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Plaintiff Structured Settlements New Rights In New York Senate Bill S8072A?

A bill introduced June 4, 2010 in the New York State Senate purports to provide plaintiffs with continued availability and use of structured settlement agreements in lieu of a lump sum payments in tort and workers' compensation cases by guaranteeing their right to a claimant's structured settlement broker.

The bill was introduced by New York State Senator Eric Schneiderman (above)

Highlights

1. Section 5-1701 of the General Obligations Law (GOL) would have added, the defined term a "claimant's structured settlement broker" as a person secured by the claimant to represent the claimant's interests in the acquisition of a funding mechanism for a structured settlement, including an annuity policy from a life insurer.

2. That a claimant receive written notice of the claimant's right to secure a claimant's structured settlement broker to represent the claimant during the acquisition of the defendant's settlement funding mechanism, including an annuity.

3. A new section 5-1702A of the GOL is added to provide in Subsection (1) that a claimant has the absolute right to use a claimant's structured settlement broker, and must be advised of this right by their attorney or the court. Subsection (2) provides that the broker represents the claimant in determining the funding mechanism used to support the structured settlement, including use of an annuity policy.

3. No funding mechanism can be agreed upon and no annuity approved unless the claimant's structured settlement broker has been notified of an the details of the agreement, and been provided with a copy of the contract and the annuity policy (if applicable)

4. 5-1702A Subsection (3) provides that the fee or commission paid to a claimant's structured settlement broker not be a separate fee paid by the claimant from the settlement. Rather, under this subsection. the fee or commission will be paid by the insurer funding the funding mechanism or annuity policy.

5. A claimant's structured settlement broker will be entitled to a share of the commission paid in connection with the acquisition of the funding mechanism or annuity in an amount agreed to by the claimant's structured settlement broker and the defendant's broker.

6. Absent such an agreement, the claimant's designated structured settlement broker will receive one-half of the total statutory commission paid in connection with the acquisition of the funding mechanism or issuance of the annuity policy. 5-1702A subsection (4) provides that nothing in this new section 5-1702A of the GOL can be deemed or interpreted as transferring an ownership right in the annuity policy to a claimant, and this section does not alter or effect any advantages or considerations with respect to the taxability of periodic payments pursuant to state or federal law. Any existing tax benefits in place on the effective date will remain in effect.

Section 4 provides that the act becomes effective in 30 days and applies to structured settlements agreements entered into on and after such date.

The bill states the following as justification:

Structured settlements are current public policy both in New York State and Federally, providing for significant tax exemptions to children and disabled citizens of our state as an incentive to enter into periodic payment obligations. Although we are protecting our citizens that are attempting to sell their current existing structured settlements, we have done nothing to protect their rights in establishing a structured settlement in the first instance. The marketplace of structured annuities is complex and diverse, this bill established transparency for plaintiffs entering into structured settlements as pall of the resolution of their lawsuits, and makes the brokers/agents accountable to them as part of the sale of insurance. Due to the natural opposition encountered between parties in litigation, the plaintiff, the real consumer of insurance, and beneficiary of the structured settlement needs representation from an expert in the field of structured settlements. This bill gives the plaintiff a right to representation, fairly compensates that expert, and eliminates the self dealing occasionally encountered when insurance companies settle cases with plaintiffs state wide. This policy will foster a greater confidence in structured settlements, and will further encourage their use by all parties to litigation. At a time when every financial transaction and insurance product is in question, we should not expect the citizens of our state to entrust their financial future to the agent of their opponent in litigation. To continue do so, controverts the public policy and undermines the entire existence of structured settlements.

LEGISLATIVE HISTORY: New bill. FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: Structured Settlement, assuming more are put in force each year, will prevent many citizens from spending the proceeds from their lawsuits, and therefore will not need public assistance and/or Medicaid. potentially positive effect.

EFFECTIVE DATE: This act shall take effect thirty days after the date it becomes law and shall be applicable to structured settlements agreements entered into on and after such date.

Comments:

1. Here! Here! But why not make it symmetrical? Shouldn't all parties to a structured settlement agreement be entitled to representation in such transactions and their representative be entitled to a share of the fees-just like a real estate deal?

2. Are those scribing the new law suggesting that state law trumps federal law when it comes to the federal tax treatment?

3.  Does the proposed amendment to law say commissions are negotiable but if the claimant's broker doesn't like the terms it's a 50/50 anyway?

4. Are insurance commissions statutory as the proposed law change states or are they contractual between the insurer and its agents and/or brokers? Someone needs to think this one through. Is there a statutory commission for "the acquisition of a funding mechanism for a structured settlement, if such funding mechanism is a United States Treasury Bond Trust?

5. No mention in the proposed amendment to the law about funding of structured judgments.

6. While the proposed amendment appears to expressly create an absolute right to a claimant's structured settlement broker/planner/consultant it DOES NOT appear to create an absolute right to a structured settlement.

7. However noble the cause,  it's a shame that taxpayers' time and expense needs to be taken up to tie off a situation fomented collectively by an alleged longstanding business decision by a single office of one insurance company, one or two claims adjusters at another who occasionally get angry at a plaintiff attorney and "throw their toys out of the pram" and the bleeding minority of insurance brokers who "can't play nice in the sandbox".

New York CPLR 50-B Structured Judgments | Ramifications of Insurer Insolvency

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What are the ramifications in a New York CPLR 50-A or 50-B judgment where the structured judgment annuity issuer and/or insurer becomes insolvent?

I received such a question in September 2008 from an attorney for a former plaintiff receiving a substantial CPLR Article 50-B judgment from an AIG insured and funded with a structured judgment annuity from American International Life Assurance Company of New York (now United States Life Insurance Company in the City of New York) when AIG entities were A++ AM Best and AAA Standard & Poors.

First, please note that the situation described is both unprecedented and untested. The financial crisis of 2008-2009 however placed it on the radar screen.

Now consider this:

CPLR 5041(d) states in pertinent part "The court, as part of its judgment, shall direct that the defendants AND their insurance carriers shall be required to offer and to guarantee the purchase and payment of such an annuity contract".

Under a CPLR 50-B judgment, the structured judgment annuity is owned by the defendant and/or its insurer. The defendant and/or insurer, as owners of the annuity contract, are general creditors of the annuity issuing life insurance company.

What if the structured judgment annuity issuer and the defendant''s insurer are subsidiaries of the same holding company, such as described above?

If the annuity issuer goes "belly up" the Defendant appears to be responsible to make payment under CPLR 5041(d).

Now consider this:

§  5044.  Failure  to  make payment. If at any time following entry of  judgment, a judgment debtor fails for any reason to make a payment in  a  timely  fashion  according  to  the  terms of this article, the judgment  creditor may petition the court which rendered the original judgment for an order requiring payment by the judgment  debtor  of  the  outstanding payments  in  a  lump  sum.  In  calculating  the amount of the lump sum judgment, the court shall total the remaining periodic payments due  and   owing  to  the  judgment creditor, as calculated pursuant to subdivision (e) of section five thousand forty-one of this article,  and  shall  not  convert these amounts to their present value. The court may also require the payment of interest on the outstanding judgment.

The implications of such a scenario are logarithmic! A defendant that is not aware of, and has not reserved for the contingent liabilty has significant potential exposure. The acceleration clause in CPLR 5044 could be lethal to a defendant if all the wrong stars are aligned. It is therefore wise for defense lawyers and insurers whose insureds take a large sustainable verdict and elect to pay a judgment in New York subject to CPLR 50-B, to discuss this possibility with their insureds in advance and document a complete understanding of the ramifications, however remote the occurrence may seem at the time,

A CPLR 50-B judgment has the potential to be a financially disasterous outcome for a plaintiff with serious medical impairments who wishes to leave an estate to his/her family. The typically large elements of damages (pain & suffering and medicals) are life contingent.  For such plaintiffs a CPLR 50-B structured judgment offers little to no protection for their heirs unless the plaintiff is medically qualified to be insured for life insurance which can offset the exposure.

Lawyers on both sides of New York cases clearly have an incentive to work towards a settlement that will protect their principals.

A settlement gives plaintiffs more flexibility,  a more tailored and diverse array of options and a greater ability to put a comprehensive plan in place for the litigation recovery.

Postscript

Note that this post was last updated on January 8, 2013.

Disclosure of Commissions by New York Licensed Insurance Brokers and Agents

by John Darer® CLU ChFC MSSC RSP CLTC

The Office of General Counsel of the New York State Insurance Department issued an opinion on December 12, 2007 which stated that for the time being at least, New York insurance brokers are not legally required to disclose to clients the commissions they earn on policies they place, according to a new legal opinion released by the state's insurance department".

The insurance department however, reiterated that it planned to introduce new rules in 2008 that "would require insurance brokers and certain agents" to disclose to their clients both the amounts and sources of their income.

January 2008 Update

On January 30, 2008, the Office of General Counsel offered clear guidance on disclosure of fixed commissions in another opinion by answering the following question in the following manner.

Update on broker disclosure of fixed commission and other compensation

Question Presented:

Is an insurance broker required to disclose to its clients the fixed commission it earns on the policies it places?

Conclusion:

No. At present, and as a general matter, there is no legal requirement that a broker disclose to its clients the fixed commission that it earns on the policies that it places.

No exact time frame has been announced for when the department plans to make that change.  In the meantime, a number of structured settlement firms already have the long standing practice of disclosure through structured settlement affidavits or certificates of reliability and assurances.

NAIC Compensation Disclosure Amendment  2005

In the NAIC Compensation Disclosure Amendment it was unclear how (if at all) the requirements would apply to structured settlements, given the nature of the structured settlement transaction would depend on (i) who is viewed as the "customer" for purposes of the NAIC Compensation Disclosure Amendment, and (ii) whether an insurance producer receives compensation from the customer or "represents the customer" in conjunction with the placement of insurance. At the time neither the NAIC Compensation Disclosure Amendment nor the Producer Licensing Model Act included any definition of the term "customer". because the insurance product (in this case the structured settlement annuity contract) as a qualified funding asset is normally the property casualty carrier, self-insured defendant or a qualified assignment company, many structured settlements will not involve he kind of customer relationship  (i.e. a relationship between an insurance producer and a customer) that the NAIC Compensation Disclosure Agreement is intended to address.

NCOIL Model Compensation Disclosure Amendment

the term "customer" is defined to mean " the person signing the application or submission for insurance or authorized representative of the insured actually negotiating the placement of insurance with the producer"

January 2011 Update

New York State Insurance Department Regulation No. 194 (11 NYCRR 30) became effective January 1, 2011, . They also published this FAQ

§ 30.5 Exceptions

(a)to the placement of reinsurance

(c) to an insurance producer that has no direct sales or solicitation contact with the purchaser, which may include wholesale brokers or managing general agents;

 

Settlement Planner Doesn't Recommend Secured Creditor Because Doesn't Want To Have to Explain It To Client

by John Darer CLU ChFC CSSC 

A significant plaintiff structured settlement broker/ settlement planner prefers NOT to do qualified assignments which give his or her client a security interest (as opposed to general creditor status) because (1) he or she doesn't want to have their client sign the qualified assignment release and pledge document (2) they don't want to have to explain it to their client. Purportedly the cost of translation services might come into play.

The idea that I heard it from a defense oriented firm who offers secured creditor qualified assignments as standard practice (where available)**, makes this revelation more interesting.

Qualified Assignment Ethics

Is it ethical for structured settlement broker or settlement planner to make a life impacting decision for a client without having given them ALL their options with respect to creditor status? What about lawyers who bring the structured settlement broker or settlement planner to the table?

Many plaintiff advocates "foam at the mouth" on the subject of "full market access" (appointment or access to the most structured settlement annuity issuers). Why not on the subject of general creditor or secured creditor? In my opinion, the "eggshell skull theory" of "you take 'em as you find 'em" applies here. If you get a native Hispanic, Russian, Greek, Korean, Tagalog,Hindi, Swahili or whatever speaker, you or the lawyer have a duty to explain the option even if it costs you money to translate.

** not all structured annuity issuers offer secured creditor (John Hancock Life and New York Life presently do not)

The Word "Partner" Has "Significant Legal Connotations" That Don't Exist in Structured Settlements

by Structured Settlement Watchdog

The word "partner" is often used loosely in business today. The word "partner" has a legal connotation however, which may

"Structured settlement cowboy"

characterize or convey something to the public about your structured settlement broker or settlement planner's relationship to that insurance company that may not be legally correct.

When Howdy Partner Turns Into "Howdy Doody"
With this in mind, and in the spirit of the best practices guide that I am developing, I have asked the annuity issuing life companies to respond with their company's position  with respect to the following two questions:

1. Is an appointed general agency and/or appointed agent or sub agent legally a partner in your company?

2. Does the compliance department in your company condone the use of the word "partner" in advertising or on web sites of appointed general agencies or appointed agents and/or sub-agents of that general agency.

Here are four of the responses:

Company A. "Thanks for the question. Your relationship with XXXXX  is solely and legally as a "licensed insurance agent". Do no use the word partner in any way as that has significantly different legal connotations. As a reminder, you agency contract dictates that any use of our  name in any external advertising (website, flyers, advertising, etc..) must be approved by XXXXX Legal before proceeding."

Company B. "I've been in discussions this week with our legal department regarding this issue. We are drafting a letter to an agency that is currently referring to themselves as an XXXXX Life partner with a requirement to stop using the term "partner" when describing their relationship with XXXXX Life. Since agents or sub-agents are not our partners in the legal sense of the word, the term cannot be used in advertising or web site descriptions."

X------------------------------------------------------------X

 

 

Company C."The position of XXXXX  is substantially similar to the position stated in your website.  We don't permit the use of the word "partner", or "partnering", etc. in advertisements.  We might describe close working relationship between two business entities that were not legal partners, with terms such as a "strategic alliance". (added 11/7/2007)

X------------------------------------------------------------X

 

Company D. "If the word is seen in advertising, they ask that it be removed because of the legal connotation the word has.  AAAA said that a generic-enough reference such as, "Our organization partners with these companies to bring you the best products possible" is fine.  However, any inference that an entity is a partner with XXXXXX that draws the conclusion of a legal partnership is not acceptable".

Plaintiffs, Lawyers, Insurance Company claims representatives, Judges and Trial Lawyer Associations should be aware of that the use of the word "partner" may not be permitted under the contract between the person or company soliciting you for business or for your approval of the settlement and may indeed be considered a violation of truth in advertising rules in your state.

As a point of interest, Insurance agencies or agents who use the word "partner" in conjunction to an agency relationship may be needlessly exposing themselves to "bad faith" lawsuits against the annuity issuers or the qualified assignees (particularly an assignee that is  a property casualty company).  According to the Business Dictionary "partnership by estoppel" is a legally binding partnership that may arise where, in fact, no formal partnership agreement is in effect. A person who by conduct or words represents, or allows him/herself to be represented, as a partner in a firm is liable for the credit or loans obtained by firm on the basis of such representation. Also called presumption of partnership."   WOW! WOW and WOW!

 

Qualified Settlement Funds.."The Escrow Gambit"...Heaven For Your Client or Look Out Below For You?

Some settlement professionals have purportedly advised attorneys and their clients to introduce a "slight of hand" variant to settlement proceedings that could end up having the marginal utility of running into a swinging sledge hammer.

*******

Should you follow the cookie cutter advice of settlement planning professionals who suggest that you take the defendant's or insurer's money into your law firm's escrow account in exchange for a release, followed by a petition for a Court Order to have the payee or routing number of the check changed so that those funds are characterized as being paid into a qualified settlement fund?

******

The idea behind these shenaningans is purportedly to give you greater control over the settlement process, give your client "full market access",  "bypass casualty insurer approved lists of annuity markets", " overcome objections to single claimant QSF's by insurers" and ultimately to give your settlement professional 100% of the commission. If you broker advertises their contributions to trial lawyer associations, perhaps you're wondering if "the escrow gambit" will result in greater contributions to your TLA. Plus the whisper in your ear is that the defendant or insurer is none the wiser. Sounds great right? And if I'm your settlement professional should I beam with pride at your loyalty, or should I walk away?

*******

How would you feel if you knew that you were exposing your client to potentially devastating tax consequences?  And to all you judges out there how do YOU feel about exposing a plaintiff to potentially devastating tax consequences? The plaintiff attorney or law firm is an agent of the plaintiff. You sign a release of all claims against the defendant and the money goes into your escrow account. Then, for the first time you petition the Court for the change of payee? Forget about constructive receipt...how about "actual receipt"? How about the "economic benefit "theory? How about "step transaction doctrine?" Shall I go on?

******

Suppose your settlement planning professional convinces you to do a structure out of this. First you will find that on a single claimant case you will have far less market selection than had you and your broker worked straight up. However your settlement professional has pumped you up about the ghoulish malfeasance

that would prevail upon your client if another strategy was employed, it pales in comparison to reputation eroding tax hell. Who is going to clean up the mess?  Who is going to pay for the mess? How would they pay for the mess? Who referred this person/firm to you? Get my drift TLAs?

Purportedly some settlement planning professional claims to have a legal opinion that substantively says that "the escrow gambit" works. Remember however, that there are good and bad opinions. There are also "off the cuff opinions" and paid opinions. Generally an opinion only applies to the person or entity requesting the opinion. With all due respect to the legal profession and its esteemed scholars and with a healthy degree of skepticism, such a legal opinion ultimately is probably worth the paper its written on and the amount of Errors and Omissions coverage backing the lawyer giving the opinion. This is particularly relevant if such an opinion is used "en masse" by proponents of the "escrow gambit".

******

A legal opinion is NOT binding on the United States Internal Revenue Service. If the settlement professional has been relying on the opinion over and over again chances are that a single claim might blow through what coverage the lawyer has and the coverage of the settlement planning professional has. If you want to be sure then why not obtain a Private Letter Ruling?  What is worse.... spending $15,000+ for a PLR  or the amount of potential exposure to penalties and interest from the IRS and worrying how its going to be paid?

******

A qualified settlement fund is a settlement tool that has its place. Naturally there is a right way and a wrong way to do a qualified settlement fund. Like an olympic athlete, those "champions" of the qualified settlement fund that use "the escrow gambit" could be "stripped of their medals".

How stakeholders can protect themselves...

1. Annuity issuers must do a better job of tracking where the premium money is coming from. Checks written on the escrow account of a law firm should be questioned. FOLLOW THE MONEY!  Bear in mind that certain defense law firms perform a TPA (third party adminstration) function for certain foreign insurers and syndicates.
2. In addition to requesting a copy of the QSF papers, as part of the underwriting process , annuity issuers should ask to see the release of the defendant that preceded the funding of the qualified settlement fund. FOLLOW THE MONEY! 
3. As part of their review process judges should question any QSF where the source of funds is the plaintiff law firm escrow account. FOLLOW THE MONEY!  Be aware of the potential consequences of your signing Order with that knowledge.
4. Trial Lawyer Associations should educate their members and be alert to "affinity partners" who suggest "the escrow gambit" strategy.
5. Ask the lawyer giving "the escrow gambit" opinion how many times they have given the same opinion. Then ask for a copy of the declarations page from their insurance policy and make an assessment if you feel comfortable that you and your client are protected if it all goes pear shaped.
6. If the broker proposing this option submits the opinion, read it closely to see that what is being proposed to you tracks what is being proposed. For example the opinion could deal with a qualified settlement fund, but the step concerning the "change of payee"

 

New York Structured Settlements...Who Writes Them?

The following companies are the primary writers of structured settlement annuities for New York cases.

1. Allstate Life Insurance Company of New York   
2. Aviva Life and Annuity Company of New York (name change due to merger 12/31/2007)
3. American International Life Assurance Company of New York
4. Hartford Life Insurance Company
5. John Hancock Life Insurance Company
6. Liberty Life Assurance Company of Boston
7. Metropolitan Life Insurance Company
8. New York Life Insurance Company
9. Pacific Life and Annuity Company
10. The Prudential Insurance Company of America

The above list of New York admitted structured settlement annuity issuers apply to settlements only.

For cases that go to a structured judgment, pursuant to CPLR Article 50A or Article 50B, the following of the above annuity issuers apply:

1. Allstate Life Insurance Company of New York 
2. American International Life Assurance Company of New York
3. Hartford Life Insurance Company (excluding damage components requiring a temporary life annuity )
4. Metropolitan Life Insurance Company

For more details please click here for a more comprehensive list on one page including third party financial ratings.

Structured settlement annuities are only offered through appointed structured settlement managing general agencies by their insurance licensed employees, or through affiliated insurance licensed independent agents and brokers.