Beyond Structured Settlements

Spring 2012 Conferences

During the next four weeks, S2KM will attend and review three professional educational conferences addressing structured settlement and settlement planning issues:

• Richard B. Risk Jr. Settlement Planning Practicum
• National Structured Settlement Trade Association (NSSTA) Annual Meeting
• Society of Settlement Planners (SSP) Annual Meeting

Risk Practicum

A national authority on structured settlement law, Richard Risk has endowed a series of annual settlement planning "practicums" at his law school alma mater, The University of Tulsa College of Law. Risk believes the 2012 practicum, scheduled for April 13-14, will represent the first time any law school in the country has formally recognized settlement planning as a topic of legal education. Speakers: Joseph Tombs; Patrick Hindert; Mark Popolizio; Jeremy Babener; Jack Meligan; Carl Pierce.

NSSTA Annual Meeting

NSSTA's Annual Meeting, scheduled for April 25-27 in Washington, D.C., will feature a mixed agenda of business and political meetings; NSSTA "Takes the Hill" meetings with Members of Congress and senior Congressional Staffers; plus an educational program headlined by Senator Max Baucus, Congressman Richard Neal, NOLHGA Chairman Thomas Ronce and President Peter Gallanis, Mike Montemurro of the IRS, a Congressional Chiefs of Staff panel, plus various NSSTA leaders and property & casualty insurance representatives.

SSP Annual Meeting

SSP will host its Annual Meeting April 29-May 1 in Las Vegas. The SSP educational program will feature 27 speakers discussing strategies to improve and grow the settlement planning market. Some of the SSP presentation categories:

• Revitalizing and reinventing structured settlements
• New NAIC annuity regulations
• Insurance, investment and administrative options
• Tax developments, strategies and legislative proposals
• Medicare (MSA) and Medicaid (SNT) updates
• What ELNY means for settlement planners

In addition to these three 2012 conferences, S2KM previously attended and reviewed the Academy of Special Needs Planners (ASNP) 2012 Annual Meeting. For S2KM's complete reporting about professional associations whose members participate in structured settlements and settlement planning, see the structured settlement wiki.

S2P2J Release 51

Publisher Law Journal Press anticipates an April 2012 distribution date for hardcopy supplements for Release 51 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Online S2P2J will also be updated April 2012 to include Release 51 materials. First published in 1986, S2P2J is co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) utilize S2P2J as an educational resource for their certification programs.

Release 51 Highlights

Release 51 for "Structured Settlements and Periodic Payment Judgments" features a comprehensive Executive Life update including expanded and updated coverage for the Executive Life of New York (ELNY) liquidation proceedings now in progress. In related reporting, Release 51 also:

• Expands and updates prior reporting for life insurance insolvency procedures and state guaranty association laws;
• Offers advice to plaintiff attorneys about how to address the risk of non-payment by annuity providers; and
• Summarizes recent case developments impacting Aurora, the successor company to Executive Life Insurance Company of California (ELIC),

Release 51 also updates Medicare Secondary Payer (MSP) developments and conditional Medicare payment requirements. Contributing author Peter H. Wayne IV provides current analysis and advice about Medicare Set-Aside (MSA) arrangements in liability cases discussing new and related case law, new CMS pronouncements and new CMS field office guidance with practice tips for structured settlement and settlement planning consultants, attorneys and claim supervisors.

Release 51 expands existing coverage of structured settlement business standards and practices including analysis of the following legislation impacting settlement planners:

• The NAIC Suitability in Annuity Transactions Model Regulation;
• The NAIC Annuity Disclosure Model Regulation;
• Dodd-Frank's impact on fiduciary and suitability standards; and
• The Uniform Prudent Investor Act.

Other topics addressed in Release 51:

• Structured settlement metrics for defendants and liability insurers.
• The Treasury's final regulations for IRC section 104(a)(2) incorporating amendments resulting from the Small Business Job Protection Act of 1996.
• The new IRS Lawsuits, Awards and Settlements Audit Techniques Guide.

"Structured Settlements and Periodic Payment Judgments" is now available in both hardcopy and online versions. For summaries of prior Release Highlights, see the structured settlement wiki.

Product Suitability Standards - 4

With declining annuity premium and historically low interest rates, structured settlement stakeholders should be discussing how to improve and grow their business. To help promote this discussion, S2KM's current blog series about "product suitability standards" highlights two fundamental issues rarely addressed during industry educational conferences:

• When is a structured settlement annuity appropriate for a specific physical personal injury claimant?
• What standards exist to help judges, guardians, trustees, mediators, attorneys, settlement planners, structured settlement consultants and other structured settlement stakeholders make this determination?

Potential sources for structured settlement product suitability standards discussed in prior S2KM blog posts:

• Part 1 - NSSTA's Code of Ethics; SSP's Standards of Professional Conduct; and the NAIC's Suitability in Annuity Transactions Model Regulation.
• Part 2 - State minors' statutes and state structured settlement protection statutes.
• Part 3 - The Uniform Prudent Investor Act (UPIA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)

Fiduciary Standard

Among other findings, S2KM's prior review points out a general legislative trend to protect investors and consumers with a more uniform fiduciary, and/or "best interest", standard of care. In general, a fiduciary standard is viewed as the highest legal standard of customer care requiring both a duty of care and a duty of loyalty. A fiduciary is required to act in the best interest of the investor and/or customer and to fully disclose all material facts plus any conflicts of interest. Trustees and investment advisers currently are held to a fiduciary standard which may soon also apply to financial planners and broker dealers. Many state minors' statutes and all state structured settlement protection statutes incorporate "best interest" standards.

Model Annuity Regulations

For some but not all annuity products, the National Association of Insurance Commissioners (NAIC) has created a "Suitability in Annuity Transactions Model Regulation". Significantly, the NAIC Model Suitability Regulation exempts structured settlements and provides less consumer protection than the fiduciary, and/or "best interest" standard. The NAIC has also promulgated an "Annuity Disclosure Model Regulation" "to provide standards for the disclosure of certain minimum information about annuity contracts to protect consumers and foster consumer education." It also exempts structured settlements. The legislative history of the NAIC Model Disclosure Regulation indicates that "[i]nterested parties spoke in favor of an exemption for sophisticated transactions such as ..... structured settlements."

A Hall Pass?

Do these NAIC exemptions mean that structured settlements have been given a "hall pass" for purposes of product suitability requirements? No. If structured structured stakeholders want to improve and grow their business, there are many reasons why they should: 1) understand the meaning and requirements of all three standards (fiduciary duty, best interest, and suitability); and 2) adopt better business practices that address and incorporate one or more of these product standards. Reasons include:

• Blended products - Structured settlement annuities increasingly are paid into trusts (UPIA standard) that also include financial products (Dodd-Frank standard).
• Multiple licenses - In addition to structured settlement annuities, settlement planners increasingly sell securities as well as multiple life insurance and annuity products.
• Competition - To successfully compete in today's economic and legal environment, structured settlement sales persons must adjust upward to match the higher product suitability standards and best business practices of their competitors.
• Clients and Stakeholders - As a matter of self-protection as well as consumer protection, many structured settlement clients (defendants; plaintiff attorneys) and stakeholders ( judges; mediators) will increasingly demand higher product and sales standards for injury victims.
• Lawsuits - In this era of accountability and compliance, all structured settlement participants are likely to be held to higher legal standards.

Three-Card Monte

Why do product suitability standards create issues for the structured settlement industry? At their worst, especially from the perspective of an unrepresented injury victim, some traditional structured settlement business practices not only fall far short of the fiduciary standard - they can resemble a game of "Three-card Monte" .

Misrepresentations or omission of material facts

• Cost or Value - From a claimant's perspective, a core strategy for traditional structured settlements often appears "to make a little money look like a lot of money". The Spencer v. Hartford class action allegations outline one "sophisticated" variation of this strategy which often depends on hiding or misrepresenting annuity "cost" and/or settlement "value".
• Guaranteed payments - Many structured settlement sales brochures continue to promise "guaranteed payments" without specifying who guarantees what if and when an annuity provider like Executive Life of New York (ELNY) becomes insolvent.
• Managed account - Many structured settlement recipients do not understand important product details when their case is settled including how structured settlements differ from managed accounts and why they cannot access funds without court approval pursuant to state structured settlement protection acts.
• Structured settlement myths- historically used to promote sales such as:
  • Studies show that nine out of 10 lump sum recipients squander the entire amount within five years.
  • Structured settlements enable injury victims to live free of reliance on government assistance.

Conflicts of interest - without written, informed client and/or customer consent

• Single product - The danger of single product structured settlement sales persons is not limited to whether his or her product is "suitable" or in the "best interest" of a particular claimant/customer. The danger is also that single product sales persons are inherently conflicted in recommending how much of any settlement should be allocated to their product.
• Multiple roles - A structured settlement sales person introduced into a case by a defendant or liability insurer frequently plays four separate roles each of which potentially conflicts with the other roles: agent for the annuity provider; broker for the defendant; broker for the plaintiff; and agent for the defendant in helping to negotiate and settle the case.
• Compensation sharing - Unless all parties to a settlement are informed about whether and how structured settlement annuity commissions are shared, a structured settlement creates a variety of potential conflicts of interest.
• Funding alternatives - Based upon traditional structured settlement business and compensation models, the potential availability and applicability of 468B qualified settlement funds for "appropriate cases" creates inherent conflicts of interest between defendants and their structured settlement brokers.

Recommendations

• Education - Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) should devote more educational resources to understanding product suitability standards applicable directly and indirectly to structured settlements including standards applicable to their clients and competitors.
• Business standards - SSP's "Standards of Professional Conduct for Settlement Planners" represents an important industry document that has received less attention among structured settlement stakeholders than it deserves. As a result of Dodd-Frank, SSP should review and re-consider the product suitability standards proposed in its current Standards of Conduct.
• Business model - Without violating anti-trust laws, both NSSTA and SSP should encourage their members to continue studying and discussing how transitional settlement planning business models impact traditional structured settlement broker roles, compensation models and business standards.
• Documentation - In the context of transitional business models and standards, structured settlement stakeholders should review and improve core case documents including client requests for proposals, sales materials, settlement agreements, broker of record letters, and commission sharing agreements.

For additional S2KM reporting and commentary about structured settlement business standards and practices, see the structured settlement wiki.

Product Suitability Standards - 3

When is a structured settlement annuity appropriate for a specific physical personal injury claimant? And what standards exist to help judges, guardians, trustees, mediators, attorneys, settlement planners, structured settlement consultants and other structured settlement stakeholders make this determination?

In two prior blog posts, S2KM has addressed these issues in the context of:

• Part 1 - NSSTA's Code of Ethics; SSP's Standards of Professional Conduct; and the NAIC's Suitability in Annuity Transactions Model Regulation.
• Part 2 - Minors' statutes and state structured settlement protection statutes.

This blog post discusses product suitability standards created by the Uniform Prudent Investor Act (UPIA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and highlights a general trend to create a more uniform fiduciary, and/or "best interest", standard of care to protect investors.

UPIA

When investing and managing assets (including settlement proceeds and structured settlement annuity payments), trustees historically have been held to a fiduciary standard. According to uslegal.com, "[A] fiduciary duty is an obligation to act in the best interest of another party..... A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client." (emphasis added)

More recently and comprehensively, a trustee's investment responsibilities have been re-defined legislatively by the UPIA which was adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1994 and approved by the American Bar Association in 1995. The UPIA now serves as the most important reference, external to the trust document itself, for trustees to determine what fiduciary duties their position requires. With some state-specific modifications, 41 states, U.S. Virgin Island, and the District of Columbia have adopted the UPIA.

Prior to the UPIA, courts applied the "prudent man rule" when evaluating trustee investment performance. The prudent man rule required trustees “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering probable income, as well as the probable safety of the capital to be invested.”

The UPIA, by contrast, adopts "modern portfolio theory" as a different and more appropriate standard for trustees. Compared with the prudent man rule, modern portfolio theory promotes a holistic view of trust assets by focusing on the total return generated by a trust as opposed to viewing a trust's income and principal separately. By viewing all investments comprehensively, modern portfolio theory and the UPIA hold that a trustee (or other investor) can achieve a positive overall investment return despite the poor performance of specific investments. This new standard allows for greater investment diversification so long as the risk/reward ratio matches the purposes and terms of the trust instrument.

Section 2(c) of the UPIA identifies eight factors a trustee should consider when making any investment:

• General economic conditions;
• The possible effect of inflation or deflation;
• The expected tax consequences of investment decisions or strategies;
• The role that each investment or course of action plays within the overall trust portfolio;
• The expected total return from income and appreciation of capital;
• Other resources of the beneficiaries;
• Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
• An asset’s relationship of special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

Significant for structured settlement annuities, the UPIA's list of investment considerations fails to mention mental or physical disabilities of a trust beneficiary. From a settlement planning and/or special needs perspective, injuries or diseases that reduce an individual's normal life expectancy arguably should receive important consideration when a trustee makes investment decisions.

Dodd-Frank

President Obama signed Dodd-Frank into law on July 21, 2010. Among other reforms, this sweeping legislation created the Consumer Financial Protection Bureau (CFPB) and the Federal Insurance Office (FIO). CFPB's central mission is "to make markets for consumer financial products and services work for Americans ....." Among its core functions are addressing consumer complaints and restricting unfair, deceptive or abusive acts or practices under the Federal consumer financial laws. Dodd-Frank provides the CFPB with significant authority that goes beyond existing consumer protection statutes. CFPB has broad authority to ask questions and demand information including consumer complaints. The FIO is part of the U.S. Department of Treasury and has authority to monitor all aspects of the insurance industry.

In addition to creating the CFPB and the FIO, Dodd-Frank directed the Securities and Exchange Commission (SEC) to study the need for a new, uniform, federal fiduciary standard of care for broker-dealers and investment advisers and to apply such a uniform standard if it deemed necessary. The SEC's assignment also required determining the existence of any gaps, shortcomings, or overlaps in legal or regulatory standards for the protection of retail customers.

Historically, investment advisers and broker-dealers have been subject to differing standards of care. Investment advisers are defined under Federal law as persons who “engage in the business of advising others. . .as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. . .” [15 U.S.C. § 80b-2] They are regulated under the Investment Advisers Act of 1940 and owe a fiduciary duty to their clients.

Broker-dealers are defined under Federal law as persons who engage in “the business of offering, buying, selling, or otherwise dealing or trading in securities. . .” [15 U.S.C. § 78b(12)] and may provide a variety of related services. Broker-dealers generally are not subject to any fiduciary duty under the federal securities laws. They do, however, have a duty of fair dealing which includes a “suitability” standard - i.e. broker-dealers must make recommendations that are consistent with the interests of their customers.

Adding further uncertainty for investors, the existing legislative and regulatory system, according to the Securities Industry and Financial Markets Association (SIFMA), also "leaves states free to develop their own often conflicting definitions of fiduciary standards. This can confuse investors and lead to inconsistent definitions and interpretations under existing state law." SIFMA has recommended adoption of a uniform definition of "fiduciary duty" applicable to broker-dealers and investment advisers that includes both a duty of care and a duty of loyalty. These duties, according to SIFMA, should require both broker-dealers and investment advisers "to act in the best interest of the customer, and to provide full and fair disclosure of material facts and conflicts of interest."

In January 2011, the SEC submitted its "fiduciary standard" study to Congress recommending the adoption of a uniform fiduciary standard for investment advisers and broker-dealers when providing investment advice to retail customers. The SEC's proposed standard would be “no less stringent” than the standard currently applicable to investment advisers, and would include the duty to act in the "best interest" of the customer.

Structured Settlement Annuities

Why are the UPIA and Dodd-Frank relevant and important for structured settlement stakeholders?

• Structured settlement annuities increasingly are paid into trusts (UPIA) that also include financial securities (Dodd-Frank).
• Settlement planners, as opposed to traditional structured settlement sales persons, are increasingly licensed to sell financial securities as well as insurance products.
• The UPIA (settlement trustees) and Dodd-Frank (financial planners; investment advisers; broker-dealers) directly impact structured settlement competitors.
• To be successful in the changing financial and insurance environment, anyone selling structured settlement annuities must understand and compete against the highest product suitability standards and best business practices.

Given the diversity, uncertainty and transition of various product suitability standards, how should structured settlement stakeholders address the issue of whether a structured settlement is appropriate for individual physical personal injury claimants? S2KM will offer practical case-specific advice and strategic industry advice in its next blog post.

For additional information about structured settlement business standards and practices, see the structured settlement wiki and Section 6.02 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Product Suitability Standards - 2

Should structured settlement "consultants" be held to some "product suitability standard" when they recommend structured settlement annuities to resolve personal injury lawsuits? If the answer is "yes", to what standard should they be held accountable and by whom?

A prior S2KM blog post discussed these issues in the context of the Code of Ethics of the National Structured Settlement Trade Association (NSSTA), the Standards of Professional Conduct of the Society of Settlement Planners (SSP) and the Suitability in Annuity Transaction Model Regulation promulgated by the National Association of Insurance Commissioners (NAIC).

NSSTA's Code of Ethics does not directly address product suitability standards. It does, however, direct NSSTA members to: "…comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided."

SSP's Standards of Professional Conduct utilizes the words "appropriate" and "informed consent". In the event of a conflict between SSP's Standards of Professional Conduct and any "laws, court rules, licensure requirements or other standards imposed on any regulated profession", SSP's members are directed to "abide by the laws or professional standards imposed on the members discipline."

Although the NAIC Suitability Regulation applies "to any recommendation to purchase, exchange or replace an annuity made to a consumer by an insurance producer, or an insurer ...", the Model Regulation exempts "settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process" which presumably encompass structured settlement annuities.

What other legislation or regulations could impact whether a structured settlement annuity is suitable for a specific personal physical injury claimant - and why should it matter?

Several additional laws and regulations could be relevant to these questions including:

• Minors' Statutes
• State Structured Settlement Protection Statutes
• The Uniform Prudent Investors Act
• Dodd Frank Legislation

This blog post considers minor statutes and state protection statutes. A subsequent S2KM blog post will discuss the Prudent Investors Act and Dodd Frank.

Texas attorney Phillip McCrury addressed the topic "What Judges Look for When Approving a Minor's Settlement" during the SSP 2009 Annual Meeting. McCrury surveyed existing state legislation and concluded that most state minors' statutes require court approval but few, if any, specifically address structured settlements. Various states have adopted two alternative standards for judicial approval of minors' settlements: the "best interest" standard and the "fair and reasonable" standard. McCrury, however, did not identify a single state minors' statute that defined either "best interest" or "fair and reasonable".

Both McCrury's SSP presentation and the 2011 Hancock v. Share case highlight the potential for conflicting judicial interpretations when structured settlement annuities are part of a proposed minor's settlement. Assuming a structured settlement "binds the assets" of a minor beyond the age of majority:

• Under what circumstances is a structured settlement in a minor's best interest - or fair and reasonable under some state minors' statutes?
• Should it matter whether or not a minor has a debilitating injury?
• What justification should be required from a guardian who recommends a structured settlement for a minor?
• When a judge evaluates whether a proposed structured settlement transfer meets the "best interest" test, what importance should be given to the fact that a proposed transferor was a minor when he/she received the structured settlement and therefore never personally approved or consented to the structured settlement?

In addition to minors' statutes, the state structured settlement protection statutes provide an application of the "best interest" and "fair and reasonable" standards with which structured settlement consultants and settlement planners should be familiar. Both IRC section 5891 and the Model State Structured Settlement Protection Act (Model Protection Act) require a transfer to be in "the best interest of the payee, taking into account the welfare and support of the payee's dependents" as a condition for judicial approval.

Some state protection statutes require that structured settlement transfers also meet an additional "fair and reasonable" test. For example, under New York's structured settlement protection act, a judge must "determine whether the transaction, including the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount, are fair and reasonable" (emphasis added) in addition to meeting the "best interest" test.

Neither IRC 5891 nor the Model Protection Act, however, define "best interest". California's revised structured settlement protection act, however, includes the following list of factors that California judges "shall consider" when deciding whether to approve a proposed transfer:

• The payee's age, mental capacity, legal knowledge, and apparent maturity level;
• The stated purpose for the proposed transfer;
• The payee's financial and economic situation;
• The terms of the proposed transfer, including the discount rate and transaction fees;
• Whether the payments are intended to pay for future medical care related to the payee's original injuries;
• Whether the payments are intended to pay for necessary living expenses;
• Whether the payee is likely to require future medical care for the payee's original injuries, and, if yes, whether the payee has other resources, including insurance, to pay for those expenses;
• Whether the payee has other income to meet his/her obligations to support dependents;
• Whether the payee has any court-ordered child support obligations;
• Whether the payee has attempted or completed prior transfers;
• Whether the payee or his/her family is facing any financial hardship;
• Whether the payee has received or should receive independent professional advice about the transfer; plus
• "Any other factors or facts that the payee, the transferee, or any other interested party calls to the attention of the reviewing court or that the court determines should be considered in reviewing the transfer."

Various courts have also identified factors to be considered when determining whether a proposed structured settlement transfer meets the "best interest" test. For example, a New York Supreme Court considered the following factors before denying a proposed 2003 transfer: the payee’s age; mental and physical capacity; maturity level; ability to show sufficient income that is independent of the payments sought for transfer; capacity to provide for the welfare and support of the payee’s dependents; the need for medical treatment; the stated purpose for the transfer; and the demonstrated ability of the payee to appreciate the financial terms and consequences of the proposed transfer based upon truly independent legal and financial advice. (In re Settlement Capital Corp.)

What relevance, if any, do state structured settlement protection statutes have for primary structured settlement product suitability standards?

Neither IRC 5891 nor any of state structured settlement protection statutes apply their "best interest" test to primary market structured settlement sales. Only four of the state statutes (New York, Florida, Massachusetts and Minnesota) establish any primary market sales standards, each requiring certain mandatory written disclosures.

The secondary market "best interest" test, however, does raise important issues for the primary structured settlement markets. Most importantly, If structured settlement transfers are required to be in "the best interest of the payee, taking into account the welfare and support of the payee's dependents", why shouldn't a "best interest" test apply to the original structured settlement sale? And, what impact would a "best interest" test have on primary market business standards and practices?

In a subsequent blog post, S2KM will consider whether, when and how the Uniform Prudent Investors Act and Dodd Frank require primary structured settlement sales to meet a "best interest" test and/or otherwise impact structured settlement business standards and practices.

For additional commentary and analysis of structured settlement business standards and practices, see the structured settlement wiki and Section 6.02 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Product Suitability Standards - 1

To what professional "product suitability standards", if any, should structured settlement "consultants" be held responsible when they recommend structured settlement annuities for claimants in the context of personal injury settlements? And where should they look for guidance?

Should it matter:

• Whether the structured settlement consultant is working on behalf of the defendant or the plaintiff?
• Whether the structured settlement consultant is also a:
  • Registered Settlement Planner (RSP); or a,
  • Certified Structured Settlement Consultant (CSSC); or a,
  • Registered Representative (RR); or a,
  • Certified Financial Planner (CFP); or a,
  • Registered Investment Adviser (RIA)?
• Whether the proposed structured settlement annuity will be paid into a trust set up for the claimant as opposed to the claimant directly?

The National Structured Settlement Trade Association (NSSTA) is the largest national structured settlement professional association in the United States.  NSSTA has adopted a "Statement of Ethics and Professional Responsibility" (Code of Ethics) to provide "guiding principles" to its members and member organizations.  The Preamble to NSSTA's Code of Ethics provides:

"Implicit in the acceptance of this Statement is an obligation to act in a professionally responsible and ethical manner when providing structured settlement services."

Although Principle VI directs NSSTA members to:

"…comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided",

NSSTA's Code of Ethics does not directly address product suitability standards. Nor does NSSTA's Code of Ethics include any penalties or enforcement procedures for member violations.

By comparison, the Society of Settlement Planners (SSP), whose members also sell structured settlement annuities, has adopted the "Standards of Professional Conduct For Settlement Planners" (Standards of Conduct).  Related to product suitability, Rule 5 (Conflict of Interest and Loyalty) of SSP's Standards of Conduct states in part:

"A settlement planner shall make and implement only recommendations that are appropriate for the client and consistent with the client’s objectives" (emphasis added).

In the event of a conflict between SSP's Standards of Conduct and any:

"laws, court rules, licensure requirements or other standards imposed on any regulated profession such as law, accounting, financial planning, securities trading or insurance", the SSP's members "should abide by the laws or professional standards imposed on the members discipline (emphasis added) ..."

Rule 5 also requires SSP members to obtain their client's "informed consent" which their Standards of Conduct define as:

"…agreement by a person to a proposed course of conduct after the settlement planner has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct."

The Preamble to SSP's Standards of Conduct addresses enforcement, stating in part:

"Compliance with these Rules depends upon voluntary adherence and, secondarily, upon reinforcement by peer and public opinion.....Although it is not intended that a violation of these Rules will, in itself, subject a settlement planner to civil liability to a person injured by such a violation, it is expected that these rules may be used as evidence of the conduct expected of reasonable settlement planners."

What does "appropriate" mean under the SSP Standards of Conduct? And what "laws or professional standards" could impact whether a structured settlement is appropriate for a particular injury victim?

One potential source for answers is the "Suitability in Annuity Transactions Model Regulation" (Suitability Regulation) promulgated and most recently revised in 2010 by the National Association of Insurance Commissioners (NAIC) and subsequently enacted by several states.  The purpose of the NAIC Suitability Regulation is:

“…to require insurers to establish a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuity products so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed."  However, the NAIC Suitability Regulation adds:  "Nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation."

Section 6A of the NAIC Suitability Regulation provides in part:

"In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to his or her investments or other insurance products and as to his or her financial situation and needs, including the consumer's suitability information ..."

The NAIC Suitability Regulation defines "suitability information" to include: age; annual income; financial situation and needs, including financial resources used for the funding of the annuity; financial experience; financial objectives; intended use of the annuity; financial time horizon; existing assets, including investment and life insurance holdings; liquidity needs; liquid net worth; risk tolerance; and tax status; prescribes duties and penalties for insurers and insurance producers.

The NAIC Suitability Regulation applies "to any recommendation to purchase, exchange or replace an annuity made to a consumer by an insurance producer, or an insurer where no producer is involved, that results in the purchase, exchange or replacement recommended."

Significantly for structured settlements, however, Section 4 of the NAIC Suitability Regulation exempts "settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process".

Does this exemption encompass structured settlements?

By way of explanation, the legislative history of the NAIC Suitability Regulation specifically references "structured settlements" and adds:

"A regulator pointed out that this type of contract did not generally result from a recommendation by an insurer or producer but agreed that it did not hurt to have the exemption there."

If the NAIC Suitability Regulation exempts structured settlements, why is it relevant to structured settlement consultants and/or settlement planners?

• First, some structured settlement consultants and most settlement planners also sell annuity products (example SPIAs) that are covered by the NAIC Suitability Regulation.
• Second, some states now require all licensed insurance agents to complete a one-time annuity suitability training program as a condition for selling any annuity products. NSSTA already offers qualifying training programs for its members.

• Third, some structured settlement consultants may also be licensed to sell financial securities in addition to annuity products and may therefore be held to a higher product suitability standard by their broker-dealer.

• Fourth, some structured settlement consultants and/or annuity providers may proactively decide to adopt product suitability standards regardless of legal requirements. See, for example, the SSP "appropriate" standard highlighted above. Also note: under Section 8 of the NAIC Suitability Regulation, insurers are responsible for compliance and subject to penalties for non-compliance.
• Fifth, many structured settlement competitors (examples: financial planners and settlement trustees) are held to higher, more specific product suitability standards. To improve their sales success, structured settlement consultants should understand their competitors' product suitability standards including "fiduciary" and "best interest" standards in addition to, and in contrast with, the NAIC annuity suitability standard.

In subsequent blog posts, S2KM will identify and discuss product suitability legislation and regulations, in addition to the NAIC Suitability Regulation, that could impact structured settlement consultants and settlement planners.

For additional S2KM blog posts concerning structured settlement business standards and practices, see the structured settlement wiki and Section 6.02 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Structured Settlements in 2011 - 2

In a prior blog post, S2KM highlighted the historic significance of the ELNY liquidation as the dominant 2011 structured settlement industry development. This blog post offers a strategic perspective of the industry's status in 2011 focusing in part on the industry's three national associations and also providing a broader perspective for ELNY.

Strategic Overview - Primary Market

The National Structured Settlement Trade Association (NSSTA) celebrated its 25th anniversary in 2011. Among its 2011 accomplishments, NSSTA noticeably improved its marketing and educational programs while focusing substantial resources to help minimize problems related to the ELNY liquidation. NSSTA has attempted to balance the need to inform its members (not the public) about ELNY's status with the need to promote the strength of its life insurance markets and the state guaranty fund system.

Speaking at NSSTA's 2011 Annual Meeting, Thomas Ronce, Chairman of NOLHGA, described the current life and health guaranty system in the United States as experienced, well-financed and armed with a multitude of optional legal and financial tools. Applied to ELNY, this state guaranty system will substantially improve the recovery for many ELNY structured settlement recipients. The state guaranty system, however, will not make whole every ELNY structured settlement recipient. Unfortunately, even with guaranty fund payments and additional enhancements, many ELNY structured settlement recipients are expected to experience shortfalls.

NSSTA's 2011 Annual Meeting and Fall Educational Conference also showcased the current strength of the structured settlement market and its product providers.

• Jim Morris, President, Chairman and CEO of Pacific Life Insurance Company, accentuated the current financial strength of U.S. life insurance companies generally and explained why structured settlement annuities represent an excellent strategic product for life companies. Confirming Morris' assessment, three new product providers (Mutual of Omaha, National Indemnity and Hartford) entered (or re-entered) the structured settlement marketplace during 2011.
• William T. Robinson III, President of the American Bar Association (ABA) strongly endorsed structured settlements as "professional and dignified solutions" for injury victims based upon his first-hand experience as a litigation attorney. Robinson also suggested the ABA and NSSTA should identify shared interests and lobbying opportunities.
• American General Life President Mary Jane Fortin described AIG, a structured settlement product provider that received more than $180 billion of loans and investments from the United States government in 2008, as "a strong, stable and resilient company dedicated to keeping our promises". Fortin also dispelled several "myths" about AIG, summarized AIG's recovery from the 2008 financial crisis and expressed optimism about the future of life insurance industry and structured settlements.

Despite these positive assurances, however, primary market structured settlement annuity sales have continued to trend downward for the past three years, arguably because of the 2008 financial crisis and historically low interest rates which many experts predict will continue for the foreseeable future. What has been missing from NSSTA's leadership during 2011 has been a positive vision for NSSTA's own future and the future of structured settlements.

David Ringler, NSSTA's first President, spoke during the NSSTA 2011 Annual Meeting. Ringler stated the most important reason for creating NSSTA was "having a place where everyone and anyone can sit down with each other and discuss the issues and viewpoints regardless of beliefs."  Sometime during the past 25 years, NSSTA lost sight of this original vision and now generally excludes industry voices and perspectives that challenge traditional structured settlement business models and practices.

As one result, two additional professional associations have formed with alternative structured settlement perspectives:

• The Society of Settlement Planners (SSP) - SSP espouses the claimant's right to select his or her own structured settlement adviser and funding company. SSP promotes structured settlement annuities as a core product for special needs settlement planning and favors greater utilization of IRC 468B Qualified Settlement Funds (QSFs).
• The National Association of Settlement Purchasers (NASP) - NASP promotes the right of structured settlement recipients, in compliance with federal and state laws, to sell their payment rights provided a state judge approves the sale in advance as being in the "best interest" of the transferor/payee taking into account the welfare and support of the payee's dependents.

To its credit, NSSTA expanded the scope of its educational programs in 2011 to discuss QSFs and to provide its members with more detailed information about structured settlement secondary market. The perspective for these NSSTA discussions, however, remains defensive and protective without any attempt to envision or discuss new business opportunities or product improvements.

By comparison, SSP's vision for the the future of structured settlements is defined and supported by its "Standards of Professional Conduct". SSP views structured settlements as a core product for personal injury settlement planning. SSP's vision agrees with and encompasses the business model Joseph DiGangi introduced to NSSTA in 2009 as "Settlement Consulting" which he characterized as "a wake up call for the industry." SSP's educational conferences continue to push structured settlement industry thinking beyond its historic boundaries and the inevitability of its path dependence.

In addition to SSP, three national legal associations are developing special needs business practices and models that expand the framework and opportunities for structured settlements:

• Academy of Special Needs Planners (ASNP)
• National Academy of Elder Law Attorneys (NAELA)
• Special Needs Alliance (SNA).

Faced with the ELNY crisis, declining annuity sales and the continuing prospect of low interest rates, some primary market structured settlement stakeholders now recognize that business practices and models that made sense in the past may have survived despite the eclipse of their earlier justification.  S2KM believes more primary market stakeholders should expand their strategic perspectives and re-think structured settlements in the context of the changing legal and financial landscape.

For example, here are four 2010 developments with important consequences for structured settlement stakeholders that have heretofore received inadequate primary market educational attention:

• Patient Protection and Affordability Care Act - how does health care reform impact injury victims and what opportunities does it create for structured settlements?
• Dodd-Frank Wall Street Reform and Consumer Protection Act - how will the Consumer Financial Protection Bureau (CFPB) address structured settlement complaints?
• NAIC Suitability in Annuity Transactions Model Regulation - what does "suitability" mean for structured settlement annuities and how does "suitability" differ from the "best interest" standard applicable to trustees, investment advisers and structured settlement transfers?
• Spencer v. Hartford class action settlement - what are the lessons learned and resulting new best practices for structured settlements?

Strategic Overview - Secondary Market

The ELNY liquidation is also having a negative impact on the secondary structured settlement market. Some industry experts have estimated that as many as 1000 of ELNY structured settlement annuities (out of the 4168 total) have undergone transfers of some or all payment rights. Investors who have purchased ELNY annuity payment rights may not be eligible to receive contributions from state guaranty funds which historically protect "consumers". The NYLB's December 7, 2011 letters warned ELNY payees "if you have transferred any part of your right to receive ELNY SSA benefits to a third party, you may not be eligible to receive benefits from CABC related to the benefits you transferred."

Although the financial crisis of 2008 had a devastating short term impact on the structured settlement secondary market, the market has experienced robust sales in 2011 as institutional investors continue to be attracted to the relatively high rates of returns generated by restructured (post transfer) payment right obligations. More individual investors, including personal injury claimants and their attorneys, have also begun purchasing restructured payment rights although some industry experts caution against potential tax and securities law uncertainties.

The structured settlement secondary market changed dramatically in 2011 with the announced merger of  J.G. Wentworth and Peachtree Settlement Funding. The merger combined the two largest purchasers of structured settlement payment rights with an estimated 80-85 percent of the market.

The merger highlights a remarkable turnaround for Wentworth whose shareholders control the majority of the combined companies. In 2009, Wentworth and two affiliated companies entered Chapter 11 bankruptcy protection after the company "encountered liquidity problems amid a tightening credit market". Wentworth laid off 120 of its 200 employees and closed its office in Las Vegas. Its general corporate bonds were "almost worthless" and were trading, if at all, for pennies on the dollar. Less than six months later, Wentworth emerged from bankruptcy with an announcement that JLL Partners (Wentworth's owners) had invested an additional $100 million in the firm.

In a significant case (Symetra v. Rapid Settlements) highlighting controversial business practices which were opposed by NASP as well as structured settlement annuity providers, a Texas court issued injunctions during 2011 prohibiting Rapid Settlement's prior business practices of using arbitration to by-pass state structured settlement protection statutes and taking security interests to gain rights of first refusal for future transfers.

Check the structured settlement wiki for additional S2KM structured settlement reporting:

• ELNY liquidation
• Annual industry reports
• Professional association meetings

ADDENDUM (12/12/2011) - S2KM's report above omits at least one important 2011 strategic structured settlement development. NSSTA and its product provider members launched the first-ever industry metrics study during 2011. For more information about metrics, see S2KM's "Structured Settlement Metrics" series featured on the structured settlement wiki.

Life Insurer Liquidation Process

What happens if and when a multistate life insurance company like Executive Life Insurance Company of New York (ELNY) is liquidated?

The answer: no one knows for certain. This uncertainty, specifically for ELNY, results from many factors:

• No significant multistate life insurers have failed since 1994.
• Many state life insurance guaranty association laws have been amended since 1994.
• Different state life insurance guaranty laws provide significantly different coverage applications, caps and requirements.
• ELNY's current negative surplus is historically large compared with previously liquidated life insurers.
• The vast majority of ELNY's remaining liabilities consist of structured settlement obligations.
• A 2007 "Agreement in Principle" to address ELNY's problems has never materialized.
• In a 2007 Business Insurance article, Mark Peters, then head of the New York Liquidation Bureau (NYLB) stated that this proposed bail-out plan “would be cheaper for the insurers and avoids the ‘chaos’ that would come with a liquidation.” (emphasis added)
• As ELNY's Rehabilitator, the New York Insurance Superintendent has repeatedly extended the original July 1, 2011 state court imposed deadline for filing a plan of liquidation, most recently to September 1, 2011.
• According to some critics, including New York attorney Peter Bickford, the problems with the insurer liquidation process in New York are systemic and lack transparency and accountability.
• New York has two state life and health insurance guaranty funds with different coverage dates, caps and requirements.
• The 2010 Dodd Frank law created a Federal Insurance Office (FIO) which could eventually supervise some life insurer insolvencies.

How U.S. life insurer liquidations are supposed to work

The United States federal bankruptcy law expressly excludes insurance companies from the definition of "debtor". As a result, when a life insurance company fails, it does not enter bankruptcy. Instead, the insurance commissioner (or superintendent) of the state that granted the life insurer's charter (domiciliary state) places the company in receivership - a status which can include conservatorship, rehabilitation and/or liquidation depending upon the severity of the insurer's problems. Liquidation is the most serious form of receivership.

All forms of life insurer receivership are conducted pursuant to the domiciliary state's insurance receivership statute under the supervision of a state court. Thirty-two states have adopted some version of the Insurers Rehabilitation and Liquidation Model Act which the National Association of Insurance Commissioners (NAIC) adopted in 1978. This Model Act helps to achieve uniformity and encourages reciprocity among the states.

ELNY was placed into rehabilitation on April 23, 1991 by the New York Superintendent of Insurance, a status it retains to the present day under the supervision of the NYLB. Prior to 1991, ELNY sold an estimated 8,000 structured settlement annuities which, according to ELNY's most recent financial statements (December 31, 2010) continue to represent "the vast majority of the value of ELNY's remaining contract liabilities." To date, all related ELNY structured settlement payments have been paid in full. However, the most recent ELNY financial statements show assets of $905,945,200 compared with liabilities of $2,474,317,342 resulting in a negative surplus of $1,568,372,142.

If and when the insurance commissioner (or superintendent) determines that a life insurer should be placed in liquidation, the commissioner petitions a state court for an Order of Liquidation. On December 17, 2010, a New York State Supreme Court Judge ordered the Superintendent of the New York State Insurance Department to present the Court with a proposed Order and Plan of Liquidation for ELNY on or before July 1, 2011 - a date which has now been pushed back twice most recently to September 1, 2011.

In most states, following an order of liquidation, the court appoints the commissioner/superintendent as liquidator and grants the liquidator title to all of the life insurer's assets and, subject to court approval, control of the life insurer's operations with the objective of winding up the life insurer's business. In New York, the NYLB, acting as agent for the Superintendent of Insurance, generally serves as liquidator in life insurance insolvency proceedings.

The liquidator is responsible for "marshalling" the insurer's assets, evaluating the claims of policyholders and creditors, and distributing assets to approved claimants according to statutorily prescribed priorities. Alternatively, as was the case with Executive Life Insurance Company of California (ELIC), a liquidation plan may provide for the transfer of some or all of the failed insurers assets and/or liabilities to a new and/or healthy insurer. The objective, with either alternative is to protect policyholders and consumers against three risks:

• Delays in claim payments;
• Uncertainties about payment amounts; and
• Replacement costs for defaulted policies.

An Order of Liquidation also generally triggers involvement by one or more state life and health insurance Guaranty Associations. These state Guaranty Associations are specially chartered, not-for-profit legal entities created pursuant to state guaranty association legislation. All fifty states, plus Puerto Rico and the District of Columbia, have enacted some version of the NAIC's Life and Health Insurance Guaranty Association Model Act which was first promulgated in 1971. Important differences, however, exist among these various state statutes including coverage caps and whether the Guaranty Associations protect annuity policyholders or payees.

All state life and health guaranty associations are also members of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), a not-for-profit organization founded in 1983. The core mission of NOLHGA and its member Guaranty Associations, according to NOLGA President Peter Gallanis, is "to ensure that consumers receive at least a statutorily prescribed base level of financial protection when a life or health insurance company fails. That protection may be achieved either by transferring to a healthy insurer the failed company's business that is in force at the time of the company's failure or by supporting the 'runoff' of that in-force business."

A 2009 NOLHGA document assessing ELNY and titled "Information and Guidance on Estimating Potential Guaranty Association Assessments Relating to Executive Life Insurance Company of New York ('ELNY')" includes the following paragraph:

"No guaranty association has yet to enter into a legally binding commitment to participate in any plan or contribute any level of funding. As a result, at this time, we cannot confirm which particular state guaranty associations will participate in any plan. It is estimated, however, that if a plan similar to the one that is being considered is adopted, the majority of the guaranty associations’ costs (e.g., 66-75%), will likely be borne by New York's guaranty associations. Currently, it is estimated that 20-30 guaranty associations may eventually participate in a final plan once it is completed. In most states, assessments by guaranty associations relating to annuities are primarily associated with the allocated annuity account. New York has two separate guaranty associations: the assessment base for its “new” guaranty association is primarily associated with its life insurance, annuity and funding agreement account; while the assessment base for its “old” guaranty association is based upon admitted assets."

The 2009 NOLHGA document also includes a section titled "Guidance on Estimating a Company’s Potential Guaranty Association Assessment".

For S2KM's complete reporting and analysis of ELNY, including an Executive Life timeline, see the structured settlement wiki.

Business Standards and Practices - 1

For the structured settlement industry to achieve its public policy and revenue potential, business standards and practices must improve. This blog post, which begins a new S2KM series, highlights historical developments which help define the business standards and practices of the current structured settlement industry.

Periodic Payment Settlement Act of 1982 - This Federal legislation amended IRC section 104(a)(2) (clarifying an exclusion for "periodic payments") and added IRC section 130 (introducing and defining "qualified assignments" and "qualified funding assets").

NSSTA (1985) - A pioneering group of structured settlement agents and life companies formed the National Structured Settlement Trade Association (NSSTA) which became the first, and remains the largest, structured settlement professional association.

First Settlement Transfer (1986) - James Lokey completed the first transfer of structured settlement payment rights thereby launching the structured settlement secondary market. A number of companies subsequently responded to this market development to create a "gray market" allowing and encouraging structured settlement recipients to liquidate part or all of their future payment rights.

Revenue Procedure 93-34 (1993) - Regulations issued by the U.S. Treasury became effective defining a new type of IRC 468B fund ("Qualified Settlement Fund") providing an efficient dispute resolution technique for defendants and a safe harbor for plaintiffs who need time to resolve their own settlement planning issues prior to deciding upon any specific form of distribution including structured settlements.

NSSTA CSSC Program (1994) - NSSTA originated a training and certification program at the University of Notre Dame leading to a designation for qualifying persons as Certified Structured Settlement Consultants (CSSC).

Weil Settlement (1996) - The plaintiff in this lawsuit argued that, as a result of an anti-competitive conspiracy among certain structured settlement agents, annuity providers and NSSTA, structured settlement annuity providers marketed exclusively through agents who represented defendants and refused to appoint agents who represented plaintiffs or their attorneys. The confidential settlement of the Weil lawsuit coincided with a change in industry business practices whereby structured settlement annuity providers began to appoint agents representing plaintiffs and allowing agents representing defendants and plaintiffs to share commissions.

NASP (1996) - A group of companies specializing in structured settlement transfers created the National Association of Settlement Purchasers (NASP) which became the first and only trade association specializing in the structured settlement secondary market.

Structured Settlement Protection Statutes (1997-present) - Beginning with Illinois in 1997, nearly all states have enacted some form of structured settlement protection statute with many such statutes, since 2000, based upon the Model State Structured Settlement Protection Act which was also adopted by the National Conference of Insurance Legislators in 2004. These state laws require structured settlement transfers to receive advanced state court approval.

NSSTA Code of Ethics (1997) - NSSTA adopted and published its Statement of Ethics and Professional Responsibility "to provide guiding principles to its members and member organizations". Implicit in the acceptance of this Statement, according to NSSTA, "is an obligation to act in a professionally responsible and ethical manner when providing structured settlement services".

NY Attorney General Investigation (1999) - The New York Attorney General launched an investigation of J.G. Wentworth, a leading structured settlement transfer company, and entered into a settlement in 1999 limiting discounts on J.G. Wentworth's New York transactions to no more than 25%.

Victims of Terrorism Tax Relief Act of 2001 - Among other provisions, this legislation added IRC section 5891 ("Structured Settlement Factoring Transactions") to Subtitle E of the Internal Revenue Code and resulted from a political compromise between NSSTA and NASP.

SSP (2001) - Dissatisfied with what they considered NSSTA's continuing defense bias, a group of structured settlement agents formed the Society of Settlement Planners (SSP), a national non-profit education and public policy association for structured settlement professionals who advocate "the injury victim's right to choose settlement planning advisers and financial and guarantee providers".

Grillo case (2001) - A Texas district court entered a $1,600,000 judgment against plaintiff attorneys based upon allegations by their prior clients that a medical malpractice case settlement "contained no language which required at least one defendant or its liability insurer to promise a fixed and determinable periodic payment which would be tax free to the claimant".

California Attorney General's Study (2004) - Prepared for the California legislature, this study surveyed hundreds of California transfers between 2000 and 2003. For a summary of the results, see "Transfers of Structured Settlement Payment Rights - What Judges Should Know about Structured Settlement Protection Acts", by Daniel Hindert and Craig Ulman.

NAIC Compensation Disclosure (2004) - The National Association of Insurance Commissioners (NAIC) adopted a Compensation Disclosure Amendment to its Producer Licensing Model Act. The Disclosure Amendment neither mentions nor excludes structured settlements.

Saltzburg and Chemerinsky Opinion Letters (2006) - First presented at the ATLA 2006 Winter Meeting, two legal opinion letters written by law professors Stephen Saltzburg and Erwin Chemerinsky reach similar conclusions:

• Experts, including structured settlement experts, have a fiduciary duty to their clients.
• Plaintiff experts have a conflict of interest if they are paid by someone other than the plaintiff without disclosure to and consent by the plaintiff.
• Plaintiff attorneys have a duty to disclose this conflict of interest by structured settlement experts to their clients.

Macomber v. Travelers (2007) - Settled on undisclosed terms, this class action lawsuit alleged that Travelers lowered the cost of structured settlements by 2% without informing plaintiffs (shortchanging) by paying its approved structured settlement agents a 2% commission and retaining a 2% commission for itself (rebating). Coincidental with this settlement, Travelers changed its structured settlement business practices and its affiliated life company stopped selling structured settlement annuities.

SSP RSP program (2007) - SSP launched a Registered Settlement Planner (RSP) professional certification program in affiliation with Texas Tech University including an educational component; submission and review of a comprehensive personal injury settlement plan; experience requirements; continuing education; and a code of ethics.

NSSTA Broker Relations Initiative (2007) - Consultant Lynn Courier introduced the first draft of a proposed "Standards of Professional Conduct" for structured settlement consultants developed by the NSSTA-sponsored Broker Relations Initiative (BRI) during the NSSTA 2007 Fall Meeting. To date, NSSTA has not adopted any additional standards of professional conduct beyond its 1997 Code of Ethics.

Rapid Settlements (2007) - Rapid Settlements, a Texas factoring company, failed in a series of transfer cases to successfully utilize arbitration clauses in its attempt to bypass state structured settlement protection statutes.

Fresno County Factoring Cases (2009) - In Henderson v. Scioteco, a California appellate court ruled favorably for 321 Henderson Receivables, a J.G. Wentworth affiliate, reversing earlier opinions of a California superior court in 11 factoring cases consolidated for appeal. The appellate court ruling allowed Henderson to amend the transfer petitions at issue to correct any errors prior to any new hearing on the petitions and additionally held that public policy supports state court approved structured factoring transactions.

Suitability in Annuity Transactions Model Regulation (2010) - The NAIC adopted this Model Regulation "to require insurers to establish a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transaction involving annuity products so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed." Significantly for structured settlements, exemptions from the Model Regulation include: "settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process."

Spencer v. Hartford (2010) - A U.S. district judge in Connecticut approved a $72.5 million class action settlement resulting from plaintiff allegations (denied by Hartford) that Hartford and its attorneys, brokers and agents violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed common law fraud in structuring its settlements. Hartford's affiliated life company stopped selling structured settlement annuities in 2009.

For more detailed information about these structured settlement business standards and practices developments, see "Structured Settlements and Periodic Payment Judgments" co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert.