by Structured Settlement Watchdog®
Is a member of the Board of the Society of Settlement Planners engaging in rebating as that is defined under Arizona insurance law?
"Settlement Professionals, Inc. "pays all the costs of a QSF" says a statement made by plaintiffs in court documents in an Arizona case that involves the sale of an Annuity from American National Insurance Company. Does this violate Arizona law? Source: Case No: In Re Conservatorship of T.S. 1300GC2013 00063 Superior CT AZ Yavapai County 6th Supplement to Petition for Appointment of Conservator for a minor injured in a horseback riding accident (in response to objections of the father and Liberty Mutual Insurance company to the 5th amended supplement)
Another statement in the public court documents submitted by lawyers Larry J. Cohen and Neil J. Harrington on November 4, 2013, answers the question concerning Costs of Establishing and administering the QSF expressly states '"These costs are borne by Settlement Professionals, Inc.
AZ Rev Stat § 20-449 (2016) . Rebates on life or disability insurance
A. Except as otherwise expressly provided by law, no person shall knowingly permit or offer to make or make any contract of life insurance, life annuity or disability insurance, or agreement as to such contract other than as plainly expressed in the contract issued thereon, or pay or allow, or give or offer to pay, allow or give, directly or indirectly, as an inducement to such insurance or annuity, any rebate of premiums payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract.
If the statement is true, the use of "a" vs "the" implies a routine rebate, then the obvious question is how many times and in how many states has the company and its associates paid rebates as those terms are defined under the laws of Arizona and other states where the settlement planner does business? According to the Court documents, "Mr. Melligan (sic) has personally participated in over 100 (single claimant qualified settlement funds) and other advisors report similar numbers"
It begs the question of what communication was there between the attorneys and Settlement Professionals Inc., and/or between the latter and the plaintiffs or the minor's lawyers to prompt making the express statements they did in the court documents. There had to be an understanding.
Most States have Anti-Rebating laws
While a settlement planner might argue he/she or it is attempting to do the right thing for the client, the anti-rebating law in Arizona is perfectly clear, as it is in his/her/its home state and in most other states. In a September 24, 2007 opinion from the Office of General Counsel of the New York state insurance department opined that it was unlawful to "pay the expenses associated with a qualified settlement fund in connection with the sale or potential sale of structured settlement annuities or any other insurance". To underscore this point it is noteworthy that another settlement planner sought an exception to New York State's General Obligations law to be allowed to rebate or reduce commissions for insurance products placed for families of the 1983 Beirut barracks bombings. Here is a helpful 2009 legal analysis on the subject
Society of Settlement Planners Code of Ethics
The Society of Settlement Planners Code of Ethics adopted in 2008 and still current Rule 10(d) states that a settlement planner shall not engage in unfair trade practices, including but not limited to: engaging, counseling or assisting another participant in the settlement process, including a client, to engage in conduct the planner knows or reasonably should know is criminal, fraudulent, illegal or is prohibited by law...". In a February 25, 2003 press release for the SSP, Meligan was quoted "These illegal business practices... include...rebating ... against individual plaintiffs and categories of plaintiffs'. The law however, does not appear to make a distinction about who can receive rebates. From the plain reading of the law, it appears that all rebates in connection with the sale of insurance (including annuities) are "prohibited by law'.
Original Petition of Appointment of Conservator does not mention Qualified Settlement Fund
The Original Petition in June 17, 2013 makes no mention of a QSF.
Structured Settlement Derivatives
The settlement planner has also apparently advocated the use of what is mislabeled 'secondary market annuities" for the minor, to compete with traditional structured settlement annuities. That structured settlement payment rights, which are not annuities (and not regulated insurance products), are called 'annuities" is misleading to the Court. the petition also falsely states to the court that annuities issued from the secondary market are issued by Liberty Mutual. Structured settlement derivatives are not annuities and therefore the statement is false on its face. Even if arguendo the statement were true, Liberty does not issue annuities in the secondary market.
There is nothing in the petition that addresses the risk of investing in structured settlement payment rights. Read the immediate prior post for a cautionary story about how an elderly couple got shafted out of $150,000 investment in another deal involving another financial adviser (i.e. not Settlement Professionals, Inc.] While a relatively novel idea at the time of the petition, the use of structured settlement derivatives is not without risk. Is that risk in the best interests of a minor with a brain injury?
The 6th amended supplement attempts to assuage those concerns by stating that "any secondary markets securities that might be used ...would come through First Capital Surety & Trust Company or the Bank of Utah'. I confirmed today that the former, now known as Capital First Trust Company did not ever, and does not currently, originate structured settlement derivatives.
Comparison of Annuity Insurers
Liberty Life Assurance Company of Boston and American National both have A ratings from AM Best and Standard & Poors. Liberty has an A2 Moodys Both companies had been in existence for over 100 years at the time of the petition. Liberty Mutual, which guarantees the performance of Liberty Life Download Liberty-mutual sample guarantee of Liberty LAB is ranked 76th on the fortune 500 . As of December 31, 2015 it had $121.7 billion in consolidated assets. In contrast ANICO, as of December 31, 2015, had $23.75B in assets.
When a lifetime benefit is being contemplated for a minor. Longevity is being considered and the size of the company backing the obligation is an important consideration. Payees from Executive life Insurance Company of New York learned that the hard way.
Single Claimant QSF
Not satisfied with the Treasury having removed single claimant QSFs from its Priority Guidance plan after more than half a decade, in a February 2010 hearing in front of Treasury panel concerning IRC 104(a)(2) an attendee observed and published that Settlement Professionals, Inc.'s Jack Meligan and another SSP member recommended that the Treasury issue regulations explicitly holding the economic benefit doctrine not to be triggered in the context of single-claimant QSFs. He argued that such regulations are necessary as a result of the power imbalance in plaintiff-defendant negotiations. The requested regulations never happened. Yet in the 2013 filings concerning a single claimant QSF in the instant case, the economic benefit doctrine is not addressed. Hmm. In 2009, noted San Francisco tax attorney published a nice piece on the subject of single claimant qualified settlement funds and opined his preference for multi claimants.