Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary, Now in 16th Year!

What is an Assignment Fee with a Structured Settlement? Avoid High Undisclosed Asset Based Assignment Fees

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Background on Assignments

There are two types of assignments that may be used when a structured settlement is established, a qualified assignment and a non-qualified assignment

An assignment, whether qualified or non-qualified, is the second step in most structured settlements. It is the step that occurs after the parties have agreed on a schedule of future periodic payments. While structured settlements are generally supported by Defendants and Insurers who want to do the right thing, few Defendants or insurers will be receptive to a long tail contingent liability for the duration a structured settlement.

A novation is an agreement made between two contracting parties to allow for the substitution of a new party for an existing one. The assignment is a substitution of obligors from the Defendant, Insurance Company or Qualified Settlement Fund to the assignment company. The assignment company receives a certain amount of cash for taking on the assignment of future periodic payment obligations, deducts its assignment fee and then buys the funding instrument. In a qualified assignment these are called qualified funding assets and are mostly structured settlement annuities, but also could be United States Treasury obligations. Market based structured settlements are generally done by way of a non qualified assignment.

What are typical assignment fees with structured settlements?   

• Qualified Assignment fees from assignment companies related to structured settlement annuity issuers range from $0-750
• Non qualified assignment fees typically range from  $500-$1,400, with higher fees for independent assignment companies, not affiliated with insurance companies.

What consumers need to watch out for

Watch out for hidden excessive assignment fees

Asset based qualified and non qualified assignment fees can run upwards $10,000 on a $1,000,000 case. That's a pretty heavy cost to bear. It's way more than a normal assignment fee. The fees may not be disclosed and simply built in to the illustrated cost of the structure.  What you, or your lawyers may encounter is obfuscation by multiple layers of complexity. That's not good. 

Let's say for example that you worked with a settlement planner who recommends a MassMutual annuity for a
asset.  But unknown to the plaintiff or their attorney, MassMutual Life Insurance Company hasn't written structured settlement annuities for about fifteen years and they have no assignment company anymore. So a wily settlement planner may use an independent assignment company to take on the periodic payment obligation from the Defendant, Insurer or qualified settlement fund. The independent assignment company may charge an asset based assignment fee, The settlement planner makes a commission on the sale of the annuity and the client gets walloped with the outsize assignment fee.  It gets even more squirrely if the settlement planner has a direct or indirect ownership interest in the assignment company.   Like the chorus of the 2002  Grammy Award winner from Santana featuring Michelle Branch "a little bit a this, a little bit of that", but it ain't no "game of love" baby.

 

 

 

Los Angeles Single Claimant QSF Decision Goes Plaintiff's Way Despite Notable Inconsistency in Moving Papers

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

Qualified Settlement Fund News  "Hear Ye Hear Ye, Get Yer QSF"

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.

 

Symetra Structured Settlement Predation Lawsuit | Denial of Symetra's Motions Against Its Structured Settlement Annuitants

by Structured Settlement Watchdog

Claimant's Rights to Structured Settlement Payments is a standard clause in a typical Settlement Agreement and Release executed at time of settlement and  is a critical part of ant settlement where a structured settlement is established. The clause often includes language like this:

"The Claimant...shall have no rights or control over the period payments. The Claimant shall not be able to ACCELERATE, DEFER, INCREASE OR DECREASE the periodic payments and shall not have the power to sell, mortgage, anticipate or encumber these payments, or any part thereof, by assignment or otherwise. No part of the above periodic payments or any assets of the Insurer are to be subject to execution or any legal process for any obligation of the Claimant".

Does "Power Language" in a Structured Settlement Agreement Really Mean Anything? 

Plaintiffs in RENALDO WHITE, RANDOLPH NADEAU, individually and on behalf of all others similarly situated, Plaintiffs, v. SYMETRA ASSIGNED BENEFITS SERVICE COMPANY and SYMETRA LIFE INSURANCE COMPANY, Defendants. United States District Court, W.D. Washington CASE NO. C20-1866 MJP  [2021 WL 3472408]  hereinafter and in the title to this post "the Symetra Structured Settlement Predation Lawsuit" believe that it does.

Plaintiffs argue the " power language" provision is a bargained-for safeguard to protect the settlements of vulnerable tort victims. The benefits of such language are clear: if the annuitant has no authority to access or transfer the payments, the settlement is safe from creditors. It also prevents annuitants from unwisely spending settlement proceeds.

Court Construes for Plaintiffs Regarding Ongoing Funding and Care under the Terms of Settlement Agreements

Defendants argue Plaintiffs have not alleged facts sufficient to conclude that a fiduciary relationship exists for either of Plaintiffs’ claims for breach of

The fox was in the hen house. Heck, it owned the hen house!

fiduciary duty. A fiduciary duty may arise because of the nature of the relationship, e.g., trustee and beneficiary, but it “can also arise in fact regardless of the relationship in law between the parties.” Liebergesell v. Evans, 93 Wash. 2d 881, 890 (1980). A fiduciary relationship is one “in which one party occupies such a relation to the other party as to justify the latter in expecting that his interests will be cared for.” Id. at 889–90.

Plaintiffs allege the existence of a fiduciary relationship in fact: Symetra formed a fiduciary duty with class members when it issued an SSA to fund periodic payments arising out of the settlements. (Amended Complaint at ¶¶ 188–96.) The annuity had one purpose, which was to fund the long-term payments of class members. Plaintiffs also allege Symetra obtained significant personal information about class members, including injury details and medical history, which it used to determine the cost of the SSA and to structure payments in a way to provide income and care for class members. They also allege Symetra occupied a position of superior knowledge and that class members justifiably placed their trust in Symetra to manage their payments. With respect to SABSCO, Plaintiffs allege fiduciary duty for essentially the same reasons, because SABSCO took on the legal obligation from the original defendant to make  lifetime payments.

The existence of a fiduciary duty is quintessentially an issue of fact. Construing the facts in favor of Plaintiffs, class members would have justifiably expected that their interests would be cared for by Symetra and SABSCO, as both entities had direct roles in administering ongoing funding and care under the terms of their underlying settlements.

Court Construes for Plaintiffs on Conspiracy

Defendants argued the claim for civil conspiracy should be dismissed because Plaintiffs fail to allege unlawful conduct or unlawful means to accomplish lawful conduct. (Dkt. No. 31 at 29.) However, the Court countered that Plaintiffs have alleged such conduct. (Am. Compl. at ¶¶ 234–39.) They also alleged mail and wire fraud as predicate acts under RICO.

Court Construes for Plaintiffs on Unjust Enrichment

Defendants argue the plaintiffs' claim for unjust enrichment should be dismissed because Plaintiffs received what they bargained for—the lump-sum payment—in exchange for their payment rights. (Dkt. No. 31 at 29.) But the Court countered that it is the validity of those contractual arrangements that is part of what is at issue here

Rooker-Feldman Snookered

Rooker-Feldman is a convenient defense used by structured settlement factoring companies, often to overcome forum shopping allegations brought in Federal Court.

The Court here construed that Plaintiffs are not asking this Court to “review and reject” the state-court judgments. Plaintiffs here seek damages for the harms and statutory violations alleged, not an order invalidating the state-court proceedings. See Cordero v. Transamerica Annuity Serv. Corp., 452 F. Supp. 3d 1292, 1300 (S.D. Fla. 2020) (claim not barred by Rooker-Feldman because it “plausibly challenges [annuity issuer’s] course of conduct related to the approval of the transfers, which [plaintiff] alleges amounts to fraud. [Plaintiff] does not challenge the propriety of the state court final orders that authorized them.”).

In sum, Rooker-Feldman does not apply to this proceeding because Plaintiffs are not state-court losers, they raise claims independent of the state-court proceedings, and they do not ask the Court to review and reject the state-court judgments. To the extent the state-court proceedings pose barriers to Plaintiffs’ claims, those issues are not jurisdictional. Rooker-Feldman does not prevent a district court from exercising subject-matter jurisdiction simply because a party attempts to litigate in federal court a matter previously litigated in state court. If a federal plaintiff presents some independent claim, albeit one that denies a legal conclusion that a state court has reached in a case to which he was a party..., then there is jurisdiction and state law determines whether the defendant prevails under principles of preclusion.

Court Denied Defendants' Motion to Strike Class Allegations

Defendants argued the proposed class would be overwhelmed by individualized issues such as the reasons class members agreed to the transfers at issue, the state-court proceedings, applicable state law in multiple states, and the specific terms of underlying settlements and later transactions for lump-sum payments. However, the proposed class does not necessarily touch on these individualized issues. Plaintiffs’ claims center on alleged violations that preceded state-court approvals. In particular, Plaintiffs allege Symetra had a duty to its annuitants that it violated by misusing confidential information and using its affiliate SABSCO to induce class members into selling their payment rights to offload its own payment obligations. At this stage, the evidentiary record is insufficient to decide class certification on these issues. Therefore, the Court DENIES Defendants’ motion to strike the class allegations.

And the beat goes on. Stay tuned. This case and others are interesting because they focus on the responsibility of the qualified assignment company to the annuitant. The Symetra case is particularly interesting because they wrote the business and effectively "cannibalized" the business

See my January 9, 2021 blog for more information about the lawsuit Symetra Lawsuit Alleges Insurer Sabotaged and Unwound Structured Settlements for Profits at Symetra Annuitants' Expense

#foxinthehenhouse  #foxownsthehenhouse

Nevada Proposed Senate Bill NVSB332 Seeks to Increase Structured Settlement Protections

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Nevada's Senate Bill 332 is an ACT relating to structured settlements;

• requiring structured settlement purchase companies to register with the Consumer Affairs Division of the Department of Business and Industry;
• prohibiting certain activities by structured settlement purchase companies and their employees and representatives;
• setting forth procedures and requirements concerning the transfer of structured settlement payment rights;
• and providing other matters properly relating thereto

According to the Senate Amendment 438 to Nevada Senate Bill 332  (sponsored by Nevada Senator Melanie Scheible, 32)

to Section 29 of this bill: (1) requires structured settlement purchase companies to register with the Consumer Affairs Division of the Department of Business and Industry; and (2) sets forth requirements concerning registration, such as obtaining a surety bond, letter of credit or cash bond in the amount of $50,000.

Sections 30 and 31 of this bill set forth further requirements concerning registration, section 33 of this bill sets forth further requirements concerning surety bonds obtained for registration and section 34 of this bill provides that certain persons are not required to register. 

Section 35 of this bill: (1) prohibits structured settlement purchase companies and their employees and representatives from engaging in various specified actions { see below]; and (2) provides a private right of action to payees and other structured settlement purchase companies to pursue and obtain damages and other remedies from a person who engages in prohibited activities. Section 32 of this bill requires a structured settlement purchase company to notify the Division and, if applicable, the surety which issued the applicable surety bond, if a judgment is obtained against the structured settlement purchase company.

Section 37 of this bill requires a structured settlement purchase company to provide to a payee an extensive disclosure statement before a transfer may

Sections 36, 38 and 40 of this bill set forth requirements concerning: (1) the filings a structured settlement purchase company must make with a court before a transfer may occur; (2) the findings a court must make before a transfer may occur; and (3) procedures to be followed in obtaining court approval of a transfer, including, without limitation, notice requirements.

Section 39 of this bill describes the rights of various interested parties after the transfer of 33 structured settlement payment rights, section 41 of this bill sets forth various protections for 34 payees and sections 41 and 43 of this bill provide that the provisions of this bill apply only to transfer agreements entered into on or after October 1, 2021.

Under Section 35, It is appears OK to pay

(1) A commission or finder’s fee to a person who is a structured settlement purchase company or is an employee of a structured settlement purchase company;
(2) To third parties any routine transfer expenses, including, without limitation, court filing fees, escrow fees, lien recordation fees, judgment and lien search fees, attorney’s fees and other similar types of fees relating to a transfer; and
(3) A reasonable referral fee to an attorney, certified public accountant, actuary, licensed insurance agent or other licensed professional adviser in connection with a transfer.

It seems that the unethical practice of paying kick backs to corrupt notary publics to poach deals from competitors is not acceptable

But It is not OK to

(f) Intentionally advertise materially false or misleading information regarding the products or services of the transferee or structured settlement purchase company.
(g) Attempt to coerce, bribe or intimidate a payee seeking to transfer structured settlement payment rights.
(h) Attempt to defraud a payee or any party to a structured settlement transfer or any interested party in a structured settlement transfer proceeding by means of forgery or false identification. 

(i)except as otherwise provided in this paragraph, intervene in a pending structured settlement transfer proceeding if the transferee or structured settlement purchase company is not a party to the proceeding or an interested party relative to the proposed transfer which is the subject of the pending structured settlement transfer proceeding. The provisions of this paragraph do not prevent a structured settlement purchase company from intervening in a pending structured settlement transfer proceeding if the payee has signed a transfer agreement with the structured settlement purchase company within 60 days before the filing of the pending structured settlement transfer proceeding and the structured settlement purchase company which filed the pending structured settlement transfer proceeding violated any provision of sections 2 to 41, inclusive, of this act in connection with the proposed transfer that is the subject of the pending structured settlement transfer proceeding.

(j)Except as otherwise provided in this paragraph, knowingly contact a payee who has signed a transfer agreement and is pursuing a proposed transfer with another structured settlement purchase company for the purpose of inducing the payee into cancelling the proposed transfer or transfer agreement with the other structured settlement purchase company if a structured settlement transfer proceeding has been filed by the other structured settlement purchase company and is pending. The provisions of this paragraph do not apply if no hearing has after the filing of the pending structured settlement transfer proceeding.
(k) Fail to dismiss a pending structured settlement transfer proceeding at the request of the payee. A dismissal of a structured settlement proceeding after a structured settlement purchase company has violated the provisions of this paragraph does not exempt the structured settlement purchase company from any liability under this paragraph. 

The Proposed Nevada Act would also give a court the power to (1) Revoke the registration of the settlement purchasing company; (2) Suspend the registration; or (3) Enjoin the structured settlement purchasing company from filing new structured settlement transfer proceedings in Nevada, if the there is  a determination that the structured settlement purchasing company is in violation of the Act

Structured Settlement History Lesson | When Was The Great Depression Again?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Something for your history buffs. Seen on the website of another settlement planning firm today:

"Most of the companies that issue structured settlement annuities have withstood the most dramatic financial events in United States history, including The Great Depression and the 2008 financial crisis. In fact, since 2008, no life insurance companies who issue structured settlement annuities have become insolvent".

The statement while technically true, is somewhat misleading because in 2013 Executive Life Insurance Company of New York was liquidated leaving a number of annuitants with less than the full amount of payments promised.  The company was first taken over by the New York State Insurance Department in the early 1990s. Moreover the implementation of Risk Based Capital standards in response to the Executive Life and other insolvencies in the 1980s and early 1990s, was an important regulatory tool designed to maintain solvency of insurance companies.

There are then listed a number of life insurance companies and their purported dates of establishment 

                                                    Purported                        Actual                

American General             N/A                                1960

Berkshire Hathaway          1919                                (see next three)

BHLN                                 N/A                                 1993

Columbia Insurance Co.      N/A                                 1977

National Indemnity Co.        N/A                                1940

Independent Life               N/A                                  2018

Metropolitan Life               1839                                1868*

Metropolitan Tower             N/A                                1982 

New York Life                    1870                                 1845*     

Pacific Life Insurance Co    1845                                 1868*

Pacific Life and Annuity       N/A                                  1982

Prudential                           N/A                                 1875*

United of Omaha                1868                                 1926* 

United States Life in CoNY  N/A                                  1850*

USAA Life                           N/A                                  1963                      

The Great Depression  August 1929-March 1933

Notes

• Companies established prior to, and  in business during, The Great Depression 6
• Companies underwriting structured settlements today 13
• Percentage of companies currently writing structures that were established prior to, and in business during The Great Depression 46.15%

N/A  No purported date of establishment on the subject website and/or the insurer was omitted

Metropolitan Tower Life is the primary underwriting company for MetLife Structured Settlements today. It was established in 1982.

I think the truth is obvious. Res Ipsa Loquitur. More About the History of Structured Settlements

 

 

Structured Settlement Watchdog 2021

by Structured Settlement Watchdog

The Structured Settlement Watchdog is leaner and keener and so it was time for an updated introductory video that explains John Darer's pro bono role in the structured settlement industry, now in the 16th year. Thank you for watching and reading!

"The Cup Chronoveth Over" With Direct Pay "Prophylactic" Press Release?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Ken Paradis of Chronovo recently remarked that “Our industry has fiduciary responsibility for over $6 billion in premium annually. Trust is our duty as well as

It "Runneth Over"

our collective currency. We must all do everything possible to protect client, claimant and carrier funds", to push its financial prophylactic "Direct Pay". It's a bit of selective exploitation of a recent event and marketing overkill in the same vein as settlement planners pushing "Grillo waivers" for the last 25 years to induce the sale of more structured settlements. "Direct Pay" is certainly not "everything possible".

What Is The Standard Practice for Structured Settlement Premium Submissions?

The standard practice applicable and effective for the vast majority of cases, is for structured settlement premiums to be issued (1) in the form of a check from the defendant, TPA or insurer payable to the annuity issuer or the qualified assignment company, or (2) in the form of a wire or ACH payment directly to the annuity issuer or qualified assignee's lock box, pursuant to wire instructions provided.

Does the standard business practice work?  

A Layer of Marketing Hype That Would Not Have Solved the Gargan case

The direct pay process promoted by Paradis and Chronovo adds an extra layer of processing and marketing hype from what it appears, but it clearly WOULD NOT have solved the problem involving a self insured using a sinking fund out of its annual operating account. 

On June 17, 2020 I thoughtfully addressed the issue of Safe Guarding Funds in an Escrow Trust right after the Gargan case broke:

"There are several options available to ensure the safeguarding of funds in an escrow trust. First is utilizing an institutional trustee versus an individual acting as a trustee. An institutional trustee will have supervision, segregation of duties, financial controls, and insurance that an individual trustee will not have.

State trust law generally provides that a "Trust Protector" can be appointed to act as an independent third-party to supervising the institutional trustee of the escrow or trust. Additionally, a Trust Protector can be empowered to review and approve all trust distributions and other types of transactions.

There can be varying levels of duties and powers assigned to a Trust Protector to reflect the specific needs of the arrangement and level of supervision required. Additionally, the title may be modified to reflect better the particular circumstances (trust advisor, distribution protector, etc.)

It is common for an entity that has a pending liability to create an escrow trust as an informal sinking fund. However, caution should be exercised such that the escrow trust remains the asset of the funding entity to avoid potential economic benefit and constructive receipt doctrine complications for the ultimate beneficiary arising from a "formally funded" trust.

A formally funded account could create a “vested legal right” to funds and trigger the economic benefit and constructive receipt doctrines and thereby prevent the ability to obtain a qualified structured settlement. Ensuring that the escrow trust remains "informally funded" is generally easily accomplished by ensuring that the escrow trust assets remain subject to the claims of creditors of the funding entity while preventing the funding entity from utilizing the funds for other purposes.

Alternative to Escrow Trust

At least one major life insurance company will accept structured settlement annuity premium payments in installments".

Maybe I should have issued a press release?

 

Tasteless Insurance Claims Journal Names New York Victim in Gargan Report

by Structured Settlement Watchdog

The Insurance Claims Journal has today published an article by writer James Sams that named the victim hospital in the Joe Gargan embezzlement scheme, despite great steps that were taken by prosecutors to not name victims in its press release and in pleadings.

Insurance Claims Journal WTF?

Here is an excerpt of what the USDOJ press release said 

"In addition, Gargan embezzled money from a hospital located in New York that was part of a civil settlement with a minor child. The settlement called for $3,825,000 to be paid by the hospital to a trust to pay for the care and ongoing medical treatment of the child. The settlement agreement also provided that a portion of the $3,825,000 be paid to a structured settlement broker who would then purchase an annuity which would generate future income for the trust. The Pension Company was retained as the structured settlement broker. From October 2018 to March 2020, the hospital paid the Pension Company a total of $1,032,750 to fund the purchase of an annuity on behalf of the trust. Gargan embezzled all $1,032,750".

One wonders if he had the name of the minor or his trust, James Sams and Insurance Claims Journal would have the temerity to name them too.

Sams also is wide of the mark on who the victim of largest amount of the swindle was. The United States taxpayer. Simply reading the Sentencing memo would reveal that "Once the United States learned of Mr. Gargan’s embezzlement, it allocated new funds to purchase the agreed upon annuities for the victims. As a result, each of the settlement agreements listed in Count 1 have been fully satisfied (by the US. Government" Clearly neither James Sams, nor his editor, read from a source they cited, or chose to omit the critical detail.

But for an insurance trade publication to miss the biggest question of all, why Gargan elected to embezzle rather than file a $100,000 claim against a policy that likely had limits in the millions, is a real head scratcher.  They merely reported that "Gargan said he would have had to shut down his company if he filed a claim with his professional liability claim (sic)".

Finally, there were a number of lawsuits by former Pension Company brokers over hundreds of thousands in unpaid commissions that Gargan didn't pay. For example Kennedy Scion Joe Gargan Defending Lawsuit Alleging That He Screwed Broker Out of $200,000 Commissions   July 5, 2020.  I have personally spoken with two other former Pension Company brokers in the last 48 hours, about severely delayed or unpaid commissions going back 5 years.

 

Judge Slams Joe Gargan with 70 Month Prison Sentence for Embezzlement Scheme

by Structured Settlement Watchdog

Disgraced former structured settlement broker Joe Gargan's Covid-19 Hail Mary pass of excuses in relation to his criminal acts,  has resulted in a figurative sack of potatoes. Pretty soon he may be peeling them. Gargan is going to prison and must report by January 4, 2021. Even the Kennedy legacy couldn't save him. 

Sentence Imposed:
70 months with 3 year supervised release term

Monetary penalties:
$100.00 Assessment on each of Counts 1 & 2 = $200; $ 0 Fine
$9,117,165.00 Restitution Ordered pursuant to the Restitution Order entered and filed in
open court.

Consent Order of Forfeiture entered and filed in open court. Download Consent Order of Forfeiture Gargan

Conditions of Supervised Release:
1) If restitution is not paid in full by the time the defendant is released from custody, any
remaining balance shall be paid in equal monthly payments of $500, to commence within 60
days of release, until paid in full.
2) The defendant shall apply all monies received from income tax refunds, lottery winnings,
inheritances, judgments, and any anticipated or unexpected financial gains, to the outstanding
court-ordered financial obligation, or in a lesser amount to be determined by the court, upon the
recommendation of the probation officer.
3) The defendant shall not incur new credit charges or open additional lines of credit without the
approval of the probation officer.
4) The defendant shall provide the probation officer access to any requested financial
information.
5) The defendant shall participate in a program approved by the United States Probation Office
for mental health treatment. The cost of this program is to be paid by the defendant as directed
by the probation officer.

Download Criminal Judgment Against Joe Gargan 9-23-2020

Read About Rossie D. Alston, the judge who sentenced Gargan

 

 

 

The Joe Gargan Structured Settlement Scam | A Highly Unusual Set of Circumstances

by John Darer CLU ChFC MSSC CeFT RSP CLTC

The guilty plea of Joe Gargan, CEO of The Pension Company, to embezzlement of $8 million intended for the purchase of annuities to fund minor's settlements would give anyone who has done business with The Pension Company from 2014-2020 reason to be concerned.  Gargan's despicable crime also cost the taxpayers to pay all over again, and more, because the annuities had to be funded all over again at a higher cost due to interest rate shifts. But it was a unique set of circumstances that brought it about and they are highly unusual.

Why traditional procedures to establish a structured settlement make such a theft impossible.

1. Traditional procedures to establish structured settlements involve a check payable to the qualified assignment company not to the structured settlement broker.
2. The structured settlement broker overnights the check to the lock box of the assignment company (or the lock box of the annuity issuer if the case is unassigned and the annuity is to be owned by the defendant or defendant's insurer).
3. Within 24-72 hours of premium receipt the life insurer issues confirmation of payment. The defendant, the insurance company and the plaintiff's lawyer should receive:

• Copies of all structured settlement funding checks  (Plaintiff's Attorney)
  
• Confirmation of payment from each of the annuity issuers.
• The Defendant's insurer or Defendant (if self insured) should also have the canceled check or wire confirmation.

Why Was There a Need For An Escrow in The First Place?

The peculiarity of the Gargan case is that The Pension Company, Inc. was entrusted with settlement monies to buy annuities on behalf of a hospital in Westchester County New York. Where hospitals have insurance but have exhausted their aggregate limits, or one oi its layers of insurance involves an insolvent insurer, or they are unable to get liability insurance (or adequate liability insurance) and the plaintiffs desire a structured settlement the hospital must pay settlement out of their operating account and it can take some time to fund a structure.  A search on PACER shows a Bankruptcy case in the Eastern District of New York shows a matter in which The Pension Company Inc is listed as Escrow Agent for the Interfaith Medical Center Liquidating Trust.

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Side Bar     What is an Aggregate Limit?

The declarations page of your liability insurance policy will show the limits of liability for various different types of losses covered under the policy. Limits are generally stated on a per claim (or per occurrence)/aggregate basis. For example if you have $1,000,000/$3,000,000 limits it generally means $1,000,000 per claim and $3,000, 000 in aggregate for multiple claims in the policy term.  So if a hospital has multiple claims with a policy year, or a single claim that exhausts its limits limits, it could be forced to pay for, a make up the difference from its operating account.

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Safeguarding of Funds in An Escrow Trust

There are several options available to ensure the safeguarding of funds in an escrow trust. First is utilizing an institutional trustee versus an individual acting as a trustee. An institutional trustee will have supervision, segregation of duties, financial controls, and insurance that an individual trustee will not have.

State trust law generally provides that a "Trust Protector" can be appointed to act as an independent third-party to supervising the institutional trustee of the escrow or trust. Additionally, a Trust Protector can be empowered to review and approve all trust distributions and other types of transactions.

There can be varying levels of duties and powers assigned to a Trust Protector to reflect the specific needs of the arrangement and level of supervision required. Additionally, the title may be modified to reflect better the particular circumstances (trust advisor, distribution protector, etc.)

It is common for an entity that has a pending liability to create an escrow trust as an informal sinking fund. However, caution should be exercised such that the escrow trust remains the asset of the funding entity to avoid potential economic benefit and constructive receipt doctrine complications for the ultimate beneficiary arising from a "formally funded" trust.

A formally funded account could create a “vested legal right” to funds and trigger the economic benefit and constructive receipt doctrines and thereby prevent the ability to obtain a qualified structured settlement. Ensuring that the escrow trust remains "informally funded" is generally easily accomplished by ensuring that the escrow trust assets remain subject to the claims of creditors of the funding entity while preventing the funding entity from utilizing the funds for other purposes.

Alternative to Escrow Trust

At least one major life insurance company will accept structured settlement annuity premium payments in installments.

Qualified Settlement Fund

A qualified settlement fund is another potential solution, but on a New York case, a QSF involving a single claimant does not afford a choice among any of the traditional structured settlement annuity issuers. The Westchester New York hospital case involved a single minor claimant. You will not be able to use annuities issued by New York Life, US Life Insurance Company in the City of New York, Metropolitan Tower Life, First Berkshire Hathaway Life Insurance Company, Pacific Life and Annuity Company or The Prudential Insurance Company of America as qualified funding assets out of such a qualified settlement fund.

Outside of New York, Independent Life Insurance Company's qualified assignment company has shown a willingness to accept qualified assignments on settlements that other insurance companies would consider single claimant cases.

This author believes that there is a risk in dealing with settlement planners pushing a menu of services within a one stop shop "kaleidoscope" of related and self administered qualified settlement funds, self administered qualified assignment companies, factoring origination, factored structured settlement payments streams as annuity investments for injured parties and attorneys which do not address (or do not adequately address) the conflicts of interest.

Fidelity Bond

Requiring the escrow agent to have a Fidelity Bond with suitable limits is another viable solution. Such bonds are not expensive and are a cost of doing business.

United States Government cases

There are many layers of approval that are required when it comes to the approval of a claim and requisitioning of funds that are unlike dealing with insurers.

This author understands that the United States has been analyzing its processes and controls and is taking, and has taken steps to improve processes and controls since the discovery of Gargan's admitted crimes.

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Side Bar

Gargan had been on the DOJ list of Annuity Brokers since at least 2004, presumably was assigned work and presumably performed his work satisfactorily for quite some time (until he perpetrated his crimes).

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Plaintiff Broker Question

Some have suggested on list serves and in Facebook groups that Joe Gargan's crimes might have been prevented if there was a plaintiff broker on the case, however upon information and belief there was a representative from a well known firm on the Westchester case involved on behalf of the plaintiff. While there are many good reasons for a plaintiff lawyer to work with a settlement planner, it didn't prevent crooked Joseph E. Gargan from wiring hundreds of thousands of dollars from The Pension Company escrow account into his own personal account in April 2020, with the knowledge that the Feds had been on his tail for over a year.