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.

Executive Life Of New York - 1

Was it merely coincidental that New York Governor Eliot Spitzer announced an "agreement in principle" for Executive Life of New York (ELNY) the same week "agreements in principle" unraveled for multiple high profile college football coaches? 

As college football fans are learning, "agreements in principle" are not always agreements in fact - and the devil is frequently in the details.

Governor Spitzer's publicly announced ELNY "agreement in principle" did not include many details:

• The proposed ELNY plan:
  • Is designed to continue paying all ELNY annuitants 100% of their benefits;
  • Provides protection for approximately 11,000 ELNY annuity recipients including structured settlement recipients;
  • Requires and anticipates future approval by the New York Nassau County State Supreme Court.
• Various insurers and guarantee associations have agreed to pay $650 to $750 million to fund approximately $2 billion of future ELNY payments;
• The insurers include several named liability (casualty) insurers.

Some of many unanswered questions:

• Exactly what are ELNY's current problems?
  
• What factors caused these problems?
• Who was aware of these problems and when?
  
• What issues will the ELNY plan address?
• Who will be the contributors?
  
• How much will they contribute?
• How many liability insurers will ultimately contribute?
• How much will they contribute?
• Why are the liability insurers contributing?
• What potential issues do the liability insurers' contributions create for:
  • Reinsurers;
  • Intermediaries;
  • Product providers;
    
  • Trade associations?   
    
• Will the total contributions be enough to pay ELNY's obligations?
• What are the key assumptions underlying future payment predictions?
  
• When will the ELNY plan be approved?
• Who are the parties in interest?
  
• What issues are involved in the plan approval process?
• How many of ELNY's annuities are structured settlement annuities?
• How many of ELNY's structured settlement annuities were assigned?
• Who were the assignees?
• How many ELNY annuities have already been transferred in the secondary market?
• Of these annuity transfers, how many involve structured settlement annuities?
• Will the ELNY plan honor annuity payment rights that have already been transferred in the secondary market?
• What limitations, if any, will the ELNY plan impose on the future transfer of ELNY annuity payment rights?
• What legal precedents will the ELNY plan establish for future insolvencies involving structured settlement annuities?
• What lessons should the structured settlement industry learn from ELNY?
• Is this the last chapter of the Executive Life structured settlement saga?

For historical background about Executive Life Insurance Company from a structured settlement perspective, see Section 3.05 of "Structured Settlements and Periodic Payment Judgments".

----------------------------------------------

Addendum (added July 21, 2008) - In a July 8, 2008 Memorandum to National Structured Settlement Trade Association members (NSSTA) members, NSSTA General Counsel Hogan & Hartson provided an updated status report about ELNY.  According to Hogan & Hartson, in June 2008, the New York Liquidation Bureau distributed an outline of the proposed ELNY restructuring formulated in discussion among the Bureau, NOLHGA, certain NOLHGA members and various owners of ELNY structured settlement annuities. The outline reportedly summarizes major features of the proposed plan announced by former Governor Spitzer on December 10, 2007. 

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