Drinker Biddle's June 2007 Structured Settlement Update (posted on their website) provides concise legal summaries for two current industry developments:
- Executive Life of New York
- Transamerica v. Settlement Capital
Executive Life of New York (ELNY)
Drinker Biddle's update contains this bombshell about ELNY: "Over the past several weeks, the New York State Insurance Department has notified certain property and casualty insurance companies that own structured settlement annuities issued by ELNY and certain guarantee associations that there will be a shortfall in ongoing payments from annuities issued by ELNY. Although it is unclear how many annuities remain in force, we understand that the total shortfall may amount to as much as $600 million."
Structured settlement industry insiders, who requested anonymity, are divided in their reaction to this news. Some were shocked. One industry leader stated: " We all thought ELNY had a strong financial position." Other industry leaders downplayed the importance of the announcement. From a claimant perspective, they emphasized the strength of the state guarantee funds and the fact that the notice is precautionary. According to one source, no immediate emergency exists. NSSTA, a structured settlement trade association, monitors Executive Life and continues to report on Executive Life to its members (including this blog author). NSSTA's most recent Executive Life update (January 8, 2007), however, makes no mention of any ELNY shortfall.
The Drinker Biddle update estimates that, at the time of its rehabilitation in 1992, ELNY had issued as many as 8,500 structured settlement annuities.
Although all 50 states now have insurance guarantee funds, the Drinker Biddle update identifies two significant issues potentially applicable to ELNY:
- Whether the guarantee association of the state of domicile of a payee, or the state of domicile of a contract owner will be called upon to pay benefits to a claimant?
- Whether the claimant entitled to obtain relief is the contract owner or the payee?
Hopefully, NSSTA and its legal committee will address these ELNY developments and provide additional details about ELNY's status.
For additional historical analysis about Executive Life, see "Structured Settlements and Periodic Payment Judgments":
- Section 3.05.10 - "Insolvency of Annuity Issuers"
- Section 3.05.9 - "Life Insurance Guarantee Associations"
Transamerica v. Settlement Capital
Drinker Biddle's June 2007 Structured Settlement Update also features a legal summary of Transamerica v. Settlement Capital, a recent decision from the U.S. Court of Appeals for the Sixth Circuit that reconfirms sovereign immunity as a permissible defense for the United States government in objecting to proposed structured settlement transfers. This case is one of a series of cases where the United States Department of Justice Civil Division Tort Branch (DOJ) has asserted sovereign immunity (after the transfer has been approved by a state court, without making an appearance and despite timely notice) to void a transfer of payment rights approved by a state court pursuant to the state's structured settlement protection statute - in this case Florida.
Other recent cases supporting sovereign immunity to void state court ordered transfers of structured settlement payment rights include:
- Symetra v. Fentress (2006), a U.S. District Court case in Virginia.
- Settlement Funding v. Garcia (2006), a U.S. District Court case in Texas.
Although not referenced in the Drinker Biddle Structured Settlement Update, a recent, related sovereign immunity case, Continental Casualty v. United States, is significantly more important strategically for structured settlements than Transamerica v. Settlement Capital. In Continental Casualty, decided by U.S. District Court in Northern California in 2006, the plaintiff challenged the DOJ's structured settlement policy. The plaintiff sought an order:
- Imposing restrictions on the DOJ's terms of settlement;
- Imposing the same restrictions on all settlements by the DOJ Torts Branch Civil Division;
- Establishing a 468B settlement trust.
Although the terms of a settlement had been memorialized in Continental Casualty in a letter from the DOJ to the plaintiffs' counsel, the letter did not address a structured settlement. Plaintiffs alleged that the DOJ understood that the agreement was conditioned upon a structured settlement to be approved by CMS. The DOJ argued it never agreed to a structured settlement.
In addition to seeking a court order for a qualified settlement trust (which the court refused to create), the plaintiffs challenged the following DOJ structured settlement requirements:
- DOJ selects the annuity broker;
- Plaintiffs are offered less for a structured settlement than a cash settlement;
- Annuities provide reversionary interests to the United States;
- Limit on available financing options;
- Prohibit assignments of payment rights
In denying the plaintiff's joint petitions, the District Court stated: "The court is not in a position to make policy decisions regarding DOJ settlement practices and finds no illegality in any of the requirements. To the extent these practices are contrary to sound or appropriate public policy, it rests with the executive or legislative branch to regulate."
Does the DOJ's existing structured settlement program support or violate public policy? This question represents a fundemental political and business issue for all structured settlement stakeholders. Congress is currently investigating the DOJ and should include this issue within the scope of its ongoing investigation. All structured settlement stakeholders should separately address and highlight this issue as part of a broader industry discussion of business standards and practices.
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