by John Darer CLU ChFC MSSC CeFT RSP CLTC
How a Single Claimant Qualified Settlement Fund Was Recently Used to Circumvent an Insurer's Approved List of Structured Annuity Markets
A. The High-Low Arrangement
A high-low arrangement is a private contract that, if signed by litigants before trial, constrains any plaintiff’s recovery to a specified range.[Trial and Settlement: A Study of High-Low Agreements J.J. Prescott University of Michigan, Kathryn E. Spier Harvard University, Albert Yoon University of Toronto, Journal of Law and Economics, vol. 57 (August 2014)
B. The Controversy
The parties in a Los Angeles County case had negotiated a high-low arrangement. Post trial it appears that the Plaintiff, through counsel, demanded that the funds be paid into a single claimant qualified settlement fund, precipitated on the Defendant's insurer's apparent unwillingness to fund a structure with Independent Life Insurance Company, a structured settlement annuity issuing life insurance company not on its approved list.
Defendant contended that (1) there was no settlement; (2) Plaintiff's Broker was employed by an affiliate of Independent Life; (3) that Independent Life is on the insurer's "do not use" list; (4) that payment into a single claimant QSF creates unnecessary risks for the insurer. The insurer stated its concerns about Independent Life's viability, referencing its March 31, 2021 quarterly statement. [Case Caption: Brayan Resendez, and Individual, Plaintiff v Mulholland Tennis Club, a California corporation et al. Superior Court CA Los Angeles County Case BC681291]
The Plaintiff submitted an August 4, 2021 declaration from Eastern Point Trust Company CEO Glen Armand who notably stated that "he and EPTC have created, served as trustees, and provided QSF administration for thousands of cases just like that in this matter" had "the IRS has conducted audits of other similarly situated QSF's for which EPTC is trustee and were established under the same circumstances, method and documents as the Resendez QSF. The IRS has not issued any adverse findings or deficiencies in those audits related to the surrounding facts and circumstances, qualification, construction, or operation of audited QSFs".
Trotted out as an example of where the Defendant's insurer had funded a single claimant QSF in July 2021, Plaintiff's structured settlement specialist Nick Coccimiglio attached a check that redacted the amount of the check, but left the insurer's policyholder (and likely releasee), claim number and the name of the qualified settlement fund ( possibly also identifying the surname of the plaintiff in that case) for public consumption. It is unclear whether or not the settlement agreement in that matter included a confidentiality clause.
B. Inconsistencies in Plaintiff's Supplemental Briefs and Declaration of Structured Settlement Specialist Raise Eyebrows of Casual Observer
In the "Plaintiff's Supplemental Brief in Response to Defendant's Supplemental Brief in Opposition to Plaintiff's Ex Parte Application to Enforce Settlement", filed with Hon. Rupert A. Byrdsong, Plaintiff alleges that on the one hand "the Plaintiff's financial interests are the paramount consideration in this matter". On the other hand the insurer has no interest in the protection of plaintiff". Yet the Declaration of Nick Coccimiglio attached as Exhibit A to the same brief states, at #5 " Everyone working in conjunction with the Brayan Resendez settlement is acting on his behalf and with his best interest in mind"
The best interest appears squarely focused on the yield of the structured settlement annuity, or does it?
Plaintiff counsel states in the aforementioned brief that "Mr Coccimiglio, at the direction of Brayan Resendez, conducted a market survey and obtained various quotes from eight insurance carriers that issue structured settlement annuities. Plaintiff desires to use Independent Life Insurance Company. It was determined that as compared to other potential structured settlement annuity companies, plaintiff would see a benefit of 5.8 percent greater income than the next best carrier New York Life. For Brayan Resendez, that translates into more than $100,000.00 in gained interest as a result of his annuity investment".
Coccimiglio declares under penalty of perjury on August 12, 2021 at #2 of Exhibit A that "I have done (an) initial market survey with respect to various rates for proposals involving settlement funds of Brayan Resendez. I have recommended that he establish a structured settlement program with Independent life Insurance Company.
But then at #5 of Exhibit A, Coccimiglio states in seeming contradiction, that "The QSF... It assures that Brayan Resendez can have access to that money to make investment decisions in a time frame that is comfortable to him. It gives me time to work with the life companies to put together the best possible financial investment plan for Mr. Resendez' future. If Plaintiff had already determined to use Independent Life as stated in plaintiff counsel's reply brief and Coccimiglio already recommended Independent Life in #2 of his August 12, 2021 Declaration under penalty of perjury, why the superfluous language in #5?
Consider the following:
The use of single claimant QSFs or attempted used of single claimant QSFs is nothing new
It is well known that Independent Life's assignment company will accept a qualified assignment in such cases and it may be the only one. The top rated structured settlement annuity carrier in terms of third party ratings, cited in the plaintiff's cited Supplemental Brief had the second best yield, but any diversification play might be moot since upon information and belief New York Life will not take assignments from single claimant qualified settlement funds. While others have an official stance against such practice, unconfirmed rumors suggest that business exceptions have been made at certain times in the past. It certainly would be great if there was a consistent business practice.
Common reasons for use of single claimant QSF
- Plaintiff wants to structure with a life insurance company not on an insurer's approved list
- Plaintiff's attorney wants to defer attorney fees using a standard structured settlement annuity and the defendant's insurer has a policy about participating in such settlements
- Plaintiffs or attorney want to utilize market based structured settlements as part of an allocation of settlement proceeds and (1) not insurer approved list and/or involves an attorney fee and the insurer will not participate; and in some cases
- Sometimes just a money grab by plaintiff settlement consultant
A notable example where a Court concluded that it would not force the defendant or its insurer to pay into a QSF
in a 2011 decision, the Florida circuit court in Hillsborough County ruled that where the plaintiff and a defendant reached a settlement agreement in resolution of the plaintiff’s claims, but the defendant did not agree to pay the agreed-upon settlement proceeds to a Qualified Settlement Fund (“QSF”) created pursuant to Section 468B of the Internal Revenue Code and related treasury regulations, the court would not force the defendant or its insurer to do so. In Martinez v. Tampa Bay Academy, et al., Case No. 06-CA-007546 (Hillsborough Cir. Ct.), Judge Sam Pendino found that, under such circumstances, an enforceable settlement had been reached for the defendant or its insurer to pay the agreed-upon settlement proceeds to the plaintiff or the trust account of the plaintiff’s counsel – but not to a QSF.