Beyond Structured Settlements

S2KM Reviews Jeremy Babener's QSF Paper - 2

While researching his paper "Structured Settlements and Single-Claimant Qualified Settlement Funds: Regulating in Accordance with Structured Settlement History" (QSF paper), Jeremy Babener interviewed many structured settlement industry leaders including Patrick Hindert, Managing Director of S2KM Limited.

This S2KM blog post features Jeremy Babener's research interview with Patrick Hindert - with emphasis (bold type) added subsequently by Patrick Hindert for this publication.

Prior S2KM blog posts about Babener's QSF paper:

• Single Claimant 468B QSF Update
• Jeremy Babener's QSF Paper
• S2KM Reviews Jeremy Babener's QSF Paper - 1

Secondary market

• Babener: How frequently do structured settlement consultants discuss the secondary market with injury victims?
• Hindert:
  
  • While some settlement planners may discuss the secondary market with their clients, most primary market structured settlement advisers do not.
  • Most structured settlement annuity providers and their agents are not qualified to advise anyone about "structured settlement transfers" (aka "factoring").

Anti-assignment clauses

• Babener: Do courts enforce anti-assignment clauses in structured settlement documents?
• Hindert:
  
  • Structured settlement anti-assignment clauses are generally enforceable but not self-executing.
  • A party to the related documents (eg. annuity provider) must act to enforce the clause.
  • Since IRC 5891 was enacted, relatively few annuity providers attempt to enforce structured settlement anti-assignment clauses except in unusual circumstances.

Annuity commissions

• Babener: What is the typical commission for structured settlement annuities?
• Hindert:
  
  • The "standard" structured settlement annuity commission is four (4%) percent of premium which is paid by the product provider to its agents (aka "consultants" or "brokers") .
  • Frequently, multiple agents share the four percent commission.
  • Such "commission sharing" creates conflicts of interests which are rarely disclosed to the structured settlement recipient or his/her attorneys.

Taxing structured settlement recipients

• Babener: Many structured settlement consultants believe the majority of structured settlement recipients pay taxes - or would otherwise pay taxes but for the structured settlement tax subsidy.
• Hindert: Where is the objective proof? Many structured settlement industry "beliefs" don't square with the facts or the law. Your dissipation and QSF papers help to prove this thesis.

Do defendants save money using structured settlements?

• Babener: Have defendants and their liability insurers historically saved money using structured settlements by negotiating based on nominal rather than present values?
• Hindert:
  • Many structured settlement agents and intermediaries proclaim defendants save money using structured settlements.
  • Where is the independent, objective proof?
  • If true, what are the reasons:
    
    • Misrepresentation?
    • Failure to disclose?
    • Unauthorized practice of law?
  • Most structured settlements are negotiated using lump sums which are subsequently transitioned into structured settlements.
  • Why would any informed plaintiff attorney ever knowingly accept a lower fee from his client for a structured settlement settlement costing defendants less than an alternative cash settlement?
  • Under current CMS rules for workers compensation Medicare set-aside agreements (WCMSA), annuities are valued more cost advantageously for defendants than lump sums because of the CMS required "set-off" method for calculating present value.
  • This CMS valuation method also means that annuities underfund WCMSAs because the annuities do not include any inflation provisions.

Defendant savings - 2

• Babener: How frequently would you estimate that defendants save money using structured settlements?
• Hindert:
  • If and when defendants save money today using structured settlements, the primary reasons are misrepresentations, failure to disclose, unauthorized practice of law and/or undue sales pressure to fund using affiliated companies and agents.
  • Plaintiff attorneys should be, and probably will become, more aggressive in discovery to elicit information from defendants about structured settlement compensation, conflicts of interest, and company policies as well as more accurate cost and present value calculations.
  • When calculating any cost savings from structured settlements, defendants should anticipate and factor in costs from potential lawsuits for bad business behavior resulting from their current structured settlement programs.

Defendant savings -3

• Babener: What is your estimate of the amount of money defendants save using structured settlements?
• Hindert:
  • I have never seen an independent study demonstrating or explaining whether, or more importantly why, defendants save money using structured settlements.
  • Any cost savings result primarily from:
    
    • Misrepresentations;
    • Failure to disclose; or
    • Negotiation pressure to direct annuity sales to affiliated companies.
  • One of the results of high pressure structured settlement sales in a claim management context is to increase the likelihood the recipient will subsequently attempt to sell their payment rights.
  • If you ignore profits from product sales and assume full disclosure of compensation and costs with no misrepresentations and no unauthorized practice of law (agents providing legal services to save defendants legal costs), how do defendants save money using structured settlements?

Approved lists

• Babener: Have defendants and their liability insurers historically saved money on structured settlement costs by insisting on purchasing annuities from affiliates and particular life insurance companies?
• Hindert:
  • For the best evidence of defendant savings from affiliated programs, and the best explanation for such savings, review the allegations of misrepresentation and non-disclosure in the Spencer v. Hartford case.
  • When calculating "defense savings", it is important to differentiate:
    • claim savings - if any;
    • profits from structured settlement annuity sales; and
    • future liabilities resulting from structured settlement annuity sales.

Qualified Settlement Funds

• Babener: Assuming there are no defendant savings, do you think that structuring a settlement with a QSF is superior to structuring directly with a defendant?
• Hindert:
  • Yes, I believe structuring a settlement with a QSF is inherently superior to structuring with a defendant in a claim management model.
  • The objectives, processes and knowledge resources are completely different in these two settings.
  • Both the plaintiff and defendant receive judicial protection and a trustee/administrator whose role is to develop settlement solutions for all QSF beneficiaries.
  • QSFs permit and require allocation among claimant beneficiaries and lien holders - including Medicare and Medicaid.
  • Claimants and their advisers can objectively consider needs, resources and best interests.
  • The primary (only) negative of QSFs for plaintiffs is the cost.
  • Key questions about QSFs are the costs - and how to substantial decrease those costs as well as the time necessary for QSF disbursements and termination.

SSP 2009 Annual Meeting - 1

The Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) hosted sequential annual meetings the week of April 26 in Washington, D.C. This blog post begins S2KM's reporting about those meetings.

SSP's meeting (titled "Securing the Financial Needs of Injury Victims and their Families") was notable for the diversity of attendees, topics and viewpoints. Several NSSTA members were among the attendees as well as settlement planning and secondary market attorneys, annuity and trust providers, primary and secondary market intermediaries, authors, bloggers and law students.

Former NSSTA Executive Director Randy Dyer was a featured SSP speaker. Dyer spoke twice and provided:

• A definitive history of structured settlement insolvencies - annuities and bond trusts.
• An allegorical lesson about how to jump start structured settlement annuity sales.

Kevin Mack, former Director of Travelers' structured settlement program and former Chairman of NSSTA's legal committee, offered insights to "in-house" structured settlement programs. Mack made several recommendations for growing and improving the structured settlement industry including: more plaintiff intermediaries; improved education for judges and plaintiff attorneys; plus mandatory "disclosure" of structured settlement compensation and conflicts of interest.

Joseph Tombs, SSP's new President and Chairman of the Registry of Settlement Planners (RSP) Board of Directors spoke about three topics. Tombs:

• Reported on the status of the RSP program;
• Honored the first 10 RSP graduates;
• Outlined current "state of the art" for settlement planning.

Richard  Risk moderated SSP's settlement planning tax panel headlined by Sylvius von Saucken and Peter Wayne. von Saucken and Wayne responded to a series of Risk's questions addressing qualified settlement funds (QSFs), commutations, estate taxes, punitive damages, non-qualified assignments and sexual battery tax requirements among other issues.

Texas attorney Phillip McCrury surveyed state laws for judicial approval of minors' settlements. Common features in many states: "best interest" test; prohibitions against conflicts of interest; segregated accounts; guardian ad litems; and "reasonableness" of attorney fees.

Mark Popolizio reported on Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA). Popolizio summarized the new CMS NHGP User Guide and addressed reporting triggers, deadlines and issues for "responsible reporting entities" (RREs).

Eric Nordman, Research Director for the NAIC, discussed "life insurance insolvencies". Nordman summarized historic data and warned about future issues including systemic risks and the challenge of defining "transparency".

Christi Fried and David Eichenbaum spoke about settlement trusts and settlement planning software respectively. Tim Nay's presentation about "special needs trusts" outlined relevant laws and added practical advice and perspective.

Anthony Alfieri's "Litigation and Legislative Update" summarized Spencer v. Hartford; the PLR for non-qualified assignments; plus the Fresno County and Rapid Settlement factoring cases among other topics.

John Bowman, Director of Federal Relations for the American Association for Justice (AAJ), discussed how the 2008 elections have impacted AAJ's political priorities. One primary AAJ objective: keep medical malpractice out of anticipated health care reform.

Patrick Hindert, Managing Director of S2KM Limited, offered strategic analysis about the current settlement planning industry.

Congratulations to SSP, and especially Greg Maxwell, Joseph Tombs, Richard Risk and Rhonda Bentzen, for their continuing high education and annual meeting standards.

In subsequent blog posts, S2KM will:

• Summarize the NSSTA 2009 Annual Meeting;
• Analyze and compare the settlement planning and structured settlement industries.

Spencer v. Hartford - 3

Spencer v. Hartford is a class action civil lawsuit potentially involving more than 9000 plaintiffs who received structured settlement annuities from Hartford insurance subsidiaries. The plaintiffs allege:

• Hartford has conducted a structured settlement program called "Secured Benefit Services" (SBS) since 1992 that violates the federal Racketeer Influenced and Corrupt Organizations Act (RICO) as well as state laws prohibiting fraud.
• Hartford began a "Broker Assistance Program" (BAP) in 1997 using structured settlement brokers selected by Hartford, who are not named as defendants in the civil class action, to further the mission of the SBS program. 

The case is currently on appeal to the U.S. Second Circuit Court of Appeals following a March 10, 2009 decision by the U.S. District Court in Bridgeport, Connecticut granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel .

Prior S2KM blog posts:

• Spencer v. Hartford - 1 summarizes the case to date including chronology, participants, plaintiffs' allegations, District Court decision and defendants' Petition for Appeal.
  
• Spencer v. Hartford - 2 provides S2KM commentary about the plaintiffs' allegations, potential damages, the NSSTA Code of Ethics, and selected educational discussions from the NSSTA 2009 Winter Meeting.

This S2KM blog identifies and recommends:

• Questions;
• Lessons;
• A proposed solution.

Questions:

• Will the plaintiffs' RICO and state fraud allegations in Spencer v. Hartford be adjudicated or settled?
• How does Hartford, recognized as "one of the World's Most Ethical Companies" and honored for "its products, services, research, philanthropy, and programs supporting individuals with disabilities" justify its SBS and BAP structured settlement programs?
• Did any Hartford employees or participating structured settlement intermediaries (incorrectly called "brokers') question the legality of the SBS and BAP programs?
• Has any structured settlement intermediary, defendant or plaintiff, in any Hartford case ever refused to share or receive annuity commissions from Hartford on account of the SBS and BAP programs?
• Will federal authorities initiate criminal RICO charges against Hartford and the structured settlement intermediaries who participated in Hartford's SBS and BAP programs?
• Should federal officials consider Spencer v. Hartford if and when Hartford applies for TARP funds?
• Should trial attorneys who originally represented Spencer v. Hartford plaintiffs in structured settlements with Hartford be held accountable for their incompetency, lack of due diligence, or poor advice?
• How widespread among insurance companies and structured settlement intermediaries are Hartford's allegedly illegal structured settlement business practices?
• Does Spencer v. Hartford reveal a continuing pattern of industry business behavior consistent with allegations in prior lawsuits such as Weil v. Manufacturers and Macomber v. Travelers?
• Regardless of case outcome:
  • What lessons, if any, will the structured settlement industry learn from Spencer v. Hartford?
  • What, if anything, about Spencer v. Hartford causes "shocked disbelief" among structured settlement stakeholders - to borrow a term and line of inquiry from Father Oliver Williams' Ethics Course at the NSSTA 2009 Winter Meeting.
  • Will Spencer v. Hartford promote the structured settlement industry "wake-up call" Joseph DiGangi recommended when he criticized the traditional business model during his "settlement consulting" discussion at the NSSTA 2009 Winter Meeting?

Lessons

• Structured settlements are complex and involve many federal and state laws and potential long-tail legal and financial liabilities.
• If you are a structured settlement participant and/or stakeholder, you should understand, obey and help improve the laws.
• The traditional structured settlement business model ("claim management") is inherently flawed and promotes conflicts of interests which are rarely identified, discussed or disclosed.
• Structured settlement compensation arrangements and relationships generally are not disclosed.
• Most plaintiff trial attorneys lack professional competence to advise their clients about settlement issues.
• Structured settlement stakeholders are not capable of self-regulation.
• The NAIC and state insurance regulators are not capable of regulating structured settlements or settlement planning under current laws, regulatory authority and budgets.

Proposed Solution

• Controlling criteria:
  • Judicial approval of structured settlements;
  • Standards and requirements:
    • Best interest test;
    • Due diligence;
    • Disclosure - compensation and conflicts of interest;
    • Informed consent;
    • Licensing;
    • Certification.
• Laws and regulations
  • Identify, preserve and promote existing structured settlement laws;
  • Improve state structured settlement protection statutes;
  • Apply the state protection statutes to the primary market;
  • Better integrate structured settlement laws with Social Security, Medicare, Medicaid, Veterans' benefits; and Federal housing laws.
• New business models
  • Re-define the "claim management" structured settlement business model:
    • Defendants' first priority in structured settlement cases should be to obtain a full legal release.
    • If defendants want to participate in settlement planning, they should:
      • Study settlement planning;
      • Understand the laws, products, documentation and participants;
      • Re-organize and re-focus their structured settlement business models, objectives, procedures and partners.
  • Grow the "settlement planning" business model featuring:
    • Qualified settlement funds (QSFs);
    • Structured settlement annuities - qualified and non-qualified under IRC 130;
    • Settlement trusts;
    • MSAs;
    • SNTs;
    • New products such as tax-free disability funds;
    • Secondary life and annuity markets.
• Re-learn and re-market structured settlements
  • Re-study structured settlements from a settlement planning perspective;
  • Feature and promote structured settlements as a strategic component for settlement planning learning, certification, products and business standards.
  • Identify settlement planning knowledge experts and learn about their expertise, work product, professional associations, online communities, networks and learning resources.
  • Design new business models utilizing, and compatible with, existing and emerging Internet technologies as well as new settlement planning laws and products.
  • Schedule and require ethics classes focused on structured settlement and settlement planning business conduct;
  • Organize, promote and participate in community service activities with and for disability associations.

Spencer v. Hartford - 2

Spencer v. Hartford is a class action lawsuit currently on appeal to the U.S. Second Circuit Court of Appeals following a decision by the U.S. District Court in Bridgeport, Connecticut granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel on RICO and state-law fraud claims.

A prior S2KM blog post (Spencer v. Hartford - 1) summarized the case to date including chronology, participants, plaintiffs' allegations, District Court decision and defendants' Petition for Appeal. This S2KM post begins S2KM's commentary.

Plaintiffs' Allegations

• Plaintiff allegations are summarized in "Spencer v. Hartford - 1 ".
• The U.S. District Court has neither affirmed nor denied any of the plaintiffs' allegations against Hartford.
• Pending a decision by the U.S. Second Circuit Court of Appeals, the District Court Judge is holding all case deadlines in abeyance.
• Defendants' appeal is limited to the District Court Order granting plaintiffs' Motion for Class Certification and will not address plaintiffs' allegations.
• Even if the Court of Appeals rejects the defendants' appeal, the District Court may never address the plaintiffs' allegations against Hartford.
• As defendants state in their Petition to Appeal: "...putative class actions alleging financial fraud almost always involve extremely large claims for damages, and an order certifying a class therefore exerts pressure to settle whether or not the claims have merit."

Potential Damages

• The civil component of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO) allows for the recovery of damages in triple the amount of actual compensatory damages.
• Plaintiffs contend their two RICO subclasses ("cost" and "value") exceed 9000 persons and their damages total at least 15% of Hartford's applicable structured settlement premium from 1997 to the present.
• Using an assumed industry per case average structured settlement premium of $176,000, plaintiffs' potential RICO damages against Hartford in the Spencer class action case can be estimated as follows: $176,000 x 15% x 9000 cases x 3 = $712,800,000.
• The District Court's Class Certification Order also includes state-law fraud claims.

NSSTA Code of Ethics

• Hartford Life is a member of the National Structured Settlement Trade Association (NSSTA).
• NSSTA's Board of Directors and membership approved the NSSTA Code of Ethics May 9, 1997.
• Plaintiffs' Revised Second Amended Complaint alleges Hartford began a "Broker Assistance Program" (BAP) in 1997 using structured settlement brokers selected by Hartford to further the mission of Hartford's "Secured Benefit Services" (SBS) structured settlement program.
• Selected excerpts from the NSSTA Code of Ethics:
  
  • "This Statement of Ethics and Professional Responsibility (Statement) has been adopted by the Board of Directors and Membership of the National Structured Settlements Trade Association (NSSTA) to provide guiding principles to its members and member organizations."
  • "Implicit in the acceptance of this Statement is an obligation to act in a professionally responsible and ethical manner when providing structured settlement services."
  • "This Statement applies to all NSSTA member companies, their employees and to individual members, regardless of their voting rights and responsibilities."
  • "The NSSTA member must exercise the utmost integrity when providing professional structured settlement services."
  • "The nature and extent of services rendered must be dictated by professionalism, honesty and candor which should not be compromised for personal gain or advantage."
  • "All persons engaged in the provision of any part of a structured settlement shall perform their duties in an honest, ethical and fair manner."
  • "Fairness mandates intellectual honesty and disclosure of relevant conflict(s) of interest."
    
  • "A NSSTA member should comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided." (emphasis added).
    

NSSTA 2009 Winter Meeting

• S2KM's Managing Director, Patrick Hindert, is a member of NSSTA and attended the NSSTA 2009 Winter Meeting.
• Plaintiff and Defense Panel
  • One of the educational programs at the NSSTA 2009 Winter Meeting was titled "Plaintiff and Defense Panel".
  • Program description: "There is a need for brokers on both sides to serve as their client's advocate and there should be mutual respect for what each broker contributes to the resolution of the claim and what they bring to the "settlement table". This session will cover some of those concerns."
  • Selected Hindert notes from the panel discussion:
    • "Most structured settlement brokers are 'Good People'."
    • "Our most important role is taking care of the plaintiff."
    • "IRC 468B is bad because it prevents defendants from initiating structured settlements."
    • "Our clients should have no right to dictate how we earn our living" - responding to a question about the need to disclose commission sharing.
    • "I will fight for my clients' right to spend their money the way they want" - responding to a question about approved lists of annuity providers.
    • "We are part of an adversarial system and must support our clients."
• Ethics Course
  • Father Oliver F. Williams, from the Notre Dame Center for Ethics & Religious Values in Business, taught an ethics course at the NSSTA 2009 Winter Meeting.
  • Selected Hindert notes from Father Williams' ethics course:
    • "NSSTA's Code of Ethics is as good as it gets in the structured settlement industry."
    • "Alan Greenspan (Chairman of the Federal Reserve from 1987 to 2006) expressed 'shocked disbelief' following the September 2008 financial crisis. What causes you (NSSTA members) to feel 'shocked disbelief' about the structured settlement industry?"
    • "The life cycle of social moral issues has six stages:
      • Stage 1 - changes occur;
      • Stage 2 - problems are recognized;
      • Stage 3 - organizations are established;
      • Stage 4 - policy agendas are set;
      • Stage 5 - solutions are formalized;
      • Stage 6 - social control becomes routine.
    • "There are three levels of analysis for social moral issues:
      • Individual;
      • Organizational;
      • Systemic.
    • "There are three types of social moral standards:
      • Utilitarianism - the greatest benefit at lowest cost;
      • Rights - protect entitlements set around individuals pursuit of interests;
      • Justice - distribute benefits and burdens fairly."
• Settlement Consulting
  • Joseph DiGangi spoke about "Comprehensive Settlement Consulting" at the NSSTA 2009 Winter Meeting.
  • In what he termed "a wake up call for the industry", DiGangi criticized the traditional structured settlement business model and knowledge standards.
  • S2KM summarized and analyzed DiGangi's NSSTA presentation in a four-part blog series titled "Settlement Consulting"
    • Settlement Consulting
    • Settlement Consulting - 2
    • Settlement Consulting - 3
    • Settlement Consulting - 4

Spencer v. Hartford - 1

This S2KM blog post summarizes the Spencer v. Hartford case to date. A subsequent post will offer S2KM commentary.

Status

Spencer v. Hartford is a class action lawsuit currently on appeal to the U.S. Second Circuit Court of Appeals following a decision by the U.S. District Court in Bridgeport, Connecticut granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel on RICO and state-law fraud claims.

Partial Chronology

• October 31, 2005 - Plaintiffs filed the Original Class Complaint in U.S. District Court, Bridgeport, Connecticut;
• May 1, 2006 - Plaintiffs filed an Amended Complaint;
• October 24, 2006 - District Court Judge denied Defendants' Motion to Dismiss;
• February 6, 2008 - Plaintiffs filed Second Amended Complaint;
• March 4, 2008 - Plaintiffs filed Revised Second Amended Complaint;
• March 10, 2009 - U.S. District Court Judge issued Orders:
  • Granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the RICO and state-law fraud claims;
  • Denying plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the state-law breach of contract and unjust enrichment claims;
  • Certifying two subclasses (based upon alleged "cost" and "value" representations) for both the RICO and fraud claims.
• March 24, 2009
  • Defendants filed a Petition to Appeal the District Judge's Orders to the U.S. Second Circuit Court of Appeals;
  • District Court Judge issued an Order:
    • Granting Defendants' Petition to Appeal;
    • Holding in abeyance further deadlines pending a decision by the Court of Appeals.

Participants

• Plaintiffs - Three named plaintiffs (Oshonya Spencer; Charles Strickland; and Douglas McDuffie) plus all other persons who:
  • Entered into a settlement with any of the Hartford Property and Casualty Companies between 1997 and the present;
  • In which some or all of the settlement amount was to be paid as a structured settlement funded with an annuity from one of the Hartford Life Companies; and
  • Who had a written contract that, or before entering into the contract had received a written representation that, made explicit or implicit reference to the "cost" (Subclass 1) or "value" (Subclass 2) of the settlement or portion of the settlement being structured or the "cost" or "value" of an annuity being used to fund the structure.
  • Excluded from each class of plaintiffs are persons who were represented by a plaintiffs' broker in connection with the settlement.
• Defendants
  • The Hartford Financial Services Group, Inc.
  • Hartford Life, Inc.
  • Hartford Life Insurance Company
  • Hartford Accident and Indemnity Company
  • Hartford Casualty Insurance Company
  • Hartford Insurance Company of the Midwest
  • Hartford Fire Insurance Company
• U.S. District Court Judge - Hon. Janet C. Hall
• Plaintiff Class Counsel
  • David S. Golub
  • Jonathan M. Levine
  • Peter R. Kahana
  • Steven L. Bloch
  • Carl S. Kravitz
  • Ellen D. Marcus
  • Richard B. Risk, Jr.
• Defense Counsel
  • Wilmer Cutler Pickering Hale and Dorr LLP
  • Wiggin and Dana LLP

Plaintiff Allegations

• Beginning in 1992, Hartford engaged in a uniform policy, pattern and practice of fraudulently, wrongfully and systematically retaining for its own benefit at least 15% of amounts it should have used to fund its structured settlements.
• Hartford called its program "Secured Benefit Services" (SBS) the purpose of which was to direct Hartford P&C companies to settle claims against their insureds using structured settlements funded with annuities from Hartford Life companies thereby retaining a substantial portion of the settlement funds and transforming claim losses into gains.
• Hartford began a "Broker Assistance Program" (BAP) in 1997 using structured settlement brokers selected by Hartford to further the mission of the SBS program.
• If a participating broker could not arrange a structured settlement funded with a Hartford Life annuity, the broker was to arrange an all-cash settlement so Hartford would not lose annuity business to competitors.
• Instead of paying participating brokers an industry standard 4% commission, Hartford paid 3% and unjustly and fraudulently passed a 4% commission cost to the claimant while falsely portraying the brokers as independent.
• In return, the approved brokers provided Hartford with outside markets for structured settlement annuity sales through their relationships with other P&C insurance companies thereby helping Hartford generate record increases in annuity sales.
• Using SBS and BAP, Hartford executed a scheme to breach settlement agreements, defraud claimants and/or unjustly enrich itself by retaining 15% of the amount it had promised or agreed to use for its structured settlements and concealing it was illicitly profiting from each structured settlement.
• Internally, Hartford allocated the 15% as follows: 5% immediate profit to Hartford (in addition to future investment profit); 5% for Hartford's marketing and sales programs including brokerage commissions; 3% for Hartford's operational expenses; 2% to pay taxes on income derived from annuity sales.
• Representations by Hartford and its approved brokers to claimants and their advisers falsely indicated 100% of the amount Hartford promised or agreed to use to fund the annuities was in fact used for the annuities.
• Hartford instructed its SBS and BAP program participants:
  • Never to disclose Hartford was retaining 15%;
  • To affirmatively misrepresent that claimants were receiving their structured settlement annuities at "no cost" in contrast with other potential investments.
• Hartford required SBS and BAP participants to use standard and uniform sales presentations developed by Hartford plus a Hartford software program to generate annuity quotes that were inherently false and deceptive.
• By making affirmative statements, Hartford and its representatives assumed a duty to disclose all other information about the structured settlement annuities.
• Hartford changed portions of its SBS and BAP programs in 2005 in part because then New York Attorney General Eliot Spitzer had notified Hartford his office was investigating brokerage commissions.
  
• In 2005, Hartford began to disclose in writing that deductions would be made from annuity costs for brokerage expenses and to offset operating expenses but Hartford still did not disclose that it retained other amounts.
• Hartford's SBS and BAP programs constitute violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) as well as state laws prohibiting fraud, breach of contract and unjust enrichment.
  

U.S. District Court Decision - Judge Hall:

• Granted plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the RICO and state-law fraud claims;
• Denied plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the state-law breach of contract and unjust enrichment claims;
• Certified two subclasses (based upon alleged "cost" and "value" representations) for both the RICO and fraud claims.

Defendants' Appeal

• District Court Judge Hall approved Hartford's Petition for Permission to Appeal to the U.S. Second Circuit Court of Appeals her Orders certifying plaintiffs' RICO and state-law fraud claims as class actions.
  
• Hartford's petition claims Judge Hall misread controlling precedent and "assumed away" the substantive elements of reliance and causation that ordinarily preclude certification of RICO and state-law claims based on allegations of fraud.
• Hartford's petition raises three basic issues:
  • Whether RICO cases require proof that someone relied on representations that allegedly caused plaintiff's injuries?
  • Whether "self-proving reliance" eliminates the need for individual proof of transaction causation in state-law fraud cases based upon alleged financial misrepresentations?
  • Whether the rule that "uniform misrepresentations" may be established by common proof extends to non-uniform but allegedly "similar" representations?

Settlement Trust Due Diligence

One of the strategic developments distinguishing the settlement planning structured settlement business model from the claim management model is the interaction of annuities (insurance products) with trusts and custodial accounts (banking products). All structured settlement and settlement planning professionals should understand and utilize settlement trusts.

S2KM has written previously about settlement trusts:

• Settlement Trusts Revisited - 2008
• IRC 468B Funds Revisited - 2008
• Special Needs Trusts X - 2008
• Medicare Set-Aside Update - 2008
  
• Settlement Trusts - 2004
• Selecting a Settlement Trustee - 2004

Releases 44 and 45 of "Structured Settlements and Periodic Payment Judgments" (Section 3.07A), co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert, feature expanded S2P2J analysis of settlement trusts and structured settlement annuities.

With input from, and thanks to, Benjamin Malsch of First Capital Surety and David Cover of Peoples Bank, S2KM has compiled the following questions and information requests for settlement planning advisers to assist their due diligence about specific settlement trustees. S2KM welcomes additional questions and recommendations.

Trust Company

• What type of company is the trustee?
• How long has the trustee been in business?
• Where is the trustee incorporated?
• Does the trustee have a federal banking charter?
• Where is the trustee qualified to do business?
• Where is the trustee currently doing business?
• Who owns the trustee - or for whom does the trustee work?
• Have ownership changes occurred during the last 5 years?
• Does the trustee have ownership interests in other companies?

Products and Services

• What settlement trust products does the trustee sell or service?
• What non-settlement trusts and/or non-trust products does the trustee sell or service?
  

Legislation and Regulation

• What laws and regulations apply to the trustee's settlement trust products and services?
• What legislative and regulatory authority supports the trustee's settlement trust products?
• Who regulates the trustee?
• How frequently does the regulator audit the trustee?
• When did the last regulatory audit occur?
• What were the results?

Business Conduct

• Obtain and review copies of:
  • Trust company's operating charter;
  • Latest financial, investment and regulatory audits;
  • Internal audit (SAS70);
  • Marketing materials targeting investment returns;
  • Complete information about fees and expenses;
  • References from clients similarly situated to actual or anticipated clients.
• Which bank(s) share custody of the trustee's funds?
• What lawsuits, if any, have involved the trustee during the past 5 years?
• How many trust accounts does the trustee administer?
• How many of these trust accounts are settlement trusts?
• What amount of assets does the trustee manage?
• What type of insurance coverage does the trustee maintain and in what amounts?

Business Policies

• What are the trustee's policies for:
  • Structured settlement annuities;
  • Annuity funding of attorney fees and other non (IRC 130) qualified assignments?
  • IRC section 468B;
  • The secondary life and annuity markets;

• What professional associations does the trustee support?

Performance and Fees

• Review the trustee's most recent audited financial and investment reports;
• Confirm all fees paid to the trustee, the trustee’s affiliated companies and outside vendors and partners.
• How do mutual fund providers compensate the trustee?
• If the trustee utilizes proprietary mutual funds, will management fees be offset against trustee fees?
• Does the trustee assess any penalties, redemption fees, check processing fees, tax preparation fees, termination fees or fees for extraordinary expenses?

Sales and Distribution

• Who sells the trustee's products?
• What licensing is required to sell the products?
• Who regulates the sellers of such products?
• What consumer protections exist for malfeasance or poor performance?
• What insurance do the trustee and its sales network maintain to protect purchasers?
• What educational programs does the trustee provide and/or support for settlement trusts and settlement planning?
• Does the trustee support structured settlement annuities and integrate annuities with  settlement trusts?
• Does the trustee have an “approved list” of structured settlement annuity providers and/or producers?

Structured Settlement Credo - 5

In prior blog posts, S2KM identified traditional structured settlement credo and highlighted its importance. S2KM disagrees with fundamental aspects of traditional (claim management) structured settlement dogma and predicts its demise and/or evolution based upon existing laws and business developments.

As a counterpoint, this S2KM post outlines a potential strategy for those stakeholders who hope to preserve, protect and enforce traditional structured settlement credo in a changing market.

Rule 1: Avoid market research that addresses traditional structured settlement credo.

• "Squandering" injury victims
  • Richard Halpern's recently announced discovery of the Holy Grail of structured settlement dissipation studies (see: Structured Settlement Credo - 3) presents a conundrum for the traditional industry.
  • Should the structured settlement industry examine this holy relic - or let sleeping studies "lie"?
  • Although Halpern claims this study confirms traditional structured settlement credo, Halpern's study creates potential credo problems.
  • What if Halpern's announced study fails to define and distinguish "legitimate expenses" and "squandered resources"?
  • Are cash settlement dollars spent for food, clothing, shelter, medical expenses, education, etc. "legitimate" or "squandered"?
  • Recommendations for supporters of traditional structured settlement credo:
    • Stop dissipation research. Accept at face value Halpern's announced discovery as credo confirmation.
    • Ignore alternative explanations such as underfunded settlements or Andrew Imparato's assertion that "existing government benefit programs maintain people in poverty and punish people who try to escape poverty".
    • Continue to recite traditional industry mantras:
      • Studies show nine of ten injury victims squander their lump sum settlements within ten years.
      • Structured settlements enable injury victims to live free of reliance on government assistance.
• Good People and Bad People
  • Do not ask structured settlement recipients (especially recipients who have transferred or seek to transfer payment rights) to comparatively evaluate:
    • The Good People who sold them a structured settlement; or
    • The Bad People who have purchased, or have offered to purchase, payment rights.
  • Do not ask plaintiff attorneys who state they strongly support structured settlements:
    • Why they recommend certified financial planners and trust officers (Bad People) as financial advisers for injury victims more frequently than structured settlement professionals (Good People); or
    • Why relatively few of their injury victim clients select a structured settlement.
  • Do not survey structured settlement professionals (Good People) about traditional structured settlement credo without threatening to expose and punish any Good People whose attitudes and activities violate traditional structured settlement credo. As an alternative approach:
    • Require all Good People to sign loyalty oaths;
    • Encourage "watchdogs" to expose Good People who are really Bad People in disguise;
    • Punish Bad People who disguise themselves as Good People with expulsion from industry associations and eliminate them from "approved lists".

Rule 2: Avoid public discussions, or private discussions with injury victims and their attorneys, about traditional structured settlement credo.

• Injury Victim Advocates - Structured settlements protect the needy from the greedy. Don't discuss:
  • Conflicts of interest - such as:
    • Single product licensing and training;
    • Contractual and legal loyalty to annuity providers;
    • Legal and business relationships with defendants; or
    • Commission sharing relationships.
  • Competing products:
    • Don't dignify competing products with names. Refer to them instead as "cash outs" and recite the structured settlement mantras identified in Rule 1 above.
    • Although proposed tax-free savings accounts may be advantageous for some disabled people, structured settlements already exist and therefore justify an injury victim "carve-out".
  • Settlement planning IRC sections that have altered the primacy of IRC Sections 130 and 104(a)(2):
    • IRC 5891 - Ignore the "structured settlement" definition in IRC section 5891 titled "Structured Settlement Factoring Transactions". Traditional structured settlement credo views the primary (Good) and secondary (Bad) markets as completely separate.
    • IRC 468B (and regulations) - Remember: without additional legal authority: "one or more contested or uncontested claims" actually means "two or more".
  • Transparency - this subject is acceptable so long as there is no discussion of:
    • Compensation disclosure;
    • Informed consent;
    • Qualified settlement funds; or
    • The secondary market.
  • "Win-win" Dispute Resolution - never discuss:
    • How and why structured settlements save money for defendants and their insurers; or
    • Structured settlement issues created by the Deficit Reduction Act of 2005.
• The Internet
  • Thomas Friedman ("The World is Flat") and many other commentators have described the leveling (democratizing) impact of the Internet where anyone can ask questions and express opinions.
  • High priests of traditional structured settlements beware! Web 2.0 creates challenges and dangers for your credo. Ignore the Internet. Keep reciting your claim management mantra.

Structured Settlements in 2008 - 3

This S2KM blog post, the third of three analyzing structured settlements in 2008, highlights the challenges facing the structured settlement industry as it enters 2009.

Two prior S2KM blog posts evaluated 2008 from an historical perspective (Structured Settlements in 2008 -1) and summarized the conferences S2KM attended throughout the year (Structured Settlements in 2008 - 2).

Who does your client trust? The National Structured Settlement Trade Association (NSSTA) spotlighted the "trust issue" during its 2007 Winter meeting when NSSTA also reported the results of its structured settlement survey of injury victims and attorneys. Structured settlements require trust by injury victims and their attorneys that:

• Structured settlement consultants are qualified professional financial advisers; and
• Annuity providers will pay promised future periodic payments.

Traditionally important to structured settlements, issues of trust have been magnified in 2008 by the widespread financial collapse that required a federal bailout of AIG and called into question the reliability of financial rating assessments as well as the protection afforded consumers and investors by government regulators. A corollary issue for structured settlement consultants is "professionalism" - one of four strategic priorities NSSTA President Chris Diamantis identified during the NSSTA 2008 Annual Meeting.

• Should injury victims and their attorneys trust structured settlement consultants and engage them as financial advisers?
• What are the professional qualifications and services of individual structured settlement consultants?
• Are structured settlement consultants problem solvers or product pushers?
• Do they understand their own product - an increasingly complex transaction as visualized in this structured settlement diagram ?
• Are structured settlement consultants capable of objectively and comprehensively advising injury victims and their attorneys about such fundamental structured settlement issues as:
  • IRC 468B;
  • IRC 5891;
  • State-specific structured settlement protection statutes;
  • The Medicare Secondary Payer Statute; and
  • The Deficit Reduction Act?
• Are individual structured settlement consultants licensed and educated to sell non-insurance investment products?
• Are they professionally capable of recognizing, and do they proactively communicate, their own conflicts of interest?
• Do they proactively disclose their structured settlement compensation arrangements and obtain an injury victim's informed consent for such compensation?

How strong are structured settlements? The structured settlement industry should expect injury victims and their attorneys to demand additional assurances in 2009 about the financial security of structured settlement annuities. If "sophisticated" investors and financial institutions are hoarding cash and/or buying U.S. government securities, why should injury victims and their attorneys accept long term financial promises with limited or no liquidity? Will these traditional industry arguments continue to successfully drive structured settlement annuity sales in 2009:

• Except for United States treasury obligations, life insurance annuities are among the most secure long term investments.
• Fixed annuities are especially secure because they do not depend upon the vagaries of interest rates and securities markets.
• Fixed annuities, however, require the obligating party(s) to remain in business for the duration of the annuity obligation.
• The 30 year performance record of structured settlement annuities (to date) has been close to perfection.
• With strong support from legislators, regulators and judges, the structured settlement industry has survived its worst potential disasters.
• These potential disasters include the failures of AIG, Executive Life; Confederation Life; Capital Life; and Monarch Capital.
• By contrast, the most spectacular structured settlement failures have not involved annuities.
• These failures, which include SBU and Stanwich, involved IRC 130 structured settlement treasury bond trusts - i.e. (poorly or criminally) managed assets.
• Life insurance companies that issue structured settlement annuities are regulated by state insurance departments.
• State insurance guarantee funds provide a safety net for individual company failures.
• Life insurance companies that issue structured settlement annuities, therefore, are among the strongest of the financially strong.
• If injury victims want income tax-free periodic payments with lifetime security, they should include a structured settlement annuity as part of their settlement plan.

Competing business models - two alternative business models will continue to compete in 2009 for the future of structured settlements:

• The traditional claim management (defense-controlled) business model characterized by:
  • IRC 130 as a funding model;
  • Single product (annuity) orientation;
  • Defendant "approved" structured settlement agents;
  • Defendant "approved" structured settlement annuity providers;
  • Defendant "right of last refusal" to match funding alternatives;
  • Defendant "right" to deny structured settlements to injury victims;
  • Opposition to single claimant 468B;
  • Failure to fully inform injury victims about settlement transfers;
  • Failure to promote full disclosure and informed consent of structured settlement compensation.
• The emerging settlement planning (plaintiff-controlled) business model characterized by:
  • IRC 468B and 130 as a two-step, court-approved funding model;
  • Multiple product (annuity and trust) alternatives;
  • Integration of structured settlements with other government benefits;
  • Claimant selection of structured settlement consultants;
  • Claimant selection of structured settlement annuity providers;
  • Claimant's right to a structured settlement;
  • Claimant's right to information about the secondary market prior to settlement;
  • Claimant's right to full disclosure and informed consent about structured settlement compensation.

Primary vs. secondary structured settlement markets

• The National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP) cooperated in 2000 and 2001 to draft the Model State Structured Settlement Protection Act and to help enact IRC section 5891.
• Relatively limited educational, marketing and transactional interaction, however, has occurred historically between the primary and secondary markets.
• S2KM's 2006 concept map ("How the Primary Market Views Factoring") highlights the generally hostile attitude many primary market participants continue to express toward the secondary market and factoring companies.
• Among other results, the primary market's attitude has limited:
  • The education structured settlement stakeholders have received about settlement transfers;
  • The advice and assistance structured settlement consultants offer their customers about settlement transfers.
• One of the continuing industry challenges in 2009 will be whether various factions within the primary and secondary markets are able to work collaboratively to improve and expand structured settlements.
• As a positive developments:
  
  • NSSTA, the Society of Settlement Planners (SSP), and the Academy of Special Needs Planners (ASNP) each offered educational programs about settlement transfers during 2008;
  • Representatives of the primary and secondary markets jointly addressed improving structured settlement business practices at both the SSP and NASP 2008 Annual Meetings as well as the 2008 Structured Settlement Thought Leadership Conference.

Structured Settlements and Government Benefits

• A traditional structured settlement industry argument, promoted by defenders of the claim management business model, proclaims "structured settlements enable injured victims to live free of reliance on government assistance".
• This promotional statement is false and misleading. Many, if not most, structured settlement recipients depend upon government benefits in addition to structured settlements to address basic financial needs.
• These government benefits include: Social Security, Medicaid, Medicare, Veterans Benefits and Federally Assisted Housing.
• As David Lillesand, a leading social security and special needs attorney, stated at the SSP 2008 Annual Meeting: Medicaid alone represents a "life or death issue" for disabled persons including structured settlement recipients.
• The challenges of maximizing and successfully integrating government benefits are more complicated with a structured settlement than with a lump sum benefit in part because of a lack of legal authority.
• With anticipated budget cuts and reforms for Medicaid and Medicare in 2009, the structured settlement industry must improve and expand its educational and lobbying strategies if it expects structured settlements to play a vital role in this changing legislative and regulatory landscape.

Growing the structured settlement market

• As evidenced by annuity premium, the primary structured settlement market has not grown since 2001.
• Several structured settlement annuity providers have left the market since 2006. Concurrently, the number of individual structured settlement consultants remains relatively constant while their average age continues to increase.
• Recent structured settlement surveys and market studies by NSSTA, AIG, J.G. Wentworth and Towers Perrin confirm opportunities exist to grow the structured settlement market and suggest the structured settlement market is underperforming.
• Some of the important issues related to structured settlement market growth:
  
  • Managing transition and change
  • Structured settlement advocacy
  • Marketing to plaintiff attorneys
  • Problem solving vs. product sales
  • Building settlement planning teams
  • 468B as a standard funding model
  • Integrating structured settlements with settlement trusts
  • Improving industry Internet applications and skill sets
  • Continuing market research
• In a 2008 S2KM interview, paralympic champion Randy Snow offered the following advice for successfully transitioning and growing the structured settlement industry: listen to the customer; design the best products; surround yourself with the best people; have fun.

Thank you and best holiday wishes to all structured settlement stakeholders who followed S2KM's blog reports during 2008. The New Year should be interesting and challenging for the financial markets generally and the structured settlement industry more specifically.

Structured Settlements in 2007

Happy holidays from S2KM Limited. Thank you for reading S2KM's blog during 2007. This final 2007 S2KM blog post highlights some of this year's important structured settlement developments and issues.  For additional background information, see:

• S2KM Mid-2007 Structured Settlement Report
• Structured Settlements in 2006

Industry Growth and Development

• Industry insiders are predicting final 2007 structured settlement annuity sales (qualified and non-qualified) will match or slightly exceed total 2006 production of $6.1 billion.
• Membership growth in 2007 for the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP), the primary structured settlement trade associations, also appears flat. Neither of these associations has articulated a strategy for growing the structured settlement industry.
• NSSTA replaced long-time Executive Director Randy Dyer in 2007 with association management company Smith Bucklin. NSSTA has announced it will continue a business relationship with Dyer. However, NSSTA has not yet announced Dyer's new role or responsibilities.
• Annuity provider Mass Mutual exited the structured settlement industry in 2007 joining other recent industry departures such as Genworth, Travelers and Aegon. No new annuity providers entered the structured settlement market in 2007.
• The secondary life and annuity markets continued to be controversial within the structured settlement industry in 2007. Semetra resigned from NSSTA in 2007 based in part on their disagreement with NSSTA's Bylaw Amendments related to structured settlement factoring. Neither NSSTA nor SSP allows factoring companies to join their associations.
• Although the secondary structured settlement market continues to grow in 2007, the overall pace of its growth appears to have leveled off for many, but not all, participants.
• Preliminary strategic recognition and some consolidation continued during 2007 within these overlapping markets:
  
  • Structured settlements;
  • Personal injury settlement planning;
  • Litigation funding;
  • Special needs planning;
  • Secondary insurance and annuity markets.

Legislation and Regulations    

• New York Governor Eliot Spitzer announced a $750 million "agreement in principle" for Executive Life of New York in 2007. The agreement is designed to continue paying all ELNY annuitants 100% of their benefits. The announcement represents a public relations victory for the structured settlement industry. Many questions about the agreement, however, remain unanswered. For example: the amount of contributions from indemnity (casualty) insurers who own or have assigned structured settlement annuities.
• State Medicaid Agencies are continuing to adopt annuity provisions from the Deficit Reduction Act into their state Medicaid Plans. Interpretations and applications of these new annuity rules remain inconsistent creating process bottlenecks and denials. The impact of the secondary annuity markets on Medicaid qualification remains unclear in 2007. The Social Security Administration (SSA) announced in 2007 that it will draft POMS for annuities in 2008. For additional information about the Deficit Reduction Act, see:
  • Release 41 of "Structured Settlements and Periodic Payment Judgments";
  • Inconvenient Questions; and
  • NAELA Annuity Policy White Paper.
• 48 states have enacted structured settlement protection statutes. Overall, these statutes appear to be accomplishing their purposes and functioning with increasing certainty and efficiency. Pennsylvania's judiciary adopted Pennsyvania Rule 229.2 in 2007 tightening some rules and processes within that state's protection statute.
• The U.S. Treasury has not ruled on single claimant 468B funds in 2007.

Case Law - some of the significant 2007 cases:    

• DOJ Sovereign Immunity Defense - see "Drinker Biddle's Structured Settlement Update" for analysis of two DOJ sovereign immunity cases: Transamerica v. Settlement Capital and Continental Casualty v. United States.
• Primary Market Disclosure Case - "Pullman & Comley's Structured Settlement Insights" provided the first Internet analysis of Joseph v. The City of New York which Pullman & Comley characterizes as ""the first court opinion to analyze the requirements in structured settlement protection acts that disclosures be made when negotiating a structured settlement."
• Rapid Settlements cases challenging secondary market laws and business practices including:
  
  • Rapid v. Symetra; and
  • CNA v. Rapid Settlements

• Murphy v. IRS - Eleven months after ruling that taxing damage awards for nonphysical compensatory damages violated the United States Constitution, the United States Court of Appeals for the District of Columbia Circuit has reversed itself in Murphy v. IRS by holding that the United States can tax awards for emotional distress and injury to reputation.
• Macomber v. Travelers - the parties agreed to a confidential settlement in 2007.  It is unclear what legal precedents, if any, the earlier Connecticut State Supreme Court rulings in this case will hold for current or future structured settlement litigation.
  

Educational Programs and Resources

• Both NSSTA and SSP offered certification programs in 2007.    
• S2KM attended educational programs for the following trade associations in 2007 and wrote blog posts (see links) evaluating their structured settlement educational programs:          
  
  • National Structured Settlement Trade Association (NSSTA).          
  • Society of Settlement Planners (SSP)          
  • American Association for Justice (AAJ)          
  • National Academy of Elder Law Attorneys (NAELA)          
  • Academy of Special Needs Planners (ASNP)          
  • National Association of Settlement Purchasers (NASP)    
• The structured settlement industry continued to offer various additional educational resources in 2007:          
  
  • Blogs, podcasts, wikis and concept maps;          
    
  • Digital and hardcopy newsletters;          
    
  • Hardcopy legal textbooks.

Business Standards and Practices

• 2007 developments
  
  • Broker Relations Initiative - status report provided in this S2KM blog post.
  • SSP Ethics Project - status report provided in this S2KM blog post.
• 2007 issues:
  
  • Structured settlement public policy
  • Claim management vs. settlement planning
  • Consumer and investor protection including:
    
    • Compensation disclosure;
    • Informed consent;
    • Single claimant 468B funds;
    • Unfair claim practice legislation;
    • Fiduciary responsibilities for professional advisors.

• Additional compensation issues:
  • Rebating
  • Affinity programs
  • Secondary market transactions
• Unauthorized practice of law.

SSP 2007 Fall Meeting

The Society of Settlement Planners (SSP), hosted its 2007 Fall Meeting September 8 at the Camelback Inn in Scottsdale AZ. SSP is a national nonprofit educational and public policy association of professional structured settlement producers and other professionals who assist injured claimants in the settlement process.

During the past three years, SSP has offered outstanding structured settlement and settlement planning educational programs. Earlier this year, SSP announced the creation of a new Registered Settlement Planner (RSP) professional designation. The first RSP program is scheduled to begin today in affiliation with Texas Tech University.

For summaries of prior SSP educational programs, see these earlier S2KM blog posts:

• SSP 2007 Annual Meeting
• SSP's 2007 Educational Seminar
• SSP to Create Professional Designation
• SSP 2006 Annual Meeting
• SSP's 2005 Annual Meeting

Highlights of SSP's 2007 Fall meeting included educational presentations by SSP members for the following topics:

• Medicaid Liens - At SSP's 2007 Annual Meeting, Matt Garretson summarized his paper titled "What does the Ahlborn Case Really Mean?" In Ahlborn, the U.S. Supreme Court unanimously affirmed the Eighth Circuit's decision limiting a state Medicaid agency to reimbursement from only that portion of a judgment or settlement that represents payment for medical expenses. At SSP's Fall 2007 Meeting, attorney Greg Maxwell continued SSP's analysis of Medicaid liens. Maxwell discussed preliminary responses by state Medicaid agencies to Ahlborn and identified lien resolution services as an increasingly important settlement planning service and skill set. For additional information about Medicaid lien resolution, see section 15.04[4] of "Structured Settlements and Periodic Payment Judgments" as well as Matt Garretson's new book "Negotiating and Settling Tort Cases".
• Personal Injury Tax Planning - Jesus Longoria, a Texas-based financial planner, discussed several settlement planning tax issues including punitive damages; confidentiality agreements; alternative minimum tax; and commutation riders. Longoria's presentation also featured a product developed by Amicus Financial Advisors that calculates projected taxes on various settlement options. Longoria's presentation did not detail two important settlement planning tax issues addressed by attorney Robert W. Wood in recent S2KM blog posts and podcasts - IRC section 468B funds and structured attorney fees. Wood also authors "Taxation of Damage Awards and Settlement Payments", a definitive hardcopy textbook that encompasses personal injury tax planning.
• Dissipation Risk - Professor Joe Tombs of Texas Tech University delivered an entertaining presentation about dissipation risk titled "The Elephant in the Room". Tombs' conclusions: 1) Financial planners generally ignore dissipation risk; 2) Dissipation risk defines settlement planning; and 3) Settlement planners must teach personal injury claimants how to manage their impulses. Tombs also introduced a new Amicus product that he has titled the "Tombs' Dissipation Index" (TDI). According to Professor Tombs', the TDI measures (on a scale of 1 to 100) the relative propensity of individual settlement recipients for dissipation risk. The most important indicators: education and physical fitness. Had time permitted, it would have been interesting to hear Professor Tombs address these additional dissipation-related topics:
  • How inadequate settlement amounts (compared with projected injury-related expenses) and unexpected (and unplanned for) future events impact settlement planning and dissipation analysis?
  • What impact, if any, pre-litigation funding and post-settlement funding (factoring) have on settlement planning and dissipation analysis?
  • How factoring, from a dissipation perspective, impacts a settlement planner's financial and insurance product recommendations?
• Annuities and Managed Money - Paul Lesti, author of a structured settlement treatise, repeated a presentation he originally delivered at the AAJ 2006 Winter Meeting as part of a debate with Rich Halpern. One of the results of Lesti's debate with Halpern was the distribution by Halpern of widely-discussed (within the structured settlement industry) opinion letters by two law professors, Stephen Saltzburg and Edwin Chemerinsky. These opinion letters highlight the obligations of plaintiff attorneys, under the ABA's Model Rules for Professional Conduct, to understand and inform their clients about proposed structured settlement compensation arrangements and to secure their client's "informed consent" for any such compensation arrangement. Although Lesti's presentation provided a persuasive summary of the advantages of structured settlement annuities, Lesti did not:
  • Address the settlement planning issues raised by Professors Saltzburg and Chemerinsky;
  • Define "managed money" for purposes of settlement planning;
  • Discuss the role and interaction of settlement trusts (managed money) and annuities in preserving government benefits.
• Settlement Planning - Jack Meligan summarized examples of Settlement Professional Inc's (SPI) settlement plans and settlement planning strategies. SPI's settlement planning approach focuses on empowering personal injury victims to control and direct their own settlement planning. For future SSP educational programs, Meligan should be encouraged to expand his excellent presentation to address the following issues:
  • What is settlement planning and how does it differ, from a product and knowledge perspective, from:
    • Structured settlements?
    • Special needs planning?
  • How do settlement planners identify and collaborate with settlement trust providers?
  • How does factoring (and the secondary insurance markets generally) impact settlement planning?
• Annuity Testimony - Jack Meligan and Paul Lesti teamed up to provide a valuable and enlightened analysis of annuity testimony. When offered as proof of present value in personal injury litigation, annuity testimony generally is provided by defendants as a trial strategy for limiting economic damages. Chapter 12 of "Structured Settlements and Periodic Payment Judgments" provides a traditional, defense-oriented analysis of annuity testimony. In their presentation, Meligan and Lesti looked at annuity testimony from the perspective of settlement planners working with  plaintiff attorneys to challenge and defeat annuity testimony by defendants. Their analysis included trial tactics as well as how to use annuity testimony expertise as a marketing advantage.
• Medical Imagery - What does medical imagery have to do with settlement planning? Quite a bit - if you listen to the representatives of Bio-Sim Corporation, who made a brief presentation at the SSP meeting. Bio-Sim, whose work is featured on the television show, Grey's Anatomy, believes their work product can substantially reduce settlement time - and improve settlement results for plaintiffs. Bio-Sim also offers referral fees to settlement planners. Which raises this question: if you are a settlement planner focused on marketing to plaintiff attorneys, what products and services should you be offering?

For an association that purports to be a protector of claimants rights, it was surprising SSP did not address the following important settlement planning issues as part of its Fall 2007 Meeting:

• Executive Life of New York - NSSTA has created a Task Force. SSP should at least provide its members with a status report.
• 2007 POMS - how are SSP and NSSTA tracking this issue? - specifically what new POMS sections are being proposed for annuities, structured settlements, assignment rights and special needs trusts?
• State Medicaid responses (and related judicial responses) to the Deficit Reduction Act of 2005 - Sylvius von Saucken introduced this issue to SSP members at SSP's 2007 Annual Meeting and to NSSTA members at the NSSTA 2007 Annual Meeting.
• Transparency and informed consent for all settlement planning compensation. SSP should continue its leadership with these issues.
• Single Claimant 468B Funds - What is the strategy to secure clarification by the U.S. Treasury confirming single claimant 468B funds? 
• Rebating
  • Which statutes define rebating?
  • Which rebating practices (plaintiff and defendant), are:
    • Legal vs. illegal; and
    • Represent good vs. unacceptable business practices?
• Macomber case - Having featured this case at its 2006 Annual Meeting, SSP should provide an update for its members about the Macomber settlement.
• State structured settlement protection statutes - NSSTA provides educational presentations about these statutes for its members.  Why not SSP?

In addition to SSP's educational presentations in Scottsdale, SSP's President Anthony Alfieri chaired a discussion about SSP's organizational and promotional issues. Here are some related and unsollicited S2KM recommendations for SSP:

• Continue to identify and recruit structured settlement and settlement planning industry leaders who share SSP's values and priorities - even if they compete with you and challenge your viewpoints on important issues.
• Establish communication with other settlement planning associations - including NSSTA; NAELA; NAMSAP; NASP; ASNP; and SNA. Focus on shared issues and collaboration opportunities. Attend the Stetson Law School SNT seminar.
• Use a wiki to publish online (publicly or privately) the current draft of SSP's Code of Ethics. Sollicit and review comments and improvements.
• Learn web 2.0 (aka social network) technologies to improve SSP's online identity as well as SSP's  communication, learning and operating efficiencies.