by John Darer CLU ChFC CSSC RSP
Despite the fact that during the financial crisis, there has been no current structured annuity issuer failing to make any structured settlement payment obligation, there has been renewed interest in updating consumer protections for insurance products by various states. After all, in the banking sector of the financial universe, the FDIC limits were temporarily increased, in October 2008, from $100,000 to $250,000 to inspire confidence in the banking system. That temporary time limitation was then extended to December 31, 2013 before being made permanent by "Dodd-Frank" on July 21, 2010.
On September 27, 2010 California passed SB1408 entitled " Committee on Banking Finance and Insurance California Life and Health Guaranty Association Act, a fact that was published and circulated in an email news blast that was also circulated on Facebook to the clients and prospects of a California licensed insurance agent, among others, along with the commentary:
- "This is welcome news for recipients of structured settlement benefits and those contemplating annuity purchases!"
- "Among the highlights, this bill increases coverage of structured settlements for California residents..."
The agent in question happens to be a structured settlement industry leader and someone I respect, yet I can't help wondering "what is this person thinking?"
However important the aforementioned news, following is the relevant section of the California Insurance Law which expressly and unambigously states (highlghted for emphasis):
1067.17. (a) No person, including an insurer, agent, or affiliate of an
insurer shall make, publish, disseminate, circulate, or place before the public,
or cause directly or indirectly, to be made, published, disseminated,
circulated, or placed before the public, in any newspaper, magazine, or other
publication, or in the form of a notice, circular, pamphlet, letter, or poster,
or over any radio station or television station, or in any other way, any
advertisement, announcement, or statement, written or oral, which uses the
existence of the California Life and Health Insurance Guarantee Association
for the purpose of sales, solicitation, or inducement to purchase any form
of insurance covered by the California Life and Health Insurance Guarantee
Association Act. Provided, however, that this section shall not apply to the
California Life and Health Insurance Guarantee Association or any other
entity which does not sell or solicit insurance.
(b) (1) The association shall prepare a summary document describing
the general purposes and current limitations of the article and complying
with subdivision (c). This document shall be submitted to the commissioner
for approval. Sixty days after receiving approval, no insurer may deliver a
policy or contract described in paragraph (1) of subdivision (b) of Section
1067.02 to a policyholder or contractholder unless the document is delivered
to the policy or contractholder prior to or at the time of delivery of the policy
or contract except if subdivision (d) applies. The document should also be
available upon request by the policyholder. The distribution, delivery, or
contents or interpretation of this document shall not mean that either the
policy or the contract or the holder thereof would be covered in the event
of the impairment or insolvency of a member insurer. The description
document shall be revised by the association as amendments to the article
may require. Failure to receive this document does not give the policyholder,
contractholder, certificate holder, or insured any greater rights than those
stated in this article. This paragraph shall remain operative only until
paragraph (2) becomes operative.
(2) Within 180 days of the effective date of the act that amended this
section in the 2009–10 Regular Session, the association shall prepare a
summary document describing the general purposes and current limitations
of the article and complying with subdivision (c). This document shall be
submitted to the commissioner for approval. At the expiration of the 60th
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day after the date on which the commissioner approves the document, an
insurer may not deliver a policy or contract described in paragraph (1) of
subdivision (b) of Section 1067.02 to a policy or contract owner unless the
summary document is delivered to the policy or contract owner at the time
of delivery of the policy or contract. The document shall also be available
upon request by a policy owner. The distribution, delivery, or contents or
interpretation of this document does not guarantee that either the policy or
the contract or the owner of the policy or contract is covered in the event
of the impairment or insolvency of a member insurer. The description
document shall be revised by the association, as amendments to the article
may require. Failure to receive this document does not give the policy owner,
contract owner, certificate holder, or insured any greater rights than those
stated in this article.
(c) The document prepared under subdivision (b) shall contain a clear
and conspicuous disclaimer on its face. The commissioner shall promulgate
a rule establishing the form and content of the disclaimer. The disclaimer
shall do all of the following:
(1) State the name and address of the life and health insurance guarantee
association and insurance department.
(2) Prominently warn the policy owner or contract owner that the
California Life and Health Insurance Guarantee Association may not cover
the policy or, if coverage is available, it will be subject to substantial
limitations and exclusions and conditioned on continued residence in the
(3) State that the insurer and its agents are prohibited by law from using
the existence of the California Life and Health Insurance Guarantee
Association for the purpose of sales, solicitation, or inducement to purchase
any form of insurance.
(4) State that the policy owner or contract owner should not rely on
coverage under the California Life and Health Insurance Guarantee
Association when selecting an insurer.
(5) Provide other information as directed by the commissioner
In 2008 the National Structured Settlement Trade Association (NSSTA) published a financial security document, available to and thus intended to be distributed by its members which discussed the guaranty funds. The New York State Insurance department, in response to this author's inquiry, stated in January 2009, that the distribution of such document to residents of the state in connection with the sale or solicitation of an insurance product was not lawful. New York did not even feel comfortable with a reference web page of a licensed agent and broker that listed each state association and its phone number listed as a self serve reference launch point for consumersa nd included a disclaimer that it was not intended to be used in the sale or solicitation of insurance.
Another NSSTA member, as reported here on several occasions, has made a similar mistake in the process of solicting and/or inducing the sale of structured annuities in North Carolina.
NSSTA has a published Code of Ethics posted on its website which at Principle VI states "A NSSTA member should comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided"
I cannot imagine that the Board of Directors of the NSSTA or its lawyers consider the prohibition of advertising state insurance guaranty funds to be "immaterial". Am I wrong?
This author has looked, but has not been able to find, a specfic carve out for structured settlement consultants in California, Connecticut, North Carolina, New York and several others' states' insurance laws that permits structured settlement consultants to do what other insurance agents cannot.
Since the NSSTA does not "sell or solicit insurance", perhaps it could serve the role of both announcing and being an information repository for consumers in this area. The upcoming NSSTA meeting in Las Vegas would be a good place to remind its members of the rules.