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.

Secondary Life and Annuity Markets - 1

Recent developments related to the secondary life insurance and annuity markets should encourage several professional associations to learn more about these markets - and to provide improved education in 2008 for their members about these markets.

Responsible professional associations include:

• The National Structured Settlement Trade Association (NSSTA)
• The Society of Settlement Planners (SSP)
• The National Academy of Elder Law Attorneys (NAELA)
• The American Association for Justice (AAJ)
• The Academy of Special Needs Planners (ASNP)
• The Special Needs Alliance (SNA)

Recent secondary market developments include:

• Mealey's Conference: "Life Insurance in the Secondary Market" - Mealey's in-person conference, developed in collaboration with Drinker Biddle, is occuring December 11-12, 2007 at the Harvard Club of New York City.
• Deal Flow Media (DFM) - DFM, a publisher and educator focusing on specialty financial markets including life settlements, has announced it will enter the structured settlement market in 2008.
• A.M. Best - A.M. Best recently introduced "Best's Structured Finance Center", a web portal for the insurance-linked securities market.
• NCOIL - The National Conference of Insurance Legislators (NCOIL) adopted a Model Life Settlements Act at its most recent meeting.
  

For additional information about life settlements, see:

• Wikipedia's "life settlement" entry
  
• New York Insurance Department's "Life Settlements: Top Ten Questions".
• Deal Flow Media's "The Life Settlements Report"

For additional and related S2KM commentary, see:

• Structured Settlement Secondary Market
  • Structured Settlement Transfers
  • Settlement Transfer Update
  • Settlement Transfers - Release 39
  • How the Primary Market Views Factoring
  • NSSTA Bylaw Amendments
  • J.G. Wentworth v. Peachtree Settlement Funding
  • Settlement Transfers: Wentworth and Symetra
  • Rapid v. Symetra
  • Review of Robert Wood's article: "Structured Settlements: Factor vs.Commute".
  • See also: Chapter 16 in hardcopy "Structured Settlements and Periodic Payment Judgments" written by Daniel Hindert, Joseph Dehner and Patrick Hindert.
• National Association of Settlement Purchasers (NASP)
  
  • 2007 Annual Meeting
  • 2006 Annual Meeting
  • NASP Wiki
• Deal Flow Media
  • Deal Flow Media structured settlement webinar
• Drinker Biddle
  • Drinker Biddle's "Structured Settlement Update"

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
   

Structured Settlement Educational Programs - Fall 2007

Fall of 2007 features many association meetings and educational events that should interest structured settlement attorneys, other structured settlement professionals and stakeholders.

This S2KM blog post:

• Highlights these Fall 2007 meetings and educational events; and
• Features related commentary and analysis from S2KM and structured settlement knowledge leaders.

National Structured Settlement Trade Association (NSSTA)

• 2007 Certified Structured Settlement Consultant (CSSC) Seminar - October 3-7 at the University of Notre Dame.
• 2007 NSSTA Fall Regional Meeting - October 10-12 in Tampa, FL.
• Prior S2KM coverage of NSSTA
  • NSSTA 2007 Winter Meeting
  • NSSTA Bylaw Amendments
  • NSSTA 2006 Fall Regional Meeting
  • NSSTA 2006 Annual Meeting

Society of Settlement Planners (SSP)

• 2007 SSP Fall Meeting - September 7-8 in Scottsdale, AZ
• 2007 SSP Registered Settlement Planner (RSP) Program: First Course - September 10 to December 12 at Texas Tech University.
• Prior S2KM coverage of SSP
  • SSP 2007 Annual Meeting
  • SSP's 2007 Educational Seminar
  • SSP to Create Professional Designation
  • SSP 2006 Annual Meeting
  • SSP's 2005 Annual Meeting

National Association of Settlement Purchasers (NASP)

• 2007 NASP Annual Meeting - October 18-19 in Washington, D.C.
• Prior S2KM coverage of NASP
  • NASP 2006 Annual Meeting
  • How the Primary Market Views Factoring

National Academy of Elder Law Attorneys (NAELA)

• 2007 NAELA Advanced Elder Law Institute - November 2-4 in Memphis, TN
• Prior S2KM coverage of NAELA
  • NAELA Annuity Policy White Paper
  • NAELA 2006 Advanced Institute

Special Needs Planners

• Special Needs Planning associations and educational institutions include:
  • Academy of Special Needs Planners (ASNP): Ask2007 Program - October 18 in Clearwater, FL
  • Special Needs Alliance (SNA): Fall 2007 Meeting - October 20 in Clearwater, FL
  • Stetson Law School - Special Needs Trust Program: October 18-19 in Clearwater, FL
• Prior S2KM blog posts about special needs planning
  • Academy of Special Needs Planners
  • Structured Settlements and Government Benefits
  • The Deficit Reduction Act of 2005
  • Inconvenient Questions
  • Selecting a Settlement Trustee
  • Special Needs Trusts
  • Settlement Trusts
• S2KM wiki for special needs planners
  • Structured Settlement Law

National Alliance of Medicare Set-Aside Professionals (NAMSAP)

• NAMSAP's 2007 Annual Meeting - November 2 in San Diego
• Prior S2KM coverage of NAMSAP
  • NAMSAP
  • Medicare Set-Aside Arrangements

American Association for Justice (AAJ)

• AAJ's two annual conventions for 2007 have already occurred.
• Prior S2KM coverage of AAJ
  • AAJ 2007 Annual Conference
  • AAJ 2007 Winter Meeting
  • AAJ 2006 Annual Meeting

Additional Educational Resources - for structured settlement attorneys, other professionals and stakeholders:

• Attorney Joseph J. Dehner addresses:
  • Structured Settlement Public Policy;
  • The DOJ's Structured Settlement Program
• Attorney Robert W. Wood addresses:
  • Structured Attorney Fees
  • Single Claimant 468B Fund
  • Structured Settlements: Factor vs. Commute?
• Additional S2KM blog posts, podcasts, wikis and concept maps:
  
  • Web 2.0 for Lawyers
• Social Network Technologies
• Introduction to Podcasting
• Knowledge Management and Structured Settlements
• Concept Maps
• Overview of the Structured Settlement Markets
• Structured Settlement Public Policy
• The Future of Structured Settlements
• Structured Settlement Transfers - aka factoring
• Structured Settlements and Government Benefits

• Hardcopy legal textbooks:
  • "Negotiating and Settling Tort Cases" - by Matt Garretson and Guy O. Kornblum
  • "Structured Settlements and Periodic Payment Judgments" - by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert
  • "Taxation of Damage Awards and Settlement Payments" - by Robert W. Wood

Structured Settlements and Government Benefits

The structured settlement industry currently is facing many challenges. Among the most difficult and important is whether and how structured settlement laws and products can be successfully integrated with government benefit laws and funding vehicles.

The primary structured settlement laws include federal tax laws and state protection statutes as well as state periodic payment of judgment statutes. The primary structured settlement product is the annuity funded qualified assignment. The relevant government benefit laws include Medicaid and Medicare. The primary funding vehicles for structured settlements related to Medicaid and Medicare are special needs trusts and Medicare set-aside arrangements.

The Deficit Reduction Act of 2005 (DRA), which is now being implemented by the Center for Medicare and Medicaid Services (CMS) and the state Medicaid agencies, represents the most immediate and serious challenge for structured settlements. Although the DRA does not specifically reference (or exclude) structured settlements, it does impose serious restrictions on annuities as qualification requirements for Medicaid long term care eligibility. These requirements, which potentially negate (or at least reduce) the advantages of structured settlements, include:

• Irrevocable
• Non-assignable

• Actuarially sound

• No balloon payments or deferrals

• State as beneficiary

In an article titled "The DRA of 2005 - What Havoc has Congress Wrought", attorney Sylvius von Saucken analyzes the arguments for and against applying the DRA to structured settlements - including structured settlements used to fund special needs trusts. Earlier this year, von Saucken summarized his article and conclusions in separate presentations to the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA). For a detailed review of von Sauken's article, see S2KM's three earlier blog posts titled "Inconvenient Questions".

To date, neither SSP nor NSSTA has announced any strategies to address the issues created by the DRA for structured settlements - or any long term plans to successfully integrate structured settlements with government benefit laws. Neither organization has significant internal expertise with government benefit laws or lobbying. As an additional challenge, Medicaid lobbying requires both federal and state strategies and resources. SSP has limited lobbying experience or resources. Although NSSTA has some experience with state lobbying (structured settlement protection statutes), most of its lobbying experience and expertise focuses on federal issues - primarily federal tax issues.

In contemplating their options and strategies for addressing the DRA and for positively integrating structured settlements with government benefits, both SSP and NSSTA should consider developing closer relationships with the following associations which do have expertise with government benefit laws and lobbying - as well as the human resources to effectively track changes and challenges created by state-specific Medicaid rules:

• The National Academy of Elder Law Attorneys (NAELA);

• The Academy of Special Needs Planners (ASNP); and

• The Special Needs Alliance (SNA).

For additional information about structured settlements and government benefits see Release 41 of "Structured Settlements and Periodic Payment Judgments".

NAELA 2006 Advanced Institute

The National Academy of Elder Law Attorneys (NAELA) hosted its 2006 Advanced Elder Law Institute (title: "Re-Visioning") November 2-5 at the Grand America Hotel in Salt Lake City. Established in 1987, NAELA is a non-profit organization consisting of 5000 members in the United States, Canada, Australia and the United Kingdom. NAELA assists lawyers, bar associations and others who work with older clients, persons with disabilities and their families.  NAELA's mission "is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of seniors and people with disabilities."

NAELA's "Re-Visioning" conference focused on the many changes impacting elder law practice such as the Deficit Reduction Act of 2005 and the expansion of elder law practice to include disability issues.

The Deficit Reduction Act of 2005 (DRA) created substantial changes to Medicaid long-term care eligibility rules.  NAELA devoted multiple conference presentations to the DRA - including its impact on annuities and annuity transfers. NAELA had previously organized a DRA Task Force and published a DRA White Paper - and then added a White Paper addendum following the CMS DRA guidelines which were issued on July 27, 2006. Several states have subsequently developed their own DRA-related regulations. NAELA's analysis and recommendations represent "must reading" for all settlement planners and structured settlement professionals. 

As elder law continues to expand into disability and special needs issues, elder law attorneys should be expected to play an increasingly important role in:

• Personal injury settlement planning - for injured claimants and their families; and

• Structured settlements - with government benefit programs increasingly permitting and/or mandating "blended products" (annuities payable into trusts or custodial accounts).

Although NAELA's 2006 Advanced Institute did not directly address settlement planning or structured settlements, several of the NAELA presentation topics were applicable especially:

• The Deficit Reduction Act of 2005 (DRA);

• How the DRA impacts annuities;

• How the DRA impacts special needs trusts;

• Ethics Post-DRA;

• The Future of Elder Law;

• Expanding Your Practice to Include Disability Issues.

Additional observations about the NAELA conference:

Organization - NAELA demonstrated excellent organizational skills in coordinating multiple speakers, exhibitors, topics, and presentation formats for 375 attendees during the three day Advanced Institute. The presentation formats included general sessions; breakout sessions; facilitated group discussions; plus a DRA Planning and Implementation "Town Hall" - all of which were exceptional. For general sessions, including the DRA Town Hall, two rows of seats were reserved for and filled with laptop users. The presenters uniformly encouraged questions and comments from an elite audience that featured law professors, industry commentators and leading practioners. The presentation handouts (a choice of hardcopy or CD ROM) contain detailed, current, and valuable practice resources.

Expertise and values - As demonstrated and discussed in Salt Lake City, NAELA members represent an impressive range of knowledge: Medicare and Medicaid planning; guardianship and mental capacity issues; long term care planning; estate planning; drafting trusts, including but not limited to, special needs trusts; advising trustees; serving as trustees; as well as advising clients about their rights and options for assisted living facilities, nursing homes, and continuing care communities. NAELA members understand annuities and advise clients about annuities. As knowledge workers, NAELA members also exhibit positive collaboration values and skill sets - such as intellectual curiosity, attentiveness, and a culture of knowledge sharing. NAELA appears to be a strong community of practice with an important mission and an exciting future.

Structured settlements and settlement planning - Despite a substantial knowledge overlap among elder law, disability law, structured settlements, and personal injury settlement planning, relationships between NAELA and related trade associations (specifically NSSTA and SSP) remain unfocused and disconnected. For example, although the NAELA exhibitors included trustees, trust administrators, annuity intermediaries, publishers, and educational providers, neither NSSTA nor SSP nor any of their voting members attended, exhibited or spoke at the NAELA Advanced Institute. For another example, neither NSSTA nor SSP has offered any educational programs in 2006 about the DRA - despite the impact of DRA on their members' products and business practices.

Congratulations to NAELA for an outstanding 2006 Advanced Institute.