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.

2007 Advanced Elder Law Institute

The National Academy of Elder Law Attorneys (NAELA) hosted its 2007 Advanced Elder Law Institute November 2-4 at The Peabody Hotel in Memphis, Tennessee under the leadership of NAELA's 2007 President Mark Shalloway and NAELA's 2007 Institute Chair Christine A. Alsop.

Titled "Elder Law and Advocacy: It's Now or Never", the NAELA conference featured 24 outstanding and diverse presentations. In addition to 275 NAELA members, 23 law students attended. NAELA's 2007 law school writing competition attracted 26 submissions.

Highlights from the Advanced Elder Law Institute:

• The 24 presentations included four breakout sessions offering multiple program options plus extensive supporting written materials.
• Tim Nay and Stephen Dale were honored as recipients of NAELA's 2007 Powley Award and Gelardi UnAward respectively.
• Mariam Piven Cotler, a bioethicist, presented the 2007 Clifton Kruse, Jr. Professionalism and Ethics Luncheon address.
• 21 exhibitors confirmed a growing awareness that NAELA's 4700 members represent an important market for many product and service providers.
• NAELA's Not Ready For Prime Time Players performed two amusing scenes from "Sly Fox" with proceeds donated to the Alzheimer's Association of Memphis.
• NAELA's PAC sponsored a tour of Graceland with dinner at the Elvis Presley Car Museum.
• NAELA's President Mark Shalloway impersonated "The King" (born in 1935) as a 72 year old senior citizen complete with walking supporter and nurses.

From a structured settlement perspective, the following NAELA presentations were especially valuable:   

• "Representing the Unwary Client After the Purchase of Unsuitable Annuities"
  
  • Andrew S. Friedman, an Arizona plaintiff attorney who specializes in class action lawsuits, summarized current class action lawsuits against insurers and insurance agents who sell deferred annuities to senior citizens.
  • None of the defendants Friedman identified appear to be NSSTA or SSP members.
  • Although the annuity products (equity-indexed vs. fixed annuities) and the sales targets (elderly persons vs. personal injury victims) are different, structured settlements (at least the primary market) appear to share many of the business practices Friedman described.
  • According to Friedman:
    • The equity-indexed annuities are sold through "independent insurance agents";
    • Many of these insurance agents:
      • Promote their professional expertise with:
        • Bogus credentials (example: "Certified Estate Planning Specialist") resulting from a one or two day "certification program"; and
        • Assurances that state insurance departments regulate insurance sales practices - which, according to Friedman, is totally inadequate to prevent sales abuses.
      • Invariably recommend annuities and do not sell any other product;
      • Do not undertake any due diligence to prevent misleading or incomplete sales presentations;
      • Promise high rates of return, safety, liquidity and assets sheltered from potential creditors with no taxation;
      • Intentionally conceal or fail to disclose important information about their products;
      • Engage in the unauthorized practice of law;
      • Make sales misrepresentations and omissions - for example: "you don't pay me anything".
      • Develop marketing and sales materials that appeal to vulnerable elderly investors and exploit their fears of risky or insecure investments and living out their retirement years without financial security.
    • The insurance companies pretend to be innocent and to know nothing about these allegedly unethical business practices;
    • The class litigation claims include RICO conspiracy charges against three groups:
      • Annuity companies;
      • Insurance sales agents;
      • Related companies that assist with product development, marketing and administration.
• "Advocating for the Most Vulnerable: Financial Exploitation Lawsuits to Discover and Recover Assets Stolen from Persons with Disabilities"
  • Charles P. Golbert, Deputy Public Guardian for the Office of the Cook County Public Guardian, explained how financial exploitation of elderly and disabled persons is becoming more common and widespread.
  • Golbert summarized the common legal theories for recovery:
    • Incapacity;
    • Undue influence, coercion and duress;
    • Breach of fiduciary duty; and
    • Fraud.
• "Comprehensive Representation of Personal Injury Plaintiffs and Special Needs Trusts"
  • Frank Johns, an expert in disability rights, special needs trusts and legal ethics, outlined a process for elder law attorneys to negotiate their engagement for special needs trusts in personal injury litigation.
  • Johns' presentation included annotated documentation addressing as many as five potential roles for elder law attorneys:
    • Drafting the special needs trust;
    • Appearing in court to obtain approval of the trust;
    • Drafting a qualified settlement fund;
    • Administering a qualified settlement fund;
    • Drafting an RFP for potential structured settlement consultants;
  • Johns' proposed RFP for structured settlement consultants:
    • Addresses structured settlement:
      • Roles;
      • Expertise; and
      • Services.
    • Does not currently address structured settlement compensation issues.
• Clifton Kruse, Jr. Professionalism and Ethics Luncheon Address
  • Miriam Piven Cotler's presentation was one of multiple NAELA programs that addressed ethical issues;
  • Cotler warned against common perceptions and misperceptions about the elderly including the dangers of becoming paternalistic.
  • According to Cotler, when the primary issues relate to power and control, "you can forget about ethics".
• "Why Can't We All Just Get Along: The Battle Between Special Needs Trusts, Retirement Accounts and Tax Rules"
  • Bradley J. Frigon, a NAELA Director who recently participated as a featured speaker at the NSSTA 2007 Fall Regional Meeting, addressed this complicated relationship of overlapping and sometimes conflicting laws.
  • One recommended follow-up would be a similar presentation about the relationship among special needs trusts, personal injury settlements and tax rules.   
    
  • Concept maps represent a valuable communication tool for explaining and discussing complex overlapping legal rules.

Congratulations to NAELA for an educational and enjoyable Advanced Elder Law Institute.  NAELA's 20th Anniversary 2008 Symposium will take place May 14-18 at the  Hyatt Regency Maui Resort and Spa.

For additional S2KM reporting about NAELA, see:

• NAELA Annuity Policy White Paper
• NAELA 2006 Advanced Institute
   

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.

Rapid v. Symetra

A recent, unpublished legal decision (Rapid Settlements v. Symetra Life Insurance Company) from the California Court of Appeals (Fourth Appellate District; Division Two) 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. In this case, those interested parties were Symetra Assigned Benefits Service Company (SABSCO) and Symetra Life Insurance Company (Symetra Life) - collectively referred to as Symetra.

The decision over-ruled the trial court which had earlier approved the transfer to Rapid of $40,000, one-third of a $120,000 future periodic payment due to claimant Randy L. Griffin pursuant to a structured settlement agreement (SSA) signed in September 1993. In appealing the order approving the transfer, Symetra successfully contended the order should be reversed and the transfer declared void because the $40,000 payment was not assignable under the terms of the SSA. Based upon its ruling in favor of Symetra, the appellate court did not consider Symetra's additional contention that the transfer failed to comply with the requirements of California's structured settlement protection act.

When an interested party objects to the assignment of structured settlement payment rights, there are two basic legal questions: 1) does the structured settlement agreement clearly forbid assignment?  And if so, 2) does state law override a contractual anti-assignment provision?

The appellate ruling in this case is consistent with the majority of prior cases addressing these issues. It rejected the trial court's decision which "relied on the 'general policy favoring the free alienation of contract rights' to payment, as opposed to contractual duties, and indicated that the non-assignment provision appeared to be 'solely for tax purposes.' "

What makes this decision interesting, and controversial, is Rapid's argument that Symetra had itself actively solicited the assignment of Griffin's payment rights despite the anti-assignment language in the structured settlement agreement and that this "establishes that the practical interpretation of the contract, as evidenced by Symetra's words, acts and conduct, is that Griffin's payment rights are in fact assignable and Symetra has objected on a purely competitive basis."

The California appellate court disagreed with Rapid. It reasoned: "...under California law it is clear that non-assignment provisions are for the benefit of the obligor, and only the obligor has the right to waive the provisions...As the obligor, Symetra may choose to enforce or waive the non-assignment provisions of the SSA. That it chose not to waive the provisions in favor of Rapid does not mean Symetra may not waive the provision in favor of itself or an affiliate entity."

Therefore, at least in California, when structured settlement documentation includes clear and unambiguous anti-assignment provisions, an annuity provider such as Symetra appears to have the power: 1) to prevent a proposed transfer; and 2) to restrict a transfer to a specific factoring company including an affiliated factoring company.

This result is similar to a defense insurance company conditioning a structured settlement upon the selection of its affiliated annuity provider.

Both practices are anti-competitive and should be avoided.

For current and future cases, all structured settlement participants should review the settlement language in NSSTA's revised Model Qualified Assignment (MQA) Agreement - paragraph 7 (Acceleration, Transfer of Payment Rights) and the related footnote.

For additional information about anti-assignment language in structured settlements, see "Structured Settlements and Periodic Payment Judgments" - Chapter 16 ("Transfers of Structured Settlement Payment Rights").

For additional S2KM blog posts about factoring, see:

• Structured Settlement Transfers: Good or Bad?
• How the Primary Market Views Factoring
• Self-funded Settlement Transfers
• Review of "Structured Settlements: Factor vs. Commute?" - an article by Robert W. Wood

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."