The Executive Life of New York (ELNY) liquidation, which occurred on April 16, 2012 represented the dominant structured settlement story of 2011, 2012 and 2013 and one of the most important developments in the history of the United States structured settlement industry.
Related follow-up litigation continued during 2014. Individual ELNY shortfall payees filed class action lawsuits against various structured settlement brokers. Other ELNY shortfall payees and their attorneys lost their appeal of a Contempt Order.
Class Action Lawsuits
Separate (but nearly identical) class action lawsuits were filed in Florida and Oregon during 2014 on behalf of ELNY shortfall victims against named and unnamed structured settlement brokers. In the Florida case, against EPS Settlement Group (EPS) and various brokers, a federal judge granted defendants' Motion to Dismiss the plaintiffs' claims with prejudice on December 17, 2014. The Oregon case, which remains unresolved, names Ringler Associates Incorporated (Ringler), Paul Hoffman (as the individual agent who brokered structured settlement annuities for the named plaintiffs) and John Does 1-100 as defendants.
Note: A prior and separate class action lawsuit filed in New York in 2012 by ELNY shortfall victims against Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse) as defendants was voluntarily dismissed in 2013 without prejudice.
Oregon Class Action
The 2014 Oregon class action Complaint was filed in U.S. District Court and alleges Ringler, Hoffman and John Does 1-100 violated state statutes and their alleged duty of care to ELNY shortfall victims whose structured settlements were funded with qualified assignments and who resided in states where ELNY was not licensed to sell insurance when their settlements were consummated.
The John Does 1-100 "represent those individual insurance brokers who, as employees and/or agents of Ringler, its affiliates, or predecessor companies, brokered the sales of the SSAs at issue in this case, of which members of the proposed class were beneficiaries." The complaint further states "that with proper discovery into the matter these Defendants can be identified, and the complaint can be amended at a later date to include the individual names of these Defendants."
The Complaint against defendants Ringler et al. (Defendants) identifies two causes of action:
- Negligence - failing to disclose facts about ELNY's deteriorating financial condition.
- State statutory violation - prohibiting persons from assisting unlicensed insurers transact business.
Although the negligence counts do not state specific amounts of damages, the statutory violation counts claim "Plaintiffs and Statutory Subclass members are entitled to damages for the fulI amount of their unpaid claims pursuant to the State Statutes."
Defendants filed a Motion to Dismiss on June 26, 2014 plus a subsequent Request for Judicial Notice in Support of their Motion. On December 5, 2014 a Magistrate issued:
- Opinion and Order - granting in part and denying in part Defendants' Request for Judicial Notice.
- Findings and Recommendations (to be referred under advisement to a district judge) - that Defendants’ Motion to Dismiss should be granted in part as to Defendants’ alleged continuing duty to inform plaintiffs that their coverage may be threatened due to ELNY’s declining financial condition and otherwise should be denied. Note: Although the Magistrates' Findings and Recommendations identifies December 22, 2014 as the due date for any objections, S2KM has been informed that Defendants requested and received a scheduling extension.
ELNY Contempt Order
In response to the 2012 New York class action lawsuit, Judge John Galasso issued a Contempt Order on January 25, 2013. He also imposed a $5000 fine and threatened additional fines plus imprisonment of legal counsel if the ELNY structured settlement shortfall payees did not dismiss their Federal action which they did (without prejudice) on February 7, 2013.
The ELNY shortfall payees who filed the New York class action and their attorneys appealed Judge Galasso's Contempt Order which was argued before the Supreme Court of the State of New York Appellate Division Second Judicial Department on October 3, 2014. On November 5, 2014, the Court issued an Order dismissing the appeal by the shortfall payees and affirming the Contempt Order as to their attorneys.
Reliance Insurance Company was declared insolvent in 2001 and the Pennsylvania Insurance Commissioner was appointed as Liquidator. The Reliance Estate, however, remained open and its assets, until November 4, 2013, included approximately 3,400 structured settlements of which approximately 3093 involved annuities issued by United Pacific Life Insurance Company, a former Reliance subsidiary which Reliance sold in 1993 and which is now known as Genworth Life Insurance Company.
Pennsylvania Commonwealth Court Judge Bonnie Brigance Leadbetter signed an Order on November 4, 2013 approving a Transfer and Assumption Agreement whereby Reliance will transfer all Reliance-owned structured settlement annuity contracts and corresponding payment obligations issued by Genworth Life Insurance Company to a new corporation, the Genworth Annuity Service Corporation.
At one time a major provider of structured settlement annuities, Genworth and its life insurance affiliates have subsequently received financial downgrades by various rating agencies. As of this blog posting, for example, Standard & Poors rates Genworth Life Insurance Company as BBB+ which qualifies as "high yield" or "non-investment grade" - the same "junk bond" category that characterized ELNY's investments before it entered rehabilitation in 1991.
In its recent SEC filings, JGWPT Holdings, Inc. warns potential investors for its structured settlement securitizations about investment risks including "the insolvency or downgrade of a material number of structured settlement issuers".
Should structured settlement recipients receive similar warnings about the potential (or actual) financial deterioration of their structured settlement funding entity(s)?
Various ELNY lawsuits, including the Oregon class action case summarized above, suggest (at least indirectly) these types of related questions:
- What is the scope of post-settlement responsibilities, if any, for structured settlement brokers and/or settlement planners?
- Should a structured settlement broker (defense or plaintiff) or settlement planner be legally responsible for warning structured settlement recipients if and when an annuity provider or assignee experiences a deteriorating financial condition?
- What about the annuity provider or assignee itself?
- If any such legal responsibilities exist, what criteria would define a deteriorating financial condition?
For prior S2KM summaries of ELNY and Reliance with additional informational links, see:
- Structured Settlements 2013 - ELNY and Reliance.
- Structured Settlements 2012 - Executive Life of New York.
- Structured Settlements 2011 - Executive Life of New York
For additional S2KM blog posts summarizing 2014 structured settlement developments (primary market; secondary market; settlement planning), see the structured settlement wiki.