Beyond Structured Settlements

ASNP 2013 Annual Meeting

Although special needs (SN) planning encompasses non-personal injury clients, settlement planning, with and/or without structured settlements, represents an increasingly important component of both the SN market and the educational focus of its practitioners.

The Academy of Special Needs Planners (ASNP) hosted its seventh annual meeting in Austin, Texas March 21-23 which featured the following topics and speakers:

• Impact of the Affordable Care Act on SN Planning - Scott Solkoff
• Modifying Problem Trusts into Effective Special Needs Trusts (SNTs) - Renee Lovelace
• SNT Issues at the Social Security Administration - Eric Skidmore, Sean Balser, Kevin Urbatsch
• The Jimmo v. Sibelius Medicare Settlement - Margaret Murphy
• SSI Update and New Social Security Strategies - David Lillesand
• Medicaid Third-Party Liability Liens Post-Ahlborn - Floyd Faigle
• Settlement Planning Under Changing Conditions - Donna Meyer, Sharon Pope, Patrick Hindert, Jason Lazarus
• Drafting Special Needs Trusts - Nancy Chudacoff, Sheri Sudweeks, Vincent Russo
• Establishing the Financial Needs of the Special Needs Beneficiary - Jerry Hulick
• Administration of SNTs - Travis Finchum, Kathy Christofell, Jerry Hulick, Renee Lovelace
• Determining a Reasonable Attorney Fee - Mary Alice Jackson

Settlement Planning and Structured Settlement Highlights

Affordable Care Act

• ACA and Settlement Planning - The Affordable Care Act (ACA) changes settlement planning in fundamental ways which speaker Scott Solkoff highlighted in his comprehensive review:
  • Reduced personal injury verdicts and settlements.
  • A different calculus for determining future medical damages based upon health insurance costs.
  • Fewer first party special needs trusts (SNTs).
  • Reduced demand for Medicare and Medicaid for persons with disabilities under age 65.
  • New opportunities for special needs attorneys because of the complexity of the ACA.
• ACA, Verdicts and Settlements - S2KM will address the impact of the ACA on personal injury verdicts and settlements in future blog posts.
• ACA, SSA and SNTs - During an ASNP question and answer session moderated by Kevin Urbatsch and featuring representatives of the Social Security Administration (SSA Question and Answer session), the following exchange occurred:
  • Question: will the SSA allow early termination of SNTs to comply with ACA?
  • SSA Answer: right now, any early termination of a SNT will require payment of reversionary interest.

Settlement Planning and SN Attorneys

The ASNP settlement planning panel was one of several presentations which identified expanding opportunities for SN attorneys. Patrick Hindert, author of S2KM's blog, provided an analysis of the settlement planning market which emphasized changing structured settlement business and transactional models. Hindert highlighted the need for better standards and metrics as well as the importance of qualified settlement funds (QSFs) and the secondary structured settlement market. Sharon Pope discussed settlement planning practice issues and provided sample documents to help special needs attorneys expand their settlement planning practice. Jason Lazurus summarized new developments and cases impacting the use of Medicare set-aside arrangements in liability cases.

For SN attorneys to expand their settlement planning practice, ASNP's panel recommended more in-depth study of non-SNT settlement planning issues including the settlement planning market, the settlement planning team and the settlement plan itself. The panel's handout materials also identified a list of settlement planning documents organized among the following stages of the settlement planning process:

• Engagement
• Assessment
• Design
• Negotiation
• Implementation
• Monitoring

In addition to the settlement planning panel, multiple ASNP presenters discussed specific settlement planning issues. In addition to settlement topics and presenters mentioned elsewhere:

• Jimmo v. Sibelius - Margaret Murphy summarized this recent settlement which has important implications for anyone who needs skilled care as well as for skilled nursing facilities, home health and outpatient facilities. As a result of this settlement, Medicare claims should no longer be denied on a rule-of-thumb determination that a beneficiary's condition is not improving.
• WOS v. E.M.A. - Floyd Faiglie made a last minute addition to his Medicaid lien presentation to address this March 20, 2013 U.S. Supreme Court decision. The decision expanded the Supreme Court's previous Alhborn decision; rejected arguments by North Carolina defending its third party recovery statute; and further limits when a state may demand recovery from a portion of a settlement allocated to non-medical damages.
• Modifying Problem Trusts into Effective SNTs - Renee Lovelace recommended a cost benefit analysis formula for analyzing whether and when to modify a problem trust. Her analysis was process-driven and included: identifying problems, possible benefits, options, and cost of changes; quantifying costs and benefits; and determining the extent of any modification.
• Determining a Reasonable Attorney Fee - Mary Alice Jackson reviewed the eight factors listed in ABA Model Rule 1.5 for determining the reasonableness of a fee and discussed those factors in the context of SNTs. Note (added 3/31/2013): In his SSI update (see below), David Lillesand addressed the issue of whether and when SN attorneys need SSA approval of their attorney fees to avoid penalties resulting from poor quality draftsmanship in the Social Security Act attorney fee regulations.
• Establishing Financial Needs of the Special Needs Beneficiary - Jerry Hulick's presentation addressed special care, the special care team, special care information needs, and special care documents outside of the settlement planning context.
• Drafting Special Needs Trusts - Nancy Chudacoff, Sheri Sudweeks, and Vincent Russo presented ASNP's new Model Third Party SNT. Third party SNTs typically are used outside of the settlement planning context.

Structured Settlements

• ACA - Scott Solkoff noted in his ACA presentation that, after the ACA takes full effect January 1, 2014, structured settlements will more likely fund future health insurance costs, which should be lower and more predictable, than future medical expenses.
• "Over-structuring" - The ASNP panel discussing SNT administration (Travis Finchum, Kathy Christofell, Jerry Hulick, Renee Lovelace) emphasized a common complaint among SN attorneys: plaintiff attorneys frequently contact SN attorneys to draft a SNT on short notice after an "over-structured" settlement has already been reached. This panel discussion followed Lovelace's earlier presentation ("Modifying Problem Trusts") during which she highlighted expanding litigation against fiduciaries. S2KM's suggested solutions for fiduciaries to address the problem of "over-structuring": promote QSFs; enforce product suitability standards; or, as a last resort, utilize the secondary market to obtain increased liquidity for the trust.
• Deficit Reduction Act - The ASNP's SNT administration panel did not discuss whether the annuity rules in the Deficit Reduction Act of 2005 (DRA) are applicable to structured settlements. S2KM is not aware of any definitive authority addressing this issue. For S2KM's previous analysis of the DRA and structured settlements, summarizing a presentation by Sylvius von Saucken, see "Inconvenient Questions".
• Secondary Market - The SSA Question and Answer session did not address structured settlements. During a similar session at the ASNP 2012 Annual Meeting, Eric Skidmore, an SSA representative, confirmed an unpublished (and controversial) SSA position: the SSA believes the existence of the secondary market renders structured settlement annuities "available resources" that potentially disqualify special needs trusts beneficiaries from receiving Medicaid.

Congratulations to ASNP and conference Chairman David Lillesand for an outstanding 2013 educational program which also featured two special needs presentations by Lillesand: a supplemental "Back to Basics" program and a Supplemental Security Income (SSI) update.

For S2KM summaries of prior educational conferences of the ASNP, and other professional associations addressing settlement planning issues, see the structured settlement wiki.  For S2KM's listing of Spring 2013 educational conferences featuring settlement planning and structured settlement presentations, see this prior S2KM blog post.

Spring 2013 Educational Conferences

The following national associations have announced 2013 Spring educational conferences featuring settlement planning issues:

• Academy of Special Needs Planners (ASNP)
  • March 21-23 in Austin, Texas.
• National Structured Settlement Trade Association (NSSTA)
  • April 17-19 in Palm Springs, California (members only).
• National Alliance of Medicare Set-Aside Professional (NAMSAP)
  • April 25-26 in Baltimore, Maryland.
• National Academy of Elder Law Attorneys (NAELA)
  • May 1-4 in Atlanta, Georgia (members only).
• Society of Settlement Planners (SSP)
  • May 5-7 in Las Vegas.

S2KM has attempted to organize Spring conference settlement planning topics by category below without listing speakers. For additional information, check the links above. Note: SSP has not yet published a complete conference program description on its website.

Settlement Planning - General Issues

• ASNP: Settlement Planning Panel Discussion
• NAELA: Structured Settlements and Settlement Planning

Settlement Planning Participants

• NSSTA
  • Mediator Panel
  • P&C Company Panel
• NAELA: Representing Fiduciaries
• SSP
  • Marketing to Plaintiff Attorneys
  • Ancillary Service Providers
  • Benefit Analysis Experts
  • Retirement Solutions for Plaintiff Attorneys
  • Partnering with Trust Counsel

Legislative Updates

• ASNP: Affordable Care Act
• NSSTA
  • Structured Settlement Legislative Update
  • Tax Reform Update
• NAMSAP - MSA Legislative Update
• NAELA: Special Needs Law Update
• SSP: Affordable Care Act

Regulatory Updates

• ASNP
  • Special Needs Trust (SNT) issues at the Social Security Administration
  • Social Security SSI Update
• NAMSAP
  • Advanced Notice of Public Rule Making for Liability MSAs
  • CMS Update
• SSP
  • Investment Securities Compliance, Regulatory and Licensing Issues
  • Reforming the MSA Program

Case Law Updates

• ASNP: The Jimmo vs. Sebelius Medicare Settlement
• NSSTA: Legal Committee Case Law Update
• NAMSAP: Case Law Update
• NAELA: Case Law Update

Business Practices

• ASNP
  • Determining a Reasonable Fee
  • Establishing the Financial Needs of the Special Needs Beneficiary
  • Modifying Problem Trusts into Effective SNTs
  • Drafting SNTs
  • Administration of SNTs
  • Medicaid Third Party Liens
• NAMSAP: Lien Resolution
• NAELA
  • SNT Reviews
  • Competitive Compensation Packages
  • Positioning Practice for Changing Demographics
  • What Constitutes the Practice of Law?
  • Cultural Competency After the Repeal of the Defense Of Marriage Act
  • Impact of Medicaid Managed Care
• SSP
  • Professional MSA Administration
  • Settlement Planning Tax Issues
  • MSA Submissions
  • QSF Administration and Panel

Financial Needs, Products and Issues

• NSSTA
  • Structuring MSAs
  • Financial Security and Annuities
  • Special Needs Trusts
• NAMSAP - Medicare Advantage Plans
• NAELA
  • Long-Term Care Insurance
  • Future of Long-Term Care
• SSP
  • Funeral Trusts
  • Social Security Disability Benefits
  • Long Term Care Insurance
  • Trusts in Settlement Planning
  • Guaranteed Indexed Annuities

Technology Developments

• NSSTA
  • Virtual Structured Settlements and The E-Worker
  • Structured Settlement Podcasts
• NAELA
  • Protecting Digital Assets
  • Technology and Social Media Ethical Issues
  • Social Media Marketing
  • Technology Roundtable

Standards and Metrics

• NSSTA
  • Structured Settlement Facts and Figures
  • Structured Settlement Service Metric Survey
• NAMSAP: MSA Data and Development Update
• NAELA: Guardian Standards and Role of the Fiduciary

Medical Conditions and Issues

• NAMSAP: CMS Pharmacy Trends
• NAELA: Rehabilitation of Brain and Spinal Cord Injuries

For S2KM's past reporting of settlement planning conferences, see the structured settlement wiki.

Reliance Structured Settlement Annuities

What happens, or should happen, to structured settlement payees when the owner of their structured settlement annuities becomes insolvent?

Reliance Insurance Company (Reliance), a liability insurer, is the most recent example where these issues are being adjudicated. Previous examples include Monarch Capital Corporation and First Executive Corporation, both non-insurance companies which, as "qualified assignees", owned structured settlement annuities issued by their subsidiary life insurance companies.

The Commonwealth Court of Pennsylvania (Liquidation Court) declared Reliance insolvent and issued an Order of Liquidation which appointed the Pennsylvania Insurance Commissioner as Liquidator in 2001.

The Reliance Estate, however, remains open and its current assets include approximately 3,400 structured settlement annuity contracts which the Liquidator estimates have a present discounted value of $95.1 million. The Liquidator further estimates:

• Over 85 percent of the structured settlement annuity contracts owned by the Reliance Estate are “qualified assignment” contracts and the rest are “buy and hold” contracts.
• Over 95 percent of the qualified assignment contracts owned by the Reliance Estate involve annuity contracts issued by United Pacific Life Insurance Company, a former Reliance subsidiary which Reliance sold in 1993 and which is now known as Genworth Life Insurance Company.

As part of the Reliance liquidation process, current Pennsylvania Insurance Commissioner Michael F. Consedine requested the Liquidation Court on September 10, 2012 to enter an Order approving transfer of ownership of these structured settlement annuity contracts to the annuity payees which, in many cases, now include factoring companies and investors who have purchased structured settlement payment rights from factoring companies.

On February 28, 2013, Pennsylvania Commonwealth Court Judge Bonnie Brigance Leadbetter ordered the Liquidator’s Application for Approval to Transfer Ownership (Transfer Application) “be held in abeyance until further order of this Court.”

As justification for the proposed transfer of structured settlement ownership, the Transfer Application provides in part:

• With the exception of several structured settlement annuities issued by Executive Life of California and Executive Life of New York (ELNY), all payments related to structured settlement annuities owned by the Reliance Estate have been paid by the annuity issuers.
• The structured settlement annuity payees will have the same right to receive payments from the annuity issuers assuming transfer of ownership to the payees.
• As owner of the annuity contracts, Reliance has the right to transfer ownership upon notice to the annuity issuers.
• The Liquidator has concluded that transferring ownership of the annuity contracts to current payees under those contracts, with the simultaneous discharge of Reliance’s related structured settlement payment obligations:
  • Would be in the “best interest” of the Reliance Estate and represents “the only viable option”; and
  • Would not create any federal income tax liability for Reliance.
• Recognizing that any asset transfer requires prior court approval, the Liquidator “explored several other options” including transfer of the annuity contracts to:
  • A newly-formed entity such as a subsidiary corporation; and/or
  • A trust owned by Reliance.
• The Liquidator, however, concluded that any and all such alternative options would fail to provide the Reliance Estate with finality and expense reduction.

The Liquidator’s Transfer Application provides the following additional comments about the Reliance structured settlement payees:

• Tax consequences – The Liquidator concluded “it is impossible and imprudent” for the Liquidator to make predictions or provide tax advice for the payees because each has unique circumstances. Accordingly, “payees may want to consult a tax advisor or accountant with respect to the [proposed] transfer.”
• Priority in liquidation – If any structured settlement annuity issuer fails to meet its structured settlement obligation (which the Transfer Application questionably refers to as “the primary obligation”), the Liquidator has determined a claim against the Reliance Estate under a “qualified assignment” contract “would warrant no higher than class (e) priority" under the Pennsylvania Insurance Company Act. The Liquidator, however, anticipates no Reliance creditors below class (b) priority will receive any distribution from the Reliance Estate.
• Notice – The Liquidator does not have a complete list of current names and addresses of Reliance structured settlement payees in part because Reliance did not retain copies of either the annuity contracts or other structured settlement documents issued by United Pacific Life Insurance Company when it sold the company in 1993. The Liquidator assumes Reliance structured settlement annuity issuers have the ability to furnish individual notice. In addition, the Liquidator plans to publish notice in multiple regional and national newspapers.

Additional Resources

• For additional documents related to the Reliance Liquidation, see the Reliance Documents website.
• For additional information about the resolution of Monarch Capital Corporation structured settlements, see Section 5.04[2][b][ii] of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
• For additional information about the resolution of First Executive Corporation structured settlements, see the structured settlement wiki and S2P2J Sections 3.05[11-13].
• For a discussion of alternative funding options ("qualified assignments" vs. "buy and hold") in the context of the ELNY liquidation, see "ELNY Qualified Assignments".

ELNY Shortfall Payees Seek Review by NY's Highest Court

Attorneys representing Executive Life of New York (ELNY) structured settlement shortfall payees (Objectors) have filed a Motion for Leave to Appeal dated March 8, 2013 and a supporting Memorandum of Law with the New York State Court of Appeals (Court of Appeals).

This Motion, requesting review by New York's highest judicial authority, seeks to reverse a February 6, 2013 decision by the Appellate Division of the Supreme Court of the State of New York, Second Department (Second Department) which rejected an earlier legal challenge to the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

In addition to attorney Edward Stone and the Christensen & Jensen law firm, the ELNY shortfall payees' appellate legal team now includes Michael J. Hutter, Jr., a law professor at the Albany Law School of Union University. Professor Hutter's online biography states he "has argued over 275 appeals in all of New York's appellate courts and many of the cases in which he represented the prevailing party are considered to be landmark decisions."

The ELNY shortfall payees consist of approximately 1456 structured settlement payees whose benefits under the ELNY Restructuring Agreement will be reduced up to 66 percent with an average per payee present value reduction of approximately $632,310 and a total present value reduction of approximately $920,642,947.

The issues being presented to the Court of Appeals requesting their review are the same issues the Second Department rejected:

• Due Process - "Did inadequate notice and the denial of information to Objectors, along with the selective application of the Civil Practice Law and Rules, deny Objectors a fair hearing as required by principles of due process?"
• Immunity - "Did the Supreme Court exceed its subject matter jurisdiction or otherwise err in granting immunity to the Receiver and others in their personal capacities, where such immunity is not provided for by statute, is inconsistent with the common law, and is unsupported by evidence?"
• Injunction - "Did the Supreme Court exceed its jurisdiction or otherwise err in permanently enjoining claims against the Receiver and others in their personal capacities, where such injunction is not provided for by statute or the common law, and no evidence was adduced at the hearing?"

Why should the Court of Appeals grant the ELNY shortfall payees' Motion seeking leave to appeal? Their attorneys argue the distribution and protection of Article 74 assets is a matter of public importance and the Second Department decision warrants leave to appeal for the following reasons:

• The Second Department's decision to authorize immunity and enjoin suits against the Receiver in his personal capacity "undermines the public's interest in protecting policyholders and receivership assets."
• The Second Department's decision is inconsistent with the Court of Appeals' previous ruling in Dinallo v. DiNapoli, "which implicitly recognized that an Article 74 Receiver is no different than any other court appointed private Receiver."
• The immunity and injunction provisions included in the ELNY Liquidation Order "exceed the subject matter jurisdiction conferred upon the Supreme Court and is inconsistent with the provisions of Article 74."

In addition, the ELNY shortfall payees' attorneys argue the Court of Appeals should grant leave to appeal "to determine whether the limited notice and the denial of information to Objectors, along with the selective application of the Civil Practice Law and Rules, provided Objectors a fair hearing as required by the principles of due process" for two reasons:

• First, under New York law, "leave to appeal is not required to appeal constitutional issues."
• Second, even absent this express right, "the issue of whether an Article 74 proceeding, or any court proceeding, is conducted in accordance with principles of due process is a matter of public importance and concern."

For S2KM's complete reporting about the ELNY liquidation and an Executive Life timeline, see the structured settlement wiki. 

For S2KM's summary of arguments presented earlier to the Appellate Division of the Supreme Court of the State of New York, Second Department by attorneys representing Benjamin M. Lawsky,  Superintendent of the New York State Department of Financial Services, and the ELNY shortfall payees, see:

• Due process
• Immunity
• Injunction

"Shut It Down!"

"It is time to shut down the New York Liquidation Bureau", argues attorney and insurance expert Peter Bickford in his opinion article titled "ELNY Debacle Exposes Serious Problems" which is featured as the cover story in the February 18, 2013 issue of Insurance Advocate magazine.

Bickford's article is accompanied by a second Insurance Advocate opinion article written by Edward S. Stone, an attorney who represents 40 ELNY structured settlement shortfall payees.

In his article, titled "ELNY Opinion Unjust to Victims", Stone accuses Benjamin M. Lawsky, Superintendent of New York's Department of Financial Services and his predecessors (Superintendent), the New York Liquidation Bureau (NYLB) and their agents of "concealment, fraud, waste and mismanagement".

Bickford's article further asserts the ELNY liquidation impacts the entire insurance industry, "including the guaranty fund structure and the growing nationwide debate on State v. Federal regulation of insurance." Bickford states: "[t]he attacks against continued state regulation of the business of insurance is focused primarily on solvency and unless the states can show that they have appropriate standards and ability to enforce those standards the attacks could result in a sea change in regulation."

Bickford maintains the Superintendent should recognize the "hollowness" of his recent legal victories: Judge John Galasso's civil contempt order and the denial of an appeal challenging Judge Galasso's ELNY liquidation order approving the ELNY restructuring agreement. The ELNY liquidation "fully exposed the Bureau for its decades-long covert mismanagement of insolvent insurance companies" according to Bickford.

What Bickford finds most surprising about the ELNY liquidation is:

• "[T]he unwillingness of the administration, the courts, the legislature and the industry to admit the scope of the ELNY disaster and the failings of the insolvency process, and to take appropriate action to remedy these systemic problems"; and
• "[T]he lengths that the administration and the courts have gone to in order to preserve the myth of the Bureau’s fiduciary role without fiduciary accountability, or to protect it from any form of meaningful external investigation or scrutiny."

Bickford's bottom line: it is time to shut down the NYLB! 

Bickford's argument, which echoes and expands criticism of the NYLB published in LifeHealthPro's 2012 article titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", runs as follows:

• The NYLB is not defined under New York insurance law.
• The NYLB is not a state agency and not subject to either audit by the State Comptroller or the Freedom of Information Act according to a decision (Dinallo v. DiNapoli) by New York highest state court.
• The NYLB is not required to file any plan or reports with the courts supervising receivership estates or to provide any status reports to policyholders or creditors.
• Once under NYLB control, an insurer is no longer subject to regulatory oversight and no longer files any reports or financial statements.
• The NYLB's lack of accountability over decades has made it a breeding ground for corruption and abuse.

In future Insurance Advocate articles, Bickford promises to "explore how the process should and can work efficiently and truly for the benefit of the victims of an insolvency, and what course the legislature with the support of the regulators and the industry could take to successfully and meaningfully restructure the insolvency process."

Stone's article includes a comprehensive ELNY background summary. Stone's conclusions:

• "The blanket immunity and broad injunctive relief granted in the ELNY liquidation permits the Superintendent, the NYLB and their agents to hide the fraud, waste and mismanagement that doomed ELNY behind the pretext of court supervision.
• "The contempt sanctions issued against the victims and their attorneys for doing the Superintendent’s job are a blatant attempt to intimidate the plaintiffs into abandoning their claims.
• "Sadly, instead of helping the victims of this tragedy, the Superintendent is choosing to blame and punish them – and he’s using ELNY’s assets and the court system to do it."

For S2KM's comprehensive ELNY reporting and an Executive Life timeline, see the structured settlement wiki.