by John Darer® CLU ChFC MSSC RSP CLTC
A qualified assignment is a regular part of a structured settlement in the resolution of a personal injury, medical malpractice, or wrongful death claim or lawsuit (or non-qualified assignment where the structure is of taxable damages). Since January 1983, when the Periodic Payment Settlement Act of 1982 became effective in the United States, most structured settlements follow the steps displayed in the structured settlement flow chart below. Step 1 is the "promise to pay" where part of the consideration for the settlement is an obligation to make future periodic payments which is then assigned/transferred to a third party, typically a subsidiary of the structured annuity issuing life insurance company. Step 2 in the flow chart shows how an assignment fits into the typical structured settlement transaction.
A. For the party or parties being released, or the insurer, assuming the requirements of IRC 130 have been satisfied, the novation of the periodic payment obligation enables them to take a tax deduction instead of simply a write off as the payments as payments are made. If the released party were to pay cash in exchange for a general release, they have the opportunity to take a tax deduction for the consideration paid for the release.
B. For the releasing party, the assignment means that the structured settlement recipient has the opportunity to obtain secured creditor status with most assignees*. This differs from a buy and hold where the recipient is a general creditor of the Defendant or its insurer.
Annuity Issuer Guaranteee of Assignee
- Allstate Life Insurance Company/ Allstate Life Insurance Company of New York (Allstate Life Insurance Company guarantees the assignment company)
- Hartford Life Insurance Company
- John Hancock Life Insurance Company/ John Hancock Life Insurance Company of New York
- Liberty Life Assurance Company of Boston*
- Metropolitan Life Insurance Company
- New York Life Insurance Company*
- Symetra Life Insurance Company
- The Prudential Insurance Company of America
- United of Omaha Life Insurance Company
- Note: * Secured Creditor not offered with New York Life and Liberty Life programs
Up Stream Holding Company Guarantee
- American General Life Insurance Company
- Pacific Life Insurance Company
- Pacific Life and Annuity Company
- Hartford Life Insurance Company (Hartford Life Inc. provides additional guarantee of assignee)
Other Insurers in Family of companies guarantee the Assignee
- Berkshire Hathaway Life Insurance Company of Nebraska
- First Berkshire Hathaway Life (Berkshire Hathaway Life Insurance Company of Nebraska provides an additional guarantee on FIrst Berkshire cases that are assigned to BHG Structured Settlements, Inc.
What are Assignment Fees and Why Are They Charged?
A nominal assignment fee is charged by the assignment company as consideration for taking on the periodic payment obligation.
- Assignment fees for U.S. qualified assignments run from $0 to $750.
- Assignment fees for non-qualified assignments typically run between $500 and $1,000.
- If you are a Canadian reader the assignment fees for structured settlements placed with Canadian structured annuity issuers can run as high as CDN$2,000.
As your lawyer can explain to you, a qualified assignment is a contract and consideration is one of the elements of a valid contract, along with offer and acceptance.
In the United States assignment fees are typically included in the quote. In Canada they aren't and we understand that it's even customary for brokers to pay such fees. Such practice is not possible in the United States where most state insurance anti-rebating laws prohibit such consideration to be paid by licensed insurance agents or brokers.
Executive Life of New York (ELNY) Proposed Liquidation Leads to Questions
From 1983 to the end of that decade, a number of ELNY funded structures were subject to qualified assignments to First Executive Corporation, an entity which in its pomp was reported to have 40% of its assets in junk bonds. It later went bankrupt. New York state regulators seized ELNY in April 1991. While ELNY structured settlement annuitants have been receiving 100% of their obligations since then, the ELNY liquidation proceeding (scheduled to be heard March 15, 2012 may affect the status quo.
This may lead some to question whether or not a qualified assignment makes sense.
- Some blame the ELNY scenario on the defense-oriented industry environment in the 1980s and say that the involvement of structured settlement experts by plaintiffs and plaintiff attorneys and the ability to have greater authorship on their futures has been a major development over the last 20 years. I agree, but with the caveat that some veterans that I have spoken with placed ELNY structured annuities due to the great prices then on offer and some, despite posturing otherwise, may even place business today with annuity issuers (even lower rated annuity issuers solely based on price).
- Today most qualified assignment companies are special purpose entities that exist for the purpose of owning and/or administering structured settlement annuities issued by the parent annuity issuer. In the case of New York Life Insurance and Annuity Corporation it is also an insurance company, which essentially cannot file for bankruptcy.
- Few defendants or insurers are willing to do a structured settlement for plaintiff unless there is an assignment. If you, or your client will benefit from and wants a structured settlement, then a qualified assignment (or non-qualified assignment where applicable) will need to be in the settlement mix.
- A buy and hold out of a qualified settlement fund is impractical since a qualified settlement fund is unlikely to remain in existence for the duration of a structured settlement contract with obligations that extend decades into the future. Furthermore,with competing interests to a qualified settlement fund how wise would that be for a structured settlement recipient?
It may be advisable to diversify the structure between several annuity issuers and concomitant assignees.
While the final chapter in the ELNY story has not yet been written, here's another scenario involving financial impairment from the same time period
In re Monarch Capital structured settlement liquidation (see In re MONARCH CAPITAL CORPORATION Debtor No. 91-41379-JFQ (D. Massachusetts August 12, 1991), 175 structured settlement annuitants were protected despite the bankruptcy filing of the assignee, Monarch Capital, a non-insurance entity like First Executive. Monarch Life Insurance Company, domiciled in Massachusetts, was owned by Monarch Capital Corporation. Their main concentrations were in the variable life and disability income fields. Monarch Life has been in rehabilitation since June 1994. The company ceased writing new life and annuity business in 1992 and disability income business in 1993. At this time, they are still in receivership, under supervision by the Massachusetts Division of Insurance (Source: www.nolhga.org).