Beyond Structured Settlements

West Virginia Update

The West Virginia legislature has amended and reenacted the state's current structured settlement protection statute.  According to Representative Ronald N. Walters, one of the bill's sponsors, West Virginia Governor Joe Manchin is expected to sign House Bill 4613 into law within the next few days.

The reenacted statute is noticeably different than West Virginia House Bill 4380 which S2KM previously summarized. Most significantly, the reenacted statute does not include any maximum discount rate. The original bill contained a maximum discount rate not to exceed "the current annual average percentage rate of interest on twenty year residual mortgages offered in this state, as determined by the banking commissioner." Factoring companies claimed this maximum discount rate would eliminate structured settlement transfers in West Virginia. Walters acknowledged his original intent was to do just that.

If signed into law by Governor Manchin, the amended West Virginia statute (now titled House Bill 4613) will:

• Add some consistency between West Virginia's statute, IRC section 5891 and the Model State Structured Settlement Protection Act (Model Act) by:
  • Broadening application from "an infant or an incompetent person" to anyone with structured settlement payment rights arising from a personal injury or other claim; and
  • Eliminating a $40,000 threshold amount;
• Confirm that a court may appoint a guardian ad litem for any person; and must appoint a guardian ad litem for an infant, an incompetent or a ward of the court;
• The court will award the guardian ad litem reasonable fees for representing the consumer.
• The transfer company will pay for "such attorneys' fees and costs".
• Require the guardian ad litem to:
  • Review the requisite disclosures;
  • Make an independent inquiry to determine whether the proposed transfer:
    • Is fair and reasonable;
    • In the best interests of the consumer and any dependents of the consumer;
    • Has not been attempted or accomplished before.
• Report the results of that inquiry to the court during the hearing;
• Inform the consumer about "possible adverse tax consequence to the consumer" - a responsibility the guardian ad litem and the transfer company will now jointly share in West Virginia;
• Reconfirm the current West Virginia approval standard: the consumer must now "clearly" demonstrate that
  • He or she, or his or her family, is facing a financial hardship that the transfer would alleviate and the transfer would not subject the consumer or the consumer's family to undue hardship; or
  • The transfer is in the best interest of the consumer.

Reaction from the factoring companies to the new West Virginia statute has been generally positive. According to Earl Nesbitt, Executive Director of the National Association of Settlement Purchasers (NASP), the amended West Virginia legislation will have a "minimal impact".

Nesbitt, however, did express concern about NSSTA's conduct (or lack thereof) in West Virginia. In Nesbitt's view, NSSTA's failure to actively lobby for the Model Act in West Virginia violated the spirit, if not the letter, of NSSTA's 2000 agreement with NASP to support the Model Act.

NSSTA representatives have refused to comment about the West Virginia legislation - except to say  "NSSTA supports the Model Act."  According to Walters, NSSTA's General Counsel Craig Ulman did contact Walters early in the process to communicate that "NSSTA supports the Model Act". Other than one telephone communication, however, Walters said he has heard nothing from NSSTA and has received no support from NSSTA. "Craig [Ulman] told me I was on my own".

In Walters' view, "the Model Act does not go far enough". According to Walters, "West Virginia's new law will provide greater protection and greater clarification plus a tougher standard" than the Model Act. Walters said he may introduce additional legislation in 2009 requiring factoring companies to have insurance licenses.  Walters, one of legislative sponsors of West Virginia's House Bills 4380 and 4613, also manages the Charleston, West Virginia office of Structured Financial Associates, Inc. (SFA). SFA is a NSSTA member although Walter individually is not.

Some of the questions NSSTA members should be asking their leaders (and themselves) about settlement transfers:

• What are NSSTA's legislative and educational objectives and strategies for settlement transfers?
• What does NSSTA mean when NSSTA says "we support the Model Act"?
• How did NSSTA support the Model Act in West Virginia?
• Is the new West Virginia statute better or worse than the Model Act:
  • For consumers?
  • For state judges?
  • For transfer companies?
• What should NSSTA members say to their clients and other structured settlement stakeholders about settlement transfers?
• What conduct by NSSTA members represents best professional practices relative to settlement transfer issues and responsibilities?

For additional information:

• West Virginia's Structured Settlement Protection Statute - see this prior S2KM blog post.
• State Structured Settlement Protection Statutes - see Chapter 16 of "Structured Settlements and Periodic Payment Judgments"
• Secondary Life and Annuity Markets - see this prior S2KM blog post.

West Virginia House Bill 4380

The 2000 agreement between the National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP) to support the Model Structured Settlement Protection Act (Model Act) appears to be in jeopardy this week in West Virginia.

Since 2000, NSSTA and NASP have jointly promoted the Model Act to state legislatures with considerable success including support from state attorneys general, state bar associations and the National Conference of Insurance Legislators (NCOIL). Forty-eight states have enacted structured settlement protection statutes many of which are patterned after the Model Act.  Recent amendments to these state protection statutes, such as Pennsylvania Rule 229.2, have generally received favorable reviews from both NSSTA and NASP.

NASP representatives, however, are accusing NSSTA of violating their legislative agreement by failing to oppose West Virginia House Bill 4380. Currently under consideration by the West Virginia House Banking and Insurance Committee, House Bill 4380 would amend and reenact Section 46A-6H-3 of the Code of West Virginia titled "Transfers of Right to Receive Future Payments".

The stated purpose of House Bill 4380 is "to increase protection of beneficiaries to structured settlements as they relate to settlement transfers". In its current form, House Bill 4380 contains three controversial provisions not included in the Model Act:

• A requirement for a court to approve a guardian ad litem for the consumer in all transfer cases;
• A "clear and convincing evidence...of financial hardship" standard in addition to the Model Act's "best interest" standard;
• A maximum discount rate not to exceed "the current annual average percentage rate of interest on twenty year residual mortgages offered in this state, as determined by the banking commissioner."

Representatives of NASP, which opposes House Bill 4380, claim the above provisions violate the Model Act and, if enacted, could effectively end structured settlement transfers in West Virginia. NASP representatives have called upon NSSTA to honor its agreement to support the Model Act by opposing House Bill 4380. NASP contends that NSSTA's failure to oppose House Bill 4380 is a de facto violation of their 2000 legislative agreement and threatens future cooperation between the two trade associations. In addition, they point out that Ronald N. Walters, one of legislative sponsors of House Bill 4380, also manages the Charleston, West Virginia office of Structured Financial Associates, Inc. (SFA).  SFA is a NSSTA member.

According to a NSSTA source, however, "NSSTA has had nothing to do with introducing House Bill 4380.  Although NSSTA does not intend to oppose House Bill 4380, NSSTA still approves the Model Act."

For additional information about state protection laws, see Section 16.04 ("Structured Settlement Protection Acts") in "Structured Settlements and Periodic Payment Judgments".