AIG Structured Settlement Agents

The National Association of Insurance Commissioners (NAIC) announced on September 17, 2008 that Eric R. Dinallo, New York's Insurance Superintendent, will oversee an NAIC task force created to expedite the approval of sales of American International Group (AIG) assets.

Superintendent Dinallo issued a News Release on September 22, 2008 headlined "AIG POLICYHOLDERS SHOULD BE CAREFUL IF APPROACHED TO REPLACE POLICIES". The sub-headline reads: "Insurance companies are financially sound; switching may have hidden costs; insurers, brokers and agents warned to follow consumer protection rules".

Here are three specific quotes from Dinallo's September 22, 2008 news release that should interest the AIG agents featured on AIG's structured settlement website - especially those AIG agents who market themselves as "settlement planners":

• "AIG’s insurance companies are financially sound, with substantially more in assets than they need to pay all valid present and projected claims, Insurance Superintendent Eric Dinallo today reassured New York policyholders".
• "Dinallo also announced he would issue notices to insurance companies, agents and brokers, reminding them of their responsibilities under New York Insurance Law to fully inform consumers of the possible costs of switching life insurance, annuity and other policies".
• “Replacing or liquidating a life insurance policy or an annuity can have heavy hidden costs and tax consequences. That is why our Insurance Law requires that you [the consumer] get all the information you need to make an educated decision in your best interests".

Other state insurance commissioners issued almost identical announcements and warnings as contained in the New York news release.

This S2KM blog post is the first of two (and possibly more) that considers:

• Whether Superintendent Dinallo's September 22, 2008 news release should apply to structured settlement annuities; and
• If the answer is "no", who, if anyone, should "fully inform consumers" of the possible costs of liquidating their structured settlement annuity payment rights - and when do those responsibilities apply?
• If the answer is "yes", exactly what responsibilities do AIG and its structured settlement annuity agents have "to fully inform consumers" of the possible costs of liquidating their structured settlement annuity payment rights - and when do those responsibilities apply?

It can be argued (and probably already has been argued) that the news releases of Superintendent Dinallo and other state insurance commissioners do not apply to structured settlements. The news releases don't specifically mention "structured settlement" annuities. Consumers don't purchase structured settlement annuities. Defendants and/or IRC section 130 Qualified Assignees (periodic payment obligors) purchase and own structured settlement annuities. Consumers (aka injury victims or structured settlement recipients) receive structured settlement "payment rights" not structured settlement annuity ownership. They are not policyholders. Structured settlement consumers cannot switch or liquidate their annuities. Pursuant to IRC 5891 and 46 state structured settlement protection statutes, they can only sell or liquidate their payment rights. To do so, they must first obtain advanced approval from a state court.

Following this line of reasoning, neither AIG nor its agents have any responsibility "to fully inform consumers" about the possible costs of liquidating their structured settlement payment rights. It is the responsibility of the consumer (not the agent or AIG) "to get all the information you need to make an educated decision". It is the responsibility of a state judge to determine whether such a liquidation represents the "best interest" of the consumer injury victim and the consumer injury victim's dependents. Insurance companies have duties to policyholders. Agents have duties to their insurance company principals. Neither owe duties to "fully inform" injury victims about structured settlement transfers - not the possible costs of transfers, not the risks of transfers, not the laws of transfers.

S2KM believes the primary structured settlement industry as a whole (plaintiff "brokers"; defense "brokers"; NSSTA; and SSP) follow this line of reasoning - or at least its conclusion. How many AIG agents have "fully informed" AIG structured settlement recipients about selling their structured settlement payment rights - and when? When AIG was rated A++ by A.M. Best? What about when A.M. Best downgraded AIG to A+, and then to A, "with negative implications"? What about when you stopped selling AIG annuities for new structured settlement cases?

If the answer is "no", (i.e. neither AIG nor its agents have any such responsibility), who advises the injury victim - or the plaintiff attorney who structures his/her fee with an AIG annuity? Who has the responsibility "to fully inform" injury victims (or attorneys) of the possible costs, risks and laws related to selling their structured settlement payment rights?

From a state judge's perspective, should the financial condition (uncertainty) of AIG qualify as meeting the "best interest" test under state structured settlement protection statutes?  With other AIG policyholders and stakeholders cutting their relationships with AIG, should AIG structured settlement recipients be held to a higher standard? What type of proof should a judge require from an injury victim or plaintiff attorney who is receiving AIG annuity payments to justify and approve a transfer?

S2KM's next blog post will consider the difference between an annuity agent and a settlement planner in the context of the AIG bailout.