Beyond Structured Settlements

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.

S2KM Mid-2007 Structured Settlement Report

As Fourth of July 2007 quickly approaches, structured settlement stakeholder associations are re-organizing under their 2007 leadership.  These stakeholder associations include:

• National Structured Settlement Trade Association (NSSTA).
• Society of Settlement Planners (SSP)
• American Association for Justice (AAJ)
• National Association of Trial Lawyer Executives (NATLE)
• National Academy of Elder Law Attorneys (NAELA)
• Academy of Special Needs Planners (ASNP)
• Special Needs Alliance (SNA)
• National Alliance of Medicare Set-aside Professionals (NAMSAP)
• National Association of Settlement Purchasers (NASP)

As  unsollicited input to these associations, S2KM offers this mid-year 2007 summary of important structured settlement legal developments. 

S2KM's Podcast 3 (accessible from S2KM's blog courtesy of Truffle Media Networks) provides a related audio summary.

Mid-2007 Structured Settlement Legal Developments

• Potential $600 Million Shortfall at Executive Life of New York - "Drinker Biddle's Structured Settlement Update" provided an early Internet analysis of this story.  NSSTA has reacted swiftly by announcing an "ELNY Task Force".  In a June 29, 2007 written message to NSSTA members, President Henry Strong also announced:
  • Two-time NSSTA President Len Blonder will Chair NSSTA's ELNY Task Force;   
    
  • NSSTA has already met directly with the New York Liquidation Bureau; and   
    
  • NSSTA has initiated "productive discussions" with the American Counsel of Life Insurers (ACLI).
• Social Security POMS to Address Structured Settlements - S2KM first reported this announcement by the SSA's Ken Brown in an April 9, 2007 blog post titled: "Academy of Special Needs Planners".  See these S2KM blog posts for additional background and analysis:
  • Structured Settlements and Government Benefits
  • Deficit Reduction Act of 2005 (DRA) - S2KM's 3-part blog series titled "Inconvenient Questions" reviews Sylvius von Saucken's 2007 article about the DRA and structured settlements.
  • Release 41 of "Structured Settlements and Periodic Payment Judgments" includes a new Chapter 15 titled "Government Benefits and Structured Settlements".
• First 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."  
• DOJ Sovereign Immunity Defense Voids Transfers - 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.
  
• New Pennsylvania Rule 229.2 - S2KM reported and analyzed this change to the Pennsylvania Structured Settlement Protection Act in a June 27, 2007 blog post.
• Rapid v. Symetra - S2KM reported this case in a June 19, 2007 blog post.  The case confirms the general rule that, even following the enactment of IRC Section 5891, courts will enforce a clear and explicit anti-assignment provision in structured settlement agreements provided the interested parties timely object after having been given notice and an opportunity to be heard. For additional S2KM reporting about Rapid, see: CNA v. Rapid Settlements.

Check back for continuing S2KM blog and podcast reports and commentary covering important structured settlement issues and events - including exclusive S2KM reports from the 2007 AAJ Annual Convention July 13-18, 2007 in Chicago. 

For previous S2KM analysis of the structured settlement industry, see:

• Structured Settlement History
• Structured Settlements in 2006
• Structured Settlement Transaction Diagram
• Overview of the Structured Settlement Market
• Structured Settlement Transfers: Good or Bad?
• How the Primary Market Views Factoring
• The Future of Structured Settlements

Pullman & Comley's Structure Settlement Insights

Not to be outdone by Drinker Biddle, the Pullman & Comley law firm has added S2KM Limited to the email distribution list for its newsletter titled "Structured Settlement Insights" which is also available on the Pullman & Comley website.

The summer 2007 issue of Pullman & Comley's Structured Settlement Insights includes valuable summaries for these structured settlement cases:

• Rapid v. Symetra - also reviewed in this earlier S2KM blog post. Note: Pullman & Comley's Peter Vodola represented Symetra in this case.
• Transamerica v. Settlement Capital - also addressed in the Drinker Biddle June 2007 Structured Settlement Update and this earlier S2KM blog post.
• Joseph v.The City of New York - according to Pullman & Comley: "the first court opinion to analyze the requirements in structured settlement protection acts that disclosures be made when negotiating a structured settlement."

The Joseph case opens a potential Pandora's box for the traditional structured settlement industry. According to Pullman & Comley, "The case serves as a signal that the courts are aware of, and may enforce, initial disclosure requirements in the New York Structured Settlement Protection Act and the three other state structured settlement protection acts that include such initial disclosure provisions."

In addition to New York, the Florida, Massachusetts and Minnesota state structured settlement protections statutes each require mandatory initial written disclosure of the following:

• Amount and due dates of each payment;
• Amount of the premium;
• Discounted present value of all certain payments;
• Discount rate used to make the present value calculation.

In Joseph, the parties disputed the terms of the structured settlement after agreeing to a "stipulation on consent".  Plaintiffs objected to specific terms contained in the defendants' subsequent structured settlement proposal including its non-assignability language.

The court held the stipulation on consent "fails in several important ways to qualify as an enforceable settlement agreement" in part because of deficiencies that are " precisely the kind of mandatory disclosures required by New York's Structured Settlement Protection Act."  The court added that the subjects of the required disclosure "are material terms of any structured settlement agreement."

Pullman & Comley's newsletter concludes: "settling defendants who fail to comply with the initial disclosures, or otherwise fail to agree upon material terms prior to reporting a case settled, may find themselves later unable to enforce the settlement."

Thank you to both Pullman & Comley and Drinker Biddle for their contributions to online structured settlement legal commentary.

NSSTA 2007 Winter Regional Meeting-3

S2KM's coverage of the National Structured Settlement Trade Association (NSSTA) 2007 Winter Regional Meeting includes two prior blog posts:

NSSTA-1 summarizes progress reports from two NSSTA-sponsored initiatives and highlights NSSTA's new strategic priority to recapture the structured settlement brand.

NSSTA-2 summarizes five experts who spoke about factoring at the NSSTA 2007 Winter Regional Meeting.

This S2KM blog post addresses the remaining presentations from NSSTA's educational programs:

All Things Considered (ATC) - Formerly known as "The Tax Posse", this presentation features topics and presenters selected by NSSTA's Legal Committee. In addition to two factoring presentations (see NSSTA-2), the ATC panel addressed three issues in Santa Fe:

• NSSTA Lobbying
  
  • NSSTA lobbyist Eric Vaughn summarized the challenges NSSTA faces with the new Congress including change of control and new membership for both the House Ways and Means Committee and the Senate Finance Committee. 
  • Vaughn did not discuss two lobbying issues which have become increasingly important for NSSTA - government benefits (Medicaid and Medicare) and state laws including: settlement transfer protection acts, state periodic payment of judgment statutes and state Medicaid rules. 
  • One member of NSSTA's government affairs committee stated privately that for the first time in NSSTA history, NSSTA representatives, including Vaughn, recently met with CMS.
  • Two other speakers (Craig Ulman and Peter Vodola) referenced proposed judicial rules which could impact the Pennsylvania structured settlement protection act.

• Tax Issues - Tax specialist Tom Ronce addressed three topics. Ronce warned against potential offsets in current bills in Congress which could impact structured settlements. Ronce provided an update of Murphy v. IRS in which the D.C. Circuit Court of Appeals has agreed to revoke its controversial 2006 decision and to rehear the case in 2007.  Ronce summarized proposed federal tax regulations, including private annuity regulations, which could potentially prevent the structuring of attorney fees.  For additional information about the attorney fee issue, read this prior S2KM blog post.

• Agent Responsibilities and Exposures - Attorney Mike Miller summarized the Law of Agency as it relates to structured settlement consultants. Miller's comments also included a review of the 2006 Saltzburg and Chemerinsky memorandums plus an update on two class actions lawsuits, Macomber v. Travelers and Spencer v. Hartford.  For additional information about the Saltzburg and Chemerinsky memos, read and listen to this "Jack Meligan Interview". For additional information about Macomber v. Travelers, read this prior S2KM blog post.

Supporting Casualty Claims - Ismael Acevedo, Vice President of AIG's Structured Settlement Division delivered an educational primer for structured settlement consultants who represent (or want to represent) casualty claim departments. Acevedo's presentation summarized the results of an AIG survey of 1000 claims adjustors.  In addition, Acevedo announced a new AIG initiative to make its structured settlement program "more transparent". Acevedo did not specify whether or how this new AIG initiative will apply to such issues as factoring and/or to informed consent by injured claimants for structured settlement compensation arrangements.

The Non-Qualified Market - Speaker Dennis Drexler recommended that structured settlement consultants should consider the market for non-qualified annuities used to fund installment sales of businesses, professional practices or real or personal property. The benefits for a purchaser, according to Drexler, can include: deferred payment of capital gains, the ability to customize a payment stream, and the improved credit worthiness of the obligor.

Settlement Trust Workshop - For the second consecutive conference, NSSTA devoted half-a-day of its educational program to settlement trusts. Three trust experts, David Cover, Brad Cantwell and Jay Sangerman analyzed the relationship of annuities and trusts in the context of three case studies.

• Cover, a trust officer, pointed out the lack of knowledge most trust officers have about structured settlements as well as the important role of special needs attorneys when government benefits are an issue.
• Cantwell, a structured settlement consultant and Chairperson of NSSTA's Educational Committee, described how blended products (trusts and annuities) improve settlement planning.
• Sangerman, a special needs attorney, discussed the use of annuities to fund special needs trusts. Responding to this author's question, Sangerman insisted the Deficit Reduction Act of 2005 (DRA) does not apply to structured settlement annuities.
• Read these prior S2KM blog posts for additional information about:
  • Settlement trusts;
  • The DRA and structured settlements.

NASP Conference - 1

The National Association of Settlement Purchasers (NASP) hosted an “Affiliate Member Conference” at the MGM Grand Hotel in Las Vegas on October 19-20, 2006. Approximately 75 persons attended including factoring company representatives and 50 transfer attorneys.  Patrick Hindert, S2KM's Managing Director and author of S2KM's blog, participated in the NASP Conference as a guest speaker.

NASP is a trade association whose members are structured settlement factoring companies. Factoring companies (aka transfer companies) purchase payment rights from structured settlement recipients according to rules enacted in IRC Section 5891 and state protection statutes. Because a structured settlement transfer (purchase) requires a court order, factoring companies hire attorneys (transfer attorneys) to represent structured settlement recipients when those recipients file a transfer application seeking court approval.

Guest speakers at the NASP Conference included:

• Michigan State Senator Alan Sanborn - Senator Sanborn is President-elect of the National Conference of Insurance Legislators (NCOIL). He was honored as the first recipient of NASP's Alexander Hamilton award. Senator Sanborn led the successful legislative initiative in 2006 to amend Michigan's structured settlement protection statute.

• Andrew C. Richner - a Uniform Law Commissioner from Michigan, as well as a Regent at the University of Michigan, Mr. Richner attended the NASP conference as a guest speaker.   Mr. Richner summarized Michigan's original structured settlement protection statute and the reasons why that statute was amended in 2006.
  

• Professor Adam Scales - Professor Scales, who teaches insurance, tort and product liability law at Washington and Lee University's School of Law, spoke about “New Issues Facing the Settlement Purchasing Industry”. Professor Scales is the author of an important and provocative 2002 Wisconsin Law Review article titled "Against Settlement Factoring? The Market in Tort Claims has Arrived". Professor Scales reviewed settlement transfer case law trends and results. His comments highlighted problems facing factoring companies including their business practices and complex legal documentation.

• Bruce W. Akerly - a specialist in bankruptcy law, Mr. Akerly provided a detailed look at the impact of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on structured settlement transfers.

• Patrick J. Hindert - author of S2KM’s blog, Hindert provided his analysis of “How the Primary Market Views Factoring”. The presentation featured the following two concept maps developed by S2KM with assistance from Barbara Bowen of See What You Know as hardcopy handouts.

• Overview of the primary and secondary structured settlement markets;
• How the primary market views factoring.

S2KM will publish both concept maps in a blog post sometime next week.

Conference Highlights and Observations

• Education - All settlement planners and structured settlement professionals need to understand how structured settlement transfers work - and how to advise other structured settlement stakeholders, including claimants, about structured settlement transfers. IRC Section 5891 was enacted more than four years ago. 46 states have enacted structured settlement protection statutes. NSSTA and SSP have not provided adequate education about settlement transfers - either for their members or for other structured settlement stakeholders. If NASP decides to expand its educational program to a wider audience, their programs will represent a valuable additional learning resource for structured settlement and settlement planning professionals.
• Perspective - As a structured settlement professional, it was valuable for me to hear about structured settlements and settlement transfers from different perspectives - including the President-elect of NCOIL, a Uniform Law Commissioner, a law professor, and a bankruptcy specialist as well as from attorneys who represent factoring companies and transfer petitioners. All structured settlement professionals should seek out and consider multiple perspectives about their complex and transitioning business as well as about important and controversial structured settlement subjects like factoring.
• Self-criticism - NASP's educational program included plenty of criticism about the business practices of some factoring companies. Willingness to invite and consider criticism, especially about important issues, represents a healthy attitude for every professional, organization and association.  NASP now has an opportunity and a challenge to address the issues and business conduct resulting in this criticism and work toward improving settlement transfer business standards and practices.
• Attendance - The number of attorneys attending the NASP conference was surprising and positive. Their questions and observations about settlement transfers and structured settlements were interesting and varied. As the structured settlement market becomes increasingly integrated with both personal injury legal processes and settlement planning, participating professionals (including lawyers, judges, legislators, regulators, mediators, guardians, care planners, allocators, trustees and custodians) need updated and improved educational programs about structured settlements, payment rights and payment transfers.

Thanks to NASP for inviting me to speak at NASP's 2006 Affiliate Member Conference.

For additional information about structured settlement transfers, see and/or listen to:

• This earlier S2KM blog post;
• Chapter 16 of hardcopy "Structured Settlements and Periodic Payment Judgments", co-authored by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert;
• 2005 ABA article, co-authored by Daniel W. Hindert and Craig H. Ulman;
• Wisconsin Law Review article, by Adam F. Scales;
• Podcasts interviews and blog posts by Mark Wahlstrom, John Darer and Matt Bracy accessible on The Settlement Channel.

For all of S2KM's blog posts about NSSTA, click here.

For all of S2KM's blog posts about SSP, click here.

Jack Meligan Interview

This post summarizes a recent audio podcast interview of guest Jack Meligan by host Mark Wahlstrom for "The Settlement Roundtable", a regular, featured program on the Settlement Channel and the Legal Broadcast Network.

Jack Meligan and host Mark Wahlstrom, leading settlement planners, provide their professional analysis of two legal opinion letters currently being circulated among trial attorneys and the structured settlement industry in the most recent "Settlement Roundtable" audio podcast published on the Legal Broadcast Network (LBN) website. 

The opinion letters, written by law professors Stephen A. Saltzburg of George Washington University and Erwin Chemerinsky of Duke University,  are also posted on the LBN website.  The opinion letters identify and address ethical duties and potential conflicts of interest faced by plaintiff attorneys and structured settlement experts when compensation is received from third party sources - including annuity providers and defendant structured settlement experts.

Last month Meligan and attorney Frank Johns, a leading settlement planning ethicist, analyzed the same legal opinion letters in separate presentations at the 2006 Annual Meeting of the Society of Settlement Planners (SSP). For a summary of their SSP presentations, see S2KM’s earlier weblog post titled “SSP 2006 Annual Meeting”.

During his “Settlement Roundtable” podcast interview with Wahlstrom, Meligan highlights his SSP analysis. Meligan says he anticipates important changes in structured settlement business practices resulting from these opinion letters. Characterizing the opinion letters as “one of the best things I have seen for the structured settlement industry”, Meligan urges plaintiff structured settlement experts to:

• Distribute and discuss the opinion letters with plaintiff attorneys;

• Address these issues proactively as part of the plaintiff’s negotiation strategy.

For additional reports about:

• Compensation disclosure - see earlier S2KM weblog post titled  "Macomber v. Travelers - Update 2".
• Future of Structured Settlements - see earlier S2KM weblog post titled "The Future of Structured Settlements."

Macomber v. Travelers - Update 2

The recent decision by the Connecticut Supreme Court in Macomber v. Travelers did not represent a victory for either the defendants or the plaintiff according to Ralph Stone, the lead plaintiff attorney.

During a March 31, 2006 podcast interview with Mark Wahlstrom  currently featured on The Settlement Channel,  Stone provided his perspective on the decision. 

Here are highlights from Mark Wahlstrom's audio interview with Ralph Stone:

“The defendants have very little to be happy about", according to Stone. "The reasoning of the Connecticut Supreme Court had nothing to do with what the defendants were seeking in their appeal of class certification.”

In considering the Macomber case for a second time, the Connecticut Supreme Court reached two decisions.  Stone characterized the first decision, that the plaintiff Lisa Macomber does not have a claim against Solomon Smith Barney, as “trivial”. “We have always had our sights on Travelers. Travelers is really the wrongdoer here.”

Stone described the second decision as criticism of the trial court, as well as the parties, for limiting discovery. The Connecticut Supreme Court determined the discovery process was inadequate to certify a larger class under Connecticut law and remanded the case to the trial court for additional proceedings. Stone pointed out the defendants, not the plaintiff, wanted to limit discovery. The trial court agreed with the defendants and limited discovery to 28 cases out of potentially thousands nationwide.  On remand, the discovery process is expected to be more comprehensive.

Stone would not predict any timetables for discovery noting the Macomber case in now eight years old. The new trial judge will be the fifth trial judge in the case according to Stone.

Acknowledging the Macomber case is one of the most important and divisive within the structured settlement industry, Stone said he hopes the case will raise awareness among plaintiff attorneys about the structured settlement conduct of some defendants and insurance carriers that Stone and his client, Lisa Macomber, allege is illegal.  “A number of insurers have already abandoned these practices,” Stone said.

Stone characterized the alleged improper business conduct by Travelers as “kickbacks” involving the purchase of annuities to fund structured settlements. He called the practices unfair and abusive  violations of Connecticut’s Unfair Trade Practices Act and Unfair Insurance Practices Acts.  "When people settle their claims, they want to know what their claims are worth. We hope to improve disclosure in the structured settlement industry.”

Stone predicted more litigation involving structured settlements.  Referencing investigations by New York Attorney General Eliot Spitzer, Stone said “insurers will be exposed and called to task for conduct they have been trying to hide."

Additional Resources for Macomber v. Travelers:

• Mark Wahlstrom's audio interview of Ralph Stone

• Opinion of the Connecticut Supreme Court

• Prior S2KM weblog posts:
  • March 28, 2006
  • December 3, 2004

 

Macomber v. Travelers - Update 1

The Connecticut Supreme Court has reversed the most recent trial court order In the Macomber v. Travelers case (certifying the case as a class action and certifying the plaintiff as representative of the class) and remanded the case to the trial court with a direction to deny the plaintiffs’ motion for class certification and for further proceedings according to law. 

For additional background about the Macomber case, see this December 3, 2004 weblog post .

For additional commentary about the Connecticut Supreme Court decision:

• Audio podcast interview of plaintiff attorney  Ralph Stone by Mark  Wahlstrom - this interview also appears on The Settlement Channel;

• S2KM  April 1, 2006 weblog post summarizing the audio interview.

The Macomber case was argued December 1, 2005. Although the Connecticut Supreme Court decision will not be officially released until April 4, 2006, a copy of the decision is posted on the State of Connecticut website.

The Macomber complaint alleges that the defendants routinely engaged in two types of wrongdoing (rebating and shortchanging) while utilizing structured settlements to resolve personal injury cases. The defendants include: Travelers Group, Inc.; Travelers Property and Casualty Corporation; Travelers Equity Sales, Inc; Travelers Life and Annuity Company; and Soloman Smith Barney Holdings, Inc. 

This most recent decision represents the second time the Connecticut Supreme Court has considered the Macomber case. In an earlier appeal, the court held that plaintiffs’ complaint alleged legally cognizable damages and remanded the case for further proceedings. Following the remand, one of two plaintiffs withdrew her claim leaving Lisa Macomber as the sole plaintiff. 

In the subsequent trial court action, plaintiff Macomber moved for class certification and requested that she be certified as representative of the class.  The proposed class included: “all persons who [since 1982] settled claims with [Travelers Casualty] insureds through structured settlements that involved rebated commissions on the annuities used to fund the settlements, and/or …as to which [Travelers Casualty] spent amounts less than the sums it represented as the costs or then-present values of the annuities used to fund the structured settlements.” 

After limited discovery and an evidentiary hearing, the trial court granted the plaintiff’s motion for class certification as to four counts: 

• Breach of contract

• Violations of Connecticut’s Trade Practices and Insurance Practices Acts

• Civil conspiracy

• Unjust enrichment

The defendants appealed the trial court’s decision claiming the trial court abused its discretion by: 

• Certifying the case as a class action because individual issues of law and fact overwhelm any issues common to the class;

• Certifying the plaintiff’s claims as typical of absent class members and certifying her as an adequate class representative;

• Ruling that a class action is superior to other methods of adjudication. 

In reversing the trial court’s certification ruling, the Connecticut Supreme Court criticized the discovery process used for class certification. The trial court had randomly selected 28 cases from among thousands. The Connecticut Supreme Court refused to endorse the discovery procedure because the trial court record did not establish the selected cases were materially representative of the proposed class. 

Although the Connecticut Court acknowledged that doubts regarding the propriety of class certification should be resolved in favor of certification, it determined the trial court had abused its discretion because the trial court: 

• Did not undertake the requisite analysis to determine whether individual issues predominated;

• Ruled preliminarily that Connecticut law would govern the case. 

Significantly, the Connecticut Supreme Court declined to rule that the Macomber case is inappropriate for class certification at this stage of the proceedings. To the extent the files do not disclose representations concerning class certification, the court held plaintiffs responsible for establising the necessary representations by virtue of oral testimony from the absent class members and the appropriate claim adjustors or other agents. 

Attorneys arguing the case included: 

• For the plaintiff: Ralph M. Stone, John C. Matulis, Jr., and Thomas G. Ciarlone, Jr.;

• For the defendants:  Thomas J. Groark, Jr., John A. Neuwirth, Michael Shea, James K. Robertson, Jr., Jonathan Margolis, and Adam Schloss; 

• As amici curiae, on behalf of the Connecticut Business and Industry Association, Inc.: Katherine A. Scanlon and Peter J. Vodola.

Self-funded Settlement Transfers

As more structured settlement annuity providers initiate self-funded transfer (aka factoring) programs, agents for those annuity providers should prepare for increased due diligence about settlement transfers prior to the settlement of all personal injury cases and some workers compensation cases. Here are some questions about settlement transfers that settlement planners and structured settlement sales representatives should be prepared to answer:

• Does your annuity provider currently purchase payment rights from structured settlement claimants?  If not, why not?
  

• If yes, when did your annuity provider begin its self-funded transfer program?

• Does your annuity provider’s self-funded tranfer program, company or product have a name?

• How does your annuity provider market its transfer program?

• What are the key features of your annuity provider’s transfer program?

• Does the program qualify as a commutation?  A settlement transfer?  Or both?

• Does the program offer purchases or loans?

• What types of transfer cases does your annuity provider purchase - Lifetime obligations?  Deferred lump sums?  Workers compensation?

• What additional underwriting guidelines does your annuity provider follow to meet the “best interest” tests under state structured settlement protection statutes?

• Does your annuity provider purchase payment rights from structured settlement annuities issued by other annuity providers?

• What information about settlement transfers, if any, does your annuity provider offer its current structured settlement annuity recipients?

• What information about settlement transfers, if any, does your annuity provider offer for parties who are negotiating the resolution of a personal injury or workers compensation case?

• Has your annuity provider obtained any tax rulings or opinion letters to support its transfer program?

• What compensation, if any, does your annuity provider pay to:

• Agents who originated the structured settlements if and when your annuity provider purchases resulting payment rights?

• Other intermediaries who identify and (re)-introduce transfer cases to your annuity provider?

• What pricing criteria does your annuity provider use to purchase structured settlement payment rights?

• How does your annuity provider’s current pricing compare with other transfer companies?

For additional information about settlement transfers see:

• S2KM's earlier weblog post titled "Structured Settlement Transfers" ;
• New Chapter 16 in hardcopy  "Structured Settlements and Periodic Payment Judgments"  -  available  April  2006.

For additional information about self-funding of settlement transfers see: "Settlement Transfers - Wentworth and Symetra".