Beyond Structured Settlements

Liability Insurers' ELNY Motion Denied

Without further explanation, Judge John Galasso has denied a Motion by liability insurers, including Travelers, Fireman's Fund and Hartford, asking the Judge to "clarify and/or correct" his August 16, 2012 Executive Life of New York (ELNY) Memorandum Decision insofar as the Memorandum Decision "caused confusion or mistake" concerning responsibilities of those liability insurers to make up shortfalls on ELNY annuities. (see Addendum below)

The ELNY Memorandum Decision states in relevant part: "certain insurance companies such as Travelers, the Fireman's Fund Companies and Hartford have assured the Court that they will make up the difference to those identified shortfall payees for any settlement obligation where they purchased an ELNY annuity on behalf of an injured party."

In their June 14, 2012 Motion, attorneys representing those liability insurers, as well as Jefferson Insurance Company, Allianz Global Risks US Insurance Company dba Allianz Global Corporate and Specialty North America, John Hancock Property and Casualty Insurance Company and John Hancock Indemnity Company, asked the Court to "amend its decision to omit what the Court likely intended as an aside, or background, which is not material to the Court's approval" of the ELNY Liquidation Plan.

Their Motion had attempted to distinguish two types of structured settlement funding alternatives: "buy and hold" vs. qualified assignments. The Motion maintained that "at no time" did the liability insurers "undertake liability following qualified assignments - liability was extinguished pursuant to the qualified assignment arrangements."

The Motion further attempted to clarify statements made during the ELNY Liquidation hearings by attorneys representing liability insurers including Fireman's Fund attorney Peter Vodola and Traveler's attorney Craig Ulman. (see Addendum below)

According to the Motion, Vodola's promise on behalf of Fireman's Fund that structured settlement shortfall payees "will receive a hundred percent of their benefits regardless of what happens here" was specifically limited to ELNY annuitants "who are entitled to payments under annuities owned by Fireman's Fund."

Similarly, the Motion sought to clarify Ulman's testimony which provided in part: "l can't speak for any but Travelers but they will in fact be covering the shortfalls under their structured settlements. So that the payees will receive the same number of dollars that they are -- were scheduled to receive eventually." Ulman further stated: "The fact is, their obligations are what they are and they will not be affected by the status of the plan." (see Addendum below)

As S2KM has previously written, the legal rights and responsibilities of ELNY qualified assignments represents a critical issue that may subsequently be litigated by the ELNY structured settlement shortfall victims. The Motion suggested that all qualified assignments release all defendants and liability insurers from future liability for promised periodic payments and that annuity ownership determines liability.

Those "suggestions" and/or "assumptions", however, are not necessarily or universally true. For example:

• IRC section 130, which defines a "qualified assignment", does not address whether the assignor's duty is discharged as a result of a qualified assignment.
• IRC section 130 does include requirements which must be met to successfully create a qualified assignment.
• The Monarch Capital case demonstrates some judges apply "creative" legal analysis to protect structured settlement payees following the bankruptcy of a qualified structured settlement assignee.

In subsequent blog posts, S2KM will review IRC section 130 history and requirements and summarize, in the context of ELNY structured settlement shortfall payments, relevant sections of the Restatement (Second) of Law of Contracts addressing:

• Assignment of Rights
• Delegation of Duties
• Delegation vs. Novation
• Disclaimer by a Beneficiary
• Misrepresentation and Voidable Contracts

For S2KM's complete coverage of the ELNY liquidation, see the structured settlement wiki.

ADDENDUM (July 29, 2012) - Please note two corrections to the above report:

1. Although Judge Galasso's Memorandum Decision specifically mentions Travelers, Travelers had nothing to do with the Motion "to clarify and/or correct" the Memorandum Decision. Travelers was "not a party to [the Motion] and learned about it only after it was filed" according to Craig Ulman, Travelers' attorney.
   
2. Although Ulman's testimony, as quoted above, appears in the ELNY liquidation hearing transcript, the Motion "to clarify and/or correct" does not mention Ulman's testimony at the hearing.  Instead, Ulman's hearing testimony, as quoted by S2KM above, appears in the "Affirmation of Edward S. Stone in Opposition to Motions to Clarify and/or Correct the Court's Memorandum Decision."

The following related ELNY documents are accessible on the structured settlement wiki:

• Memorandum Decision
• Motion to Clarify and/or Correct
• Affirmation in Opposition
• Reply in Support
• Decision denying the Motion
• Craig Ulman Testimony from the ELNY Liquidation Hearing Transcript

ELNY Qualified Assignments

Do qualified assignments extinguish the liability of defendants and/or liability insurers for shortfall payments resulting from the liquidation of Executive Life of New York (ELNY)?

That issue is highlighted by a Motion filed June 14, 2012 on behalf of several liability insurers ("Motion") asking Judge John Gallasso to "clarify and/or correct" his April 16, 2012 ELNY Memorandum Decision. For additional background, see S2KM's blog post "ELNY Shortfall Payments".

Judge Galasso's ELNY Memorandum Decision states in relevant part: "certain insurance companies such as Travelers, the Fireman's Fund Companies and Hartford have assured the Court that they will make up the difference to those identified shortfall payees for any settlement obligation where they purchased an ELNY annuity on behalf of an injured party."

The Motion attempts to distinguish two types of structured settlement funding alternatives ("buy and hold" vs. qualified assignments). "Buy and hold" annuities, according to the Motion, "are those whereby the underlying insurer retained, or held the liability for future payments, and funded that liability through its ownership of a qualified funding asset, or annuity."

In contrast, the Motion states, "where a structured settlement includes a qualified assignment, the defendant and its liability insurer are fully released from future liability - which liability is assumed by the assignee, here, First Executive Corporation." (emphasis added). Of course, one of the problems for all ELNY stakeholders is that First Executive Corporation ceased to exist in 1991.

Regardless of whether Judge Galasso grants the liability insurers' motion, the legal rights and responsibilities of ELNY qualified assignments represents a critical issue that may subsequently be litigated. The Motion suggests that all qualified assignments release all defendants and liability insurers from future liability for promised periodic payments and that annuity ownership determines liability.

Those "suggestions" and/or "assumptions" are not necessarily or universally true. Legal rights and responsibilities resulting from attempts to create qualified assignments must be determined on a case by case basis for multiple reasons:

• IRC section 130, which defines a "qualified assignment", does not address whether the assignor's duty is discharged as a result of a qualified assignment.
• IRC section 130 does include requirements which must be met to successfully create a qualified assignment.
• The Monarch Capital case demonstrates some judges apply "creative" legal analysis to protect structured settlement payees following the bankruptcy of a qualified structured settlement assignee.

See "Structured Settlements and Periodic Payment Judgments" (S2P2J) Section 3.05[9] for information about life insurance insolvencies including ELNY; Section 3.06 for information about qualified assignments; and Section 5.04 which addresses the risk of non-payment to a structured settlement payee.

See the structured settlement wiki for S2KM's complete and continuing reporting about Executive Life of New York,

ELNY Shortfall Payments

Who has responsibility to make up the difference in annuity shortfall payments under the Executive Life of New York (ELNY) Liquidation Plan approved by New York State Supreme Court Judge John Galasso on April 16, 2012?

Attorneys representing several liability insurers who previously purchased ELNY structured settlement annuities have filed a Motion asking Judge Galasso to "clarify and/or correct" his ELNY Memorandum Decision insofar as the Memorandum Decision "caused confusion or mistake" concerning responsibilities of those liability insurers to make up shortfalls on ELNY annuities.

The ELNY Memorandum Decision states in relevant part: "certain insurance companies such as Travelers, the Fireman's Fund Companies and Hartford have assured the Court that they will make up the difference to those identified shortfall payees for any settlement obligation where they purchased an ELNY annuity on behalf of an injured party."

In their June 14, 2012 Motion, attorneys Seiger Gfeller Laurie, representing those liability insurers, as well as Jefferson Insurance Company, Allianz Global Risks US Insurance Company dba Allianz Global Corporate and Specialty North America, John Hancock Property and Casualty Insurance Company and John Hancock Indemnity Company, ask the Court to "amend its decision to omit what the Court likely intended as an aside, or background, which is not material to the Court's approval" of the ELNY Liquidation Plan.

The Motion attempts to distinguish two types of structured settlement funding alternatives: "buy and hold" vs. qualified assignments. The Motion maintains that "at no time" did the liability insurers "undertake liability following qualified assignments - liability was extinguished pursuant to the qualified assignment arrangements."

The Motion further attempts to clarify statements made during the ELNY Liquidation hearings by Fireman's Fund attorney Peter Vodola. According to the Motion, Vodola's promise on behalf of Fireman's Fund that structured settlement shortfall payees "will receive a hundred percent of their benefits regardless of what happens here" was specifically limited to ELNY annuitants "who are entitled to payments under annuities owned by Fireman's Fund."

At least one ELNY shortfall victim has already requested that Fireman's Fund make up the difference on a structured settlement funded with a qualified assignment.  The Motion highlights as an Exhibit an April 25, 2012 letter written by attorney Edward Stone to Fireman's Fund's Chief Counsel on behalf of ELNY shortfall victim Jeanice Dolan.

Stone's letter states that Dolan anticipates a 47 percent payment reduction under the ELNY Liquidation Plan resulting in a present value loss of $815,162.62. After quoting the Memorandum Decision language the Motion seeks to "clarify and/or correct", Stone's letter requests Fireman's Fund to compensate Dolan for her ELNY shortfall.

Stone has indicated to S2KM he plans to file opposition papers and a cross motion.

A copy of the Motion to Clarify and/or Correct the Court's Memorandum Decision is posted on the structured settlement wiki.