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.