Beyond Structured Settlements

Spencer v. Hartford - 9

If you are a defendant or liability insurer or re-insurer or structured settlement annuity provider re-thinking your structured settlement business practices following the Spencer v. Hartford class action lawsuit and Hartford's publicly announced proposed settlement, you should read a recent paper written by Jeremy Babener.

Babener's single claimant 468B paper is one of several structured settlement papers he has written during the past 12 months. In his single claimant 468B paper, Babener reviews structured settlement public policy history and finds public policy support for single claimant 468B qualified settlement funds.

Section IV of Babener's single claimant 468B paper is titled "Helping the Wrong Party" in which:

• Babener reports his research and analysis about how defendants (and their liability insurers) save money using structured settlements.
• Babener argues that defendants' ability to save money using structured settlements may contravene the basic purpose for why Congress subsidizes structured settlements.
• Babener's paper was published prior to Hartford's public announcement of its proposed settlement of the Spencer v. Hartford class action lawsuit.

Although Babener did not discover much empirical evidence to support defense savings through the use of structured settlements, his research uncovered plenty of historical anecdotal evidence. According to Babener's research, industry estimates of defense structured settlement savings have decreased:

• From between 50% and 75% in 1974;
• To between 20% and 40% in 1978; and
• More recently to between 20% and 25%.

For comparison:

• In Spencer v. Hartford, plaintiffs have alleged that Hartford utilized a program called "Secured Benefit Services" (SBS) to systematically retain for its own benefit at least 15% of amounts it should have used to fund its structured settlements.
• Primary market leaders criticize secondary market companies for charging in excess of 10-15% discount rates for structured settlement factoring transactions.

Regardless of whether defendants continue to obtain structured settlement savings, Babener maintains defendants and their liability insurers have proven themselves capable of utilizing three structured settlement strategies to reduce their personal injury settlement costs.

What follows are S2KM comments about defense structured settlement strategies identified and discussed by Babener in Section IV of his single claimant 468B paper.

• For Babener's own analysis, see Babener's structured settlement writing generally and his single claimant 468B paper more specifically.
• S2KM's structured settlement public policy wiki features S2KM interviews with Babener and related S2KM commentary.

Defense Strategy 1: Negotiating with nominal terms rather than real value.

• Examples
  • A defendant offers (negotiates) to pay a plaintiff's future damages using an annuity without any annual increases for future inflation.
  • The 2004 CMS policy memorandum addressing discounting and inflating workers compensation Medicare set-aside arrangements (MSAs) resulting in lower costs and underfunding with annuities as opposed to cash.
• Issues
  • When do any case-specific defense cost savings result from this structured settlement strategy:
    • As opposed to other negotiation factors (such as a weak plaintiff negotiation position on liability issues) forcing plaintiffs to compromise on case value and/or future damages?
    • Or, as a result of some legislation or regulation (CMS 2004 MSA memo) specifically allowing defendants to share with injury victims the related structured settlement tax subsidy?
  • Why would an informed plaintiff, and/or a plaintiff represented by a competent attorney, ever accept nominal value instead of real value for future damages unless other negotiation factors (or legal requirements) exist?

Defense Strategy 2: Profiting from the purchase of a structured settlement annuity.

• Examples
  • The plaintiff allegations in Spencer v. Hartford including Hartford's use of its affiliated life company to fund its structured settlement annuities.
  • When a defendant or liability insurer, with or without an affiliated life company, shares a commission (whether or not disclosed) with one or more structured settlement agents directly or indirectly.
• Issues
  • How much money do defendants and their liability insurers save if and when they profit from the purchase of structured settlement annuities?
  • What disclosures, if any, are required by defendants (post Spencer v. Hartford) if and when defendants (or their liability insurers) profit from the purchase of structured settlement annuities?
  • What risks exist for defendants with various methods for funding structured settlements (compared with cash settlements) - including buy-and-hold; 130 qualified assignments; and 468B qualified settlement funds?

Defense Strategy 3: Negotiating to benefit from the tax subsidy.

• Examples
  • A defendant offers to settle for $100,000 or, alternatively, to pay some cash and fund a structured settlement with a combined cost of $95,000.
  • A defendant initially reserves a case for $120,000, then subsequently settles a case including a structured settlement for $100,000.
• Issues
  • In the first example:
    • How many plaintiff attorneys are willing to accept a lower attorney fee to obtain a structured settlement for their clients?
    • For unrepresented claimants, what structured settlement disclosures should a defendant and/or its liability insurer make to the unrepresented claimant?
  • In the second example:
    
    • Assuming a cash (or cash equivalent) negotiation (and/or an alternative $100,000 cash settlement offer),
    • Why and when (from a risk management perspective) should a defendant or liability insurer (post Spencer v. Hartford) ever credit a structured settlement with saving claim management dollars - compared with a prior case reserve or an alternative cash settlement?

For complete S2KM reporting and commentary about Spencer v. Hartford, see S2KM's structured settlement wiki.

Spencer v. Hartford - 8

If YOU are a defendant (or insure or represent defendants), how do YOU save money using structured settlements - post Spencer v. Hartford?

What are your structured settlement risks - if you don't fully disclose your structured settlement business practices?

What are your NEW structured settlement best business options and practices following Spencer v. Hartford?

To begin re-thinking structured settlements (post Spencer v. Hartford), S2KM recommends a recent article written by Jeremy Babener titled "Structured Settlements and Single Claimant Qualified Settlement Funds: Regulating in Accordance with Structured Settlement History".

See especially Section IV titled: "Helping the Wrong Party" for background research and analysis about defendants attempting to save money using structured settlements - published prior to the announced proposed settlement of the Spencer v. Hartford class action lawsuit.

Spencer v. Hartford - 7

What are the critical questions for defendants (and your insurers and your re-insurers and your attorneys) resulting from the proposed settlement of the Spencer v. Hartford class action lawsuit - assuming YOU, as a defendant, participate in funding structured settlements?

Question number 1: What are your risks for non-disclosure and/or lack of full disclosure?

Question number 2: What information do you need to disclose - and to whom and when?

Question number 3: Assuming you fully disclose, how do you save money using structured settlements?

For a valuable (pre - Spencer v. Hartford settlement) analysis about how defendants save money using structured settlements, see Section IV "Helping the Wrong Party" in Jeremy Babener's article titled: "Structured Settlements and Single-Claimant Qualified Settlement Funds: Regulating in Accordance with Structured Settlement History".

Spencer v. Hartford - 6

Why and when should defendants, and/or their insurance companies and/or their reinsurance companies, ever agree to fund a structured settlement using either a "buy and hold" strategy or an "IRC section 130 qualified assignment" - as opposed to paying cash or using an IRC section 468B Qualified Settlement Fund?

The traditional answer from the traditional structured settlement industry:

• YOU, the defendant, save money using structured settlements - and;
• YOU face no future risk (or almost no future risk) so long as:
• YOU use IRC section 130 qualified assignments.

How does this traditional answer square with the recent Spencer v. Hartford class action lawsuit and proposed class action lawsuit settlement?

What are the most important lessons for defendants, and their insurers and reinsurers, and their attorneys, from the proposed Spencer v. Hartford settlement?

For prior S2KM reporting about Spencer v. Hartford, see S2KM's blog post Spencer v. Hartford - 5.

SSP and NSSTA 2010 Annual Meetings - 9

The Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) should be congratulated - especially immediate past-Presidents Joseph Tombs and Daniel Durbin - for excellent 2010 annual meetings.

S2KM's complete coverage of the SSP and NSSTA 2010 annual meetings is available on S2KM's structured settlement wiki.

Continuing post-meeting S2KM commentary:

• Both the SSP and NSSTA 2010 meetings occurred in Washington, D.C. at nearby hotels during the same week - May 2-7.
• Attendance at both the SSP and NSSTA meetings was good (not great) - despite the economic downturn in structured settlements.
• Approximately 10 persons attended portions of both the SSP and NSSTA meetings.
• The scheduling conflicts between SSP and NSSTA occurred primarily on the morning of May 4 - which created difficult choices for persons attending both conferences.
• Unless otherwise indicated, S2KM's comments are limited to educational programs Patrick Hindert, S2KM's Managing Director, personally attended.
• For pre-program educational listings (topics and speakers) for both the SSP and NSSTA meetings, see this prior S2KM blog post.
• S2KM opted to attend NSSTA meetings on May 4 and missed valuable SSP presentations including two Medicare set-aside arrangement (MSA) panels organized by Jason Lazarus, SSP's new President for 2010-2011.
• Both SSP and NSSTA prioritized MSAs in 2010 with four MSA educational programs - three by SSP.
• Douglas Brand, a featured SSP speaker about MSAs, has also served as the key NSSTA Director in developing NSSTA's government benefits committee and educational program.
• Joseph Tombs, SSP's 2009-2010 President, and Director of SSP's settlement planning certification program, continued SSP's educational series about "Minors Settlements" initiated by Texas attorney Phillip McCrury during the SSP 2009 annual meeting.
• As positive hallmarks of their SSP and NSSTA presidencies, both Tombs and Durbin successfully played to their personal and association strengths. For Tombs, learning, improvement, and industry growth. For Durbin, public policy, lobbying, protect and preserve during industry transition.
• As SSP President, Joseph Tombs continued and elevated SSP's excellent educational programs, including the Registered Settlement Planner Program,which Tombs developed and manages in partnership with SSP and Texas Tech University.
• Jason Lazarus, a respected knowledge leader within multiple settlement consulting communities, succeeds Tombs as SSP's President.
• SSP's educational and political strategies continue to espouse "improve and grow" - for both the structured settlement and settlement planning industries.
• Daniel Durbin led NSSTA's leadership transition from Joseph Ricci to Eric Vaughn and Peter Arnold. During this transition, NSSTA sharpened and expanded its political focus and delivered on its promise to "protect and preserve" IRC sections 130 and 104(a)(2).
• Michael Kelly succeeds Durbin as NSSTA's 2010-11 President and will be joined on the NSSTA Board of Directors by five newly (re) - elected Directors - Joseph Barnet; Len Blonder; Randy Dyer; James Ebel; and John Machir.
• Karen Meyers continues her industry role as director of NSSTA's Certified Structured Settlement Consultant (CSSC) program in partnership with the University of Notre Dame.
• Among retiring NSSTA Directors, S2KM's Managing Director Patrick Hindert, a NSSTA member, has interacted primarily with former NSSTA Directors Joseph Shannon and Douglas Brand.
• Both Shannon and Brand (and all retiring NSSTA Directors) deserve industry thanks:
  
  • Shannon served as liaison between NSSTA's Board of Directors and NSSTA's legal committee.
  • Brand served as liaison between NSSTA's Board of Directors and NSSTA's government benefit committee.
• The SSP and NSSTA 2010 annual meetings highlighted the need for new Internet-based structured settlement educational strategies and resources.
• The combined SSP and NSSTA structured settlement learning experience was overwhelming. Incredibly rich structured settlement knowledge was crammed into less than 5 days without any announced (to date) knowledge capture and/or post-conference knowledge distribution.
• Except for NSSTA references to the new NSSTA website, neither SSP nor NSSTA offered any Internet educational ideas or discussions at their 2010 annual meetings.

Post-conference leadership questions:

• How will SSP's and NSSTA's new leaders respond to industry changes, challenges and opportunities?
• Who are the young (under age 40) structured settlement industry leaders?
• When and how will SSP and NSSTA transition their educational strategies to embrace the Internet?
• What shared interests exist between SSP and NSSTA to improve and grow the structured settlement industry?

SSP and NSSTA 2010 Annual Meetings - 8

NSSTA scheduled something totally unexpected and outrageous for its 2010 Annual Meeting. NSSTA invited Dan Clark to discuss NSSTA, the structured settlement industry and ethics.

When has NSSTA and/or the structured settlement industry ever engaged a better or more timely critic?

Clark was introduced by Joseph O'Reilly and presented himself as a former disabled person who advises professional athletes and teams (among others) on achieving high performance.

Clark's discussion about ethics and structured settlements was the antipodal response to the Rev. Oliver William's ethics discussion during the NSSTA 2009 Winter Meeting. Rev. Williams asked his NSSTA audience to identify structured settlement business conduct that caused "shocked disbelief" among NSSTA members. The only answer from NSSTA in 2009 was "structured settlement factoring".

Clark's primary message for NSSTA: "what the F... is the matter with YOU?"  Clark started his discussion by answering his own question and then educated and challenged his 2010 NSSTA audience using stories and analogies. Clark's examples, highlighting current industry conduct and performance, were simple and accurate.

Clark compared NSSTA and the structured settlement industry with the "1976 Tampa Bay Buccaneers". The "professionals" who play the game for commissions but never win championships. "Professionals" who create problems rather than solve problems.

Clark challenged NSSTA to change from within: "To improve industry performance, you must discuss both sides of every issue and do what is right."

Strategic questions:

• Will Dan Clark's message wake-up the structured settlement industry?
• Who among the NSSTA leaders: 1) attended Dan Clark's presentation? and, more importantly, 2) understood Dan Clark's message?
• If Karen Meyers, quoting the late James Corman, is correct - that structured settlement professionals are "on the side of the angels":
  • Why is NSSTA so secretive?
  • Why the closed-door meetings?
  • Why the lack of disclosure and transparency for NSSTA's own members?

Strategic follow-up: among the NSSTA presentations S2KM attended in Washington, D.C., only Joseph DiGangi acknowledged and appeared to understand Dan Clark's message. In less than 30 minutes, DiGangi repeated and improved his one hour discourse from the NSSTA 2009 Winter Meeting about settlement consulting.

For S2KM's complete reporting and analysis of DiGangi's 2009 NSSTA presentation about settlement consulting plus S2KM's continuing coverage about structured settlement associations, see S2KM's structured settlement wiki.

SSP and NSSTA 2010 Annual Meetings - 7

Tax laws and tax policy are critically important for structured settlements. Based upon interviews he conducted with structured settlement industry leaders, Jeremy Babener states in his recently published article about "Structured Settlements and Single-Claimant Qualified Settlement Funds":

"It seems roundly agreed that the ......structured settlement market owes its existence almost entirely to the tax subsidy."

With major tax reform predicted for 2011, both the SSP and NSSTA tax panels provided valuable and generally positive news and information plus new tax ideas for growing the structured settlement market. For a list of the SSP and NSSTA tax panel participants, see SSP and NSSTA - 6.

The most positive tax information was the declaration of support for structured settlements during the NSSTA meeting by key Congressmen including Max Baucus, Chairman of the Senate Finance Committee; Sander Levin, Chairman of the House Ways and Means Committee; and David Camp, ranking Republican on the House Ways and Means Committee.

Congressman Camp provided the most concise tax-oriented legislative endorsement of structured settlements. Camp stated: "With tax reform, everything is on the table. But structured settlements are not on the table. Congress has a long history of support for structured settlements on a bi-partisan basis. Don't expect much debate over structured settlements."

The new tax ideas for growing the structured settlement market were highlighted by Babener in his precursor presentation to the SSP tax panel titled: "Justifying and Expanding the Structured Settlement Tax Subsidy". Among Babener's ideas for improving and growing the structured settlement market, he recommends changing the current tax subsidy into a tax credit. According to Babener, who outlines his proposal in an article published in Tax Notes titled "Expanding the Structured Settlement Tax Exclusion", the current tax subsidy provides no benefit for structured settlement recipients unless they pay taxes - which many of whom do not. Babener's article is available on his Tax Structuring website.

Both the SSP and NSSTA 2010 tax panels featured Michael Montemurro, Branch Chief, Office of Associate General Counsel of the IRS. SSP has featured Montemurro on two prior tax panels.

Both the SSP and NSSTA tax panels addressed many of the same issues:

• Single claimant 468B settlement funds;
• Physical vs. non-physical personal injuries;
• Non-qualified assignments - including structured attorney fees;

NSSTA's tax panel also discussed tax issues related to confidentiality agreements and factoring by assignment companies.

By contrast with NSSTA, SSP allotted more than two hours (compared with NSSTA's one hour) for its tax panel. In addition, SSP offered Babener's introductory public policy discussion plus 40 minutes of follow-up discussion. The added time allowed SSP to incorporate Michael Montemurro into a broader discussion which included practical advice (Dan Hindert discussing 468B QSFs), criticism of current tax laws (Professors Gregg Polsky and Brant Hellwig attacking tax deferrals for non-physical injuries and plaintiff attorneys fees) plus extended public policy discussions including secondary market issues.

Both SSP and NSSTA deserve congratulations for their 2010 structured settlement tax panels. SSP's tax panel (organized and moderated by Richard Risk) has become the new industry standard - surpassing what NSSTA formerly and regularly featured as its "Tax Posse". NSSTA's 2010 tax panel (organized and moderated by Michael Miller) re-established NSSTA as an important educational resource for structured settlement tax issues.

For prior S2KM reporting about SSP and NSSTA, see S2KM's structured settlement wiki.

SSP and NSSTA 2010 Annual Meetings - 6

This S2KM blog post is the first of two S2KM blog posts about the SSP and NSSTA 2010 tax panels and is also part of S2KM's blog series about the SSP and NSSTA 2010 annual meetings.

The SSP and NSSTA tax panels offered the industry's best-ever discussions about structured settlement tax issues. This S2KM post introduces the SSP and NSSTA tax panel participants. Subsequent S2KM blog posts will summarize the tax panel discussions and provide additional S2KM commentary. For prior S2KM reporting about the SSP and NSSTA, see S2KM's structured settlement wiki.

SSP's tax panel

• Richard Risk as organizer and moderator. One of the plaintiff attorneys in the Spencer v. Hartford class action and honored as an SSP "Life Member" during the SSP 2010 meeting.
• Michael Montemurro - Branch Chief, Office of Associate General Counsel of the IRS.
• Daniel Hindert - Trial attorney based in Salt Lake City. Co-author of "Structured Settlements and Periodic Payment Judgments" with Joseph Dehner and S2KM's Managing Director, Patrick Hindert. Co-author with Craig Ulman of a 2005 American Bar Association article for judges about structured settlement factoring. Author of a 2010 article about Section 468B Settlement Funds for the Utah Association for Justice.
• Gregg Polsky - Law professor formerly at Florida State University and now teaching at the University of North Carolina. Co-author with Brant Hellwig of a 2010 law review article titled "Taxing Structured Settlements" published in the January 2010 edition of the Boston College Law Review.
• Brant Hellwig - Law professor at the University of South Carolina
• Jeremy Babener - author during 2010 of several public policy articles about structured settlements. Babener's articles are available on his website Tax Structuring. S2KM's reviews of Babener's writing and interviews with Babener are featured on S2KM's structured settlement public policy wiki. In addition to participating on the SSP tax panel, Babener spoke separately at the SSP meeting about "Justifying and Expanding the Structured Settlement Tax Subsidy".

NSSTA's tax panel

• Michael Miller as organizer and moderator. Former co-chairman of NSSTA's legal committee. Also summarized the Spencer v. Hartford settlement at the NSSTA meeting.
• Michael Montemurro - Branch Chief, Office of Associate General Counsel of the IRS.
• Kirk Van Brunt - a member of the NSSTA legal committee and a structured settlement taxation subject matter expert.

SSP and NSSTA 2010 Annual Meetings - 5

One of the highlights of the NSSTA 2010 Annual Meeting was witnessing NSSTA's lobbying strategy and the resulting association contacts between NSSTA members and members of Congress and their staffs.

NSSTA, and the structured settlement industry, have benefited historically from its two primary lobbyists - James Corman (now deceased) and Eric Vaughn (NSSTA's new Executive Director). Vaughn's lobbying expertise and leadership were featured during NSSTA's 2010 meeting in Washington.

NSSTA's political capital and relationships with Congress, especially the Senate Finance and House Ways and Means Committees, are strategically important for the structured settlement and settlement consulting industries. Last week in Washington, D.C.,Congressman after Senator after Congressman swore his allegiance to structured settlements during the NSSTA meeting in the political context of increasing federal financial deficits, the 2010 elections and anticipated 2011 tax reform.

Congressman David Camp, a Republican from Michigan and the ranking Republican on the House Ways and Means Committee, offered the most concise legislative endorsement of structured settlements. Camp stated: "With tax reform, everything is on the table. But structured settlements are not on the table. Congress has a long history of support for structured settlements on a bi-partisan basis. Don't expect much debate over structured settlements."

Congressman Sander Levin, a Democrat from Michigan who chairs the House Ways and Means Committee, also endorsed structured settlements stating: "there is no need for concern of someone trying to change the tax laws in the middle of the night to negatively impact structured settlements".

In addition to presentations by, and receptions with, numerous members of Congress, NSSTA's lobbying strategy featured coordinated Capital Hill meetings by NSSTA members with individual members of Congress and their staffs.

By comparison with NSSTA, SSP's lobbying is restricted and focused upon single claimant 468B qualified settlement funds. SSP does not retain a registered lobbyist on a continuing basis.

S2KM reporting about the SSP and NSSTA 2010 Annual Meetings:

• Part 1 - topics and speakers.
• Part 2 - S2KM's strategic perspective - before the meetings.
• Part 3 - NSSTA and SSP leadership changes.
• Part 4 - awards and recognition.
• Part 5 - NSSTA's lobbying strategy - this post.

SSP and NSSTA 2010 Annual Meetings - 4

In addition to announcing leadership changes, both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) presented special awards and recognition during their respective and overlapping 2010 annual meetings last week in Washington, D.C.

Congressman Pete Stark was honored by NSSTA as its 2010 Legislator of the Year. Stark, a Democrat from California, has served in the United States House of Representatives since 1973. A member of the House Ways and Means Committee, Stark has been a powerful proponent of structured settlements beginning with The Periodic Payment Settlement Act of 1982.

NSSTA also honored two of its members, Karen Meyers and Joseph Bornstein, with special recognition for their contributions to NSSTA. Meyers organized and directs NSSTA's Certified Structured Settlement Consultant (CSSC) program in partnership with Notre Dame University. Bornstein is Chairman of NSSTAPAC, NSSTA's political action committee.

NSSTA is celebrating its 25th anniversary as a structured settlement lobbying and educational association. Former NSSTA President Joseph O'Reilly is directing a 2010 NSSTA project to interview and videotape past NSSTA presidents and leaders. In addition to honoring past NSSTA presidents and leaders, and capturing their historic knowledge, O'Reilly is seeking to jump start a strategic industry discussion about the future of structured settlements.

During its 2010 Annual Meeting, SSP honored Richard Risk with the designation of "Life Member" for his "valuable contributions to the Society of Settlement Planners and to the settlement planning profession." In presenting the award, SSP President Joseph Tombs stated: "You have helped strike a mighty blow for justice. Thousands (if not hundreds of thousands) of future injury victims will benefit from your work during the past two decades".