Do qualified assignments extinguish the liability of defendants and/or liability insurers for shortfall payments resulting from the liquidation of Executive Life of New York (ELNY)?
That issue is highlighted by a Motion filed June 14, 2012 on behalf of several liability insurers ("Motion") asking Judge John Gallasso to "clarify and/or correct" his April 16, 2012 ELNY Memorandum Decision. For additional background, see S2KM's blog post "ELNY Shortfall Payments".
Judge Galasso's ELNY Memorandum Decision states in relevant part: "certain insurance companies such as Travelers, the Fireman's Fund Companies and Hartford have assured the Court that they will make up the difference to those identified shortfall payees for any settlement obligation where they purchased an ELNY annuity on behalf of an injured party."
The Motion attempts to distinguish two types of structured settlement funding alternatives ("buy and hold" vs. qualified assignments). "Buy and hold" annuities, according to the Motion, "are those whereby the underlying insurer retained, or held the liability for future payments, and funded that liability through its ownership of a qualified funding asset, or annuity."
In contrast, the Motion states, "where a structured settlement includes a qualified assignment, the defendant and its liability insurer are fully released from future liability - which liability is assumed by the assignee, here, First Executive Corporation." (emphasis added). Of course, one of the problems for all ELNY stakeholders is that First Executive Corporation ceased to exist in 1991.
Regardless of whether Judge Galasso grants the liability insurers' motion, the legal rights and responsibilities of ELNY qualified assignments represents a critical issue that may subsequently be litigated. The Motion suggests that all qualified assignments release all defendants and liability insurers from future liability for promised periodic payments and that annuity ownership determines liability.
Those "suggestions" and/or "assumptions" are not necessarily or universally true. Legal rights and responsibilities resulting from attempts to create qualified assignments must be determined on a case by case basis for multiple reasons:
- IRC section 130, which defines a "qualified assignment", does not address whether the assignor's duty is discharged as a result of a qualified assignment.
- IRC section 130 does include requirements which must be met to successfully create a qualified assignment.
- The Monarch Capital case demonstrates some judges apply "creative" legal analysis to protect structured settlement payees following the bankruptcy of a qualified structured settlement assignee.
See "Structured Settlements and Periodic Payment Judgments" (S2P2J) Section 3.05 for information about life insurance insolvencies including ELNY; Section 3.06 for information about qualified assignments; and Section 5.04 which addresses the risk of non-payment to a structured settlement payee.
See the structured settlement wiki for S2KM's complete and continuing reporting about Executive Life of New York,