payments that
will be subject to periodic percentage increases, the amounts of future
payments may be disclosed by identifying the base payment amount, the
amount and timing of scheduled increases, and the manner in which
increases will be compounded;
(b) the amount of the premium payable to the annuity issuer;
(c) the nature and amount of any cost that may be deducted from any of
the periodic payments;
(d) where applicable, that any transfer of the periodic payments is
prohibited by the terms of the structured settlement and may otherwise
be prohibited or restricted under applicable law; and
(e) a statement that the claimant is advised to obtain independent
professional advice relating to the legal, tax and financial
implications of the settlement, including any adverse consequences and
that the defendant or defendant's legal representative may not refer any
advisor, attorney or firm for such purpose.

In the opinion of this author it is a best practice to include such disclosures in the settlement agreement where the signatures to the agreement acknowledge receipt of the information. 

This author has observed that one too many claims adjusters and defense counsel are apparently not familiar with this obligation even though the law has been in effect for years. Thus they could needlessly be leaving their company or clients exposed. Even if the plaintiff engages their own settlement planner, it does not absolve the defendant, or its legal representative, of the legal obligation to make the written disclosure in the settlement agreement or otherwise.

This author encourages defendants and their counsel to add this to their checklist of things to do in closing out a case file. Executives at insurance companies with New York exposure should be establishing protocols with their legal representatives and structured settlement consultants to assure that this legal obligation is not overlooked.

It is in the public interest that ALL plaintiffs receive adequate disclosure of the savings or investment products that they purchase or, in the case of structured settlements, may benefit from.

Plaintiff Structured Settlements New Rights In New York Senate Bill S8072A?

A bill introduced June 4, 2010 in the New York State Senate purports to provide plaintiffs with continued availability and use of structured settlement agreements in lieu of a lump sum payments in tort and workers' compensation cases by guaranteeing their right to a claimant's structured settlement broker.

The bill was introduced by New York State Senator Eric Schneiderman (above)

Highlights

1. Section 5-1701 of the General Obligations Law (GOL) would have added, the defined term a "claimant's structured settlement broker" as a person secured by the claimant to represent the claimant's interests in the acquisition of a funding mechanism for a structured settlement, including an annuity policy from a life insurer.

2. That a claimant receive written notice of the claimant's right to secure a claimant's structured settlement broker to represent the claimant during the acquisition of the defendant's settlement funding mechanism, including an annuity.

3. A new section 5-1702A of the GOL is added to provide in Subsection (1) that a claimant has the absolute right to use a claimant's structured settlement broker, and must be advised of this right by their attorney or the court. Subsection (2) provides that the broker represents the claimant in determining the funding mechanism used to support the structured settlement, including use of an annuity policy.

3. No funding mechanism can be agreed upon and no annuity approved unless the claimant's structured settlement broker has been notified of an the details of the agreement, and been provided with a copy of the contract and the annuity policy (if applicable)

4. 5-1702A Subsection (3) provides that the fee or commission paid to a claimant's structured settlement broker not be a separate fee paid by the claimant from the settlement. Rather, under this subsection. the fee or commission will be paid by the insurer funding the funding mechanism or annuity policy.

5. A claimant's structured settlement broker will be entitled to a share of the commission paid in connection with the acquisition of the funding mechanism or annuity in an amount agreed to by the claimant's structured settlement broker and the defendant's broker.

6. Absent such an agreement, the claimant's designated structured settlement broker will receive one-half of the total statutory commission paid in connection with the acquisition of the funding mechanism or issuance of the annuity policy. 5-1702A subsection (4) provides that nothing in this new section 5-1702A of the GOL can be deemed or interpreted as transferring an ownership right in the annuity policy to a claimant, and this section does not alter or effect any advantages or considerations with respect to the taxability of periodic payments pursuant to state or federal law. Any existing tax benefits in place on the effective date will remain in effect.

Section 4 provides that the act becomes effective in 30 days and applies to structured settlements agreements entered into on and after such date.

The bill states the following as justification:

Structured settlements are current public policy both in New York State and Federally, providing for significant tax exemptions to children and disabled citizens of our state as an incentive to enter into periodic payment obligations. Although we are protecting our citizens that are attempting to sell their current existing structured settlements, we have done nothing to protect their rights in establishing a structured settlement in the first instance. The marketplace of structured annuities is complex and diverse, this bill established transparency for plaintiffs entering into structured settlements as pall of the resolution of their lawsuits, and makes the brokers/agents accountable to them as part of the sale of insurance. Due to the natural opposition encountered between parties in litigation, the plaintiff, the real consumer of insurance, and beneficiary of the structured settlement needs representation from an expert in the field of structured settlements. This bill gives the plaintiff a right to representation, fairly compensates that expert, and eliminates the self dealing occasionally encountered when insurance companies settle cases with plaintiffs state wide. This policy will foster a greater confidence in structured settlements, and will further encourage their use by all parties to litigation. At a time when every financial transaction and insurance product is in question, we should not expect the citizens of our state to entrust their financial future to the agent of their opponent in litigation. To continue do so, controverts the public policy and undermines the entire existence of structured settlements.

LEGISLATIVE HISTORY: New bill. FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: Structured Settlement, assuming more are put in force each year, will prevent many citizens from spending the proceeds from their lawsuits, and therefore will not need public assistance and/or Medicaid. potentially positive effect.

EFFECTIVE DATE: This act shall take effect thirty days after the date it becomes law and shall be applicable to structured settlements agreements entered into on and after such date.

Comments:

1. Here! Here! But why not make it symmetrical? Shouldn't all parties to a structured settlement agreement be entitled to representation in such transactions and their representative be entitled to a share of the fees-just like a real estate deal?

2. Are those scribing the new law suggesting that state law trumps federal law when it comes to the federal tax treatment?

3.  Does the proposed amendment to law say commissions are negotiable but if the claimant's broker doesn't like the terms it's a 50/50 anyway?

4. Are insurance commissions statutory as the proposed law change states or are they contractual between the insurer and its agents and/or brokers? Someone needs to think this one through. Is there a statutory commission for "the acquisition of a funding mechanism for a structured settlement, if such funding mechanism is a United States Treasury Bond Trust?

5. No mention in the proposed amendment to the law about funding of structured judgments.

6. While the proposed amendment appears to expressly create an absolute right to a claimant's structured settlement broker/planner/consultant it DOES NOT appear to create an absolute right to a structured settlement.

7. However noble the cause,  it's a shame that taxpayers' time and expense needs to be taken up to tie off a situation fomented collectively by an alleged longstanding business decision by a single office of one insurance company, one or two claims adjusters at another who occasionally get angry at a plaintiff attorney and "throw their toys out of the pram" and the bleeding minority of insurance brokers who "can't play nice in the sandbox".