Beyond Structured Settlements

Structured Settlements 2013 - ELNY and Reliance

Structured settlements are supposed to provide economic security for people with serious injuries and disabilities - to help them rebuild their lives and, in many cases, to achieve special lifetime accomplishments. Instead of an all-cash personal injury settlement, structured settlement recipients accept a promise of future periodic payments.

What happens, if and when, that promise is broken? What happens when a structured settlement funding company, and the regulators and guaranty system responsible for protecting the structured settlement recipients, fail to make and/or insure full payment?

ELNY Liquidation

These questions are highlighted by the Executive Life of New York (ELNY) liquidation - the dominant structured settlement story of 2012 and 2013 and one of the most important developments in the history of the United States structured settlement industry.

The story of ELNY, as well as its affiliate Executive Life of California (ELIC), and their parent company, First Capital Corporation (FEC), is long and complex. For background of events prior to ELNY's 1991 receivership, S2KM recommends Gary Schulte's 1992 book "The Fall of First Executive".  For an Executive Life timeline, see the structured settlement wiki.

Significantly, neither the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the ELNY Rehabilitation Plan declared ELNY to be insolvent.

Following 22 years of "Rehabilitation" supervised by various New York State Superintendents of Insurance and Financial Services, as Receivers, ELNY was officially liquidated August 8, 2013 pursuant to an Order of Liquidation signed by Nassau County New York State Supreme Court Judge John M. Galasso on April 16, 2012.

As part of his Liquidation Order, Judge Galasso also approved a Restructuring Agreement, as proposed by ELNY's Receiver and NOLHGA, whereby ELNY's remaining assets and ongoing liabilities have now been transferred to a successor company, Guaranty Associations Benefit Company (GABC), a not-for-profit Washington D.C.-based captive insurance company.

ELNY Shortfall Payees

GABC published two versions of a final Schedule 1.15 on its website in November 2013. Among the significant details:

• Thirty-seven (37%) percent of all remaining ELNY (now GABC) structured settlement annuities (SSAs) will experience shortfalls.
• SSAs represent ninety-eight (98%) percent of total ELNY shortfall annuities.
• The total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 31% to 100% depending upon the individual contract.

In a 2013 blog post titled "An ELNY Nightmare", S2KM profiled Glenn Arensdorf, one of the ELNY structured settlement victims. For profiles of five additional ELNY structured settlement shortfall payees, see "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the lead article in a comprehensive ELNY analysis published in 2012 by LifeHealthPro.

Faced with significant payment reductions resulting from ELNY's liquidation and restructuring agreement, ELNLY's structured settlement shortfall payees were left with three options:

1. Accept their payment reductions under the ELNY Restructuring Agreement and do nothing; or,
2. Appeal Judge Galasso's Order and ask the Appellate Court to send ELNY's Receiver back to drawing board; or,
3. Bring a separate legal action against the Receiver personally for bad faith conduct, breach of fiduciary duty and fraudulent concealment or waste.

Several ELNY structured settlement shortfall payees chose Options 2 and 3.

Option 2 failed. The Appellate Division of the Supreme Court of the State of New York, Second Department denied the ELNY shortfall payees' appeal of Judge Galasso's Order on February 6, 2013. New York State Court of Appeals denied a subsequent motion by ELNY shortfall payees for Leave to Appeal the Second Department decision on May 3, 2013.

Option 3 remains unresolved.

• Class Action Lawsuit - Several ELNY structured settlement shortfall payees pursued Option 3 by filing a federal class action lawsuit November 8, 2012 in the U.S. District Court for the Southern District of New York against the ELNY Receiver (New York Superintendent of Financial Services Benjamin Lawsky) in his personal capacity.
• Receiver's Response - In response, the Receiver filed a motion December 7, 2012 asking the Liquidation Court (Judge Galasso) to find the shortfall payees in contempt for violating the injunction provision of the ELNY Liquidation Order.
• Contempt Order - Judge Galasso issued a Contempt Order on January 25, 2013. He also imposed a $5000 fine and threatened additional fines plus imprisonment of legal counsel if the ELNY structured settlement shortfall payees did not dismiss their Federal action which they did (without prejudice) on February 7, 2013.
• Bottom Line - So long as Judge Galasso's Contempt Order and continuing threat of additional fines and imprisonment of legal counsel remain in effect, ELNY structured settlement shortfall payees are effectively barred from pursuing Federal legal action against ELNY's Receiver for alleged mismanagement of ELNY's assets during ELNY's 22 year Rehabilitation.
• Shortfall Payee's Appeal - ELNY's shortfall payees are currently pursuing an appeal challenging "each and every part" of Judge Galasso's January 25, 2013 Contempt Order as a necessary step before re-filing their Federal action against the Receiver and his agents.
• Appellate Issues - The appellate brief filed on behalf of the ELNY shortfall payees addresses three legal issues:
  • Did the ELNY Liquidation Court exceed it subject matter jurisdiction or otherwise err by interfering with shortfall payees' constitutional right to bring suit against the Receiver in Federal court?
  • Did the ELNY Liquidation Court err in holding the shortfall payees in contempt for violating its injunctive Order when the order does not clearly and unequivocally bar personal capacity suits against the Receiver?
  • Did the ELNY Liquidation Court err in holding that the shortfall payees conceded the Order barred personal capacity lawsuits by appealing the order and using this alleged concession as the basis to hold the shortfall payees in contempt?

Reliance Liquidation

Reliance Insurance Company was declared insolvent in 2001 and the Pennsylvania Insurance Commissioner was appointed as Liquidator. The Reliance Estate, however, remains open and its assets, until November 4, 2013, included approximately 3,400 structured settlements of which approximately 3093 involve annuities 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.

Pennsylvania Commonwealth Court Judge Bonnie Brigance Leadbetter signed an Order on November 4, 2013 approving a Transfer and Assumption Agreement whereby Reliance will transfer all Reliance-owned structured settlement annuity contracts and corresponding payment obligations issued by Genworth Life Insurance Company to a new corporation, the Genworth Annuity Service Corporation.

For S2KM's complete reporting about the ELNY liquidation, see the structured settlement wiki.

For additional S2KM 2013 annual reports, see:

• Part 1 - Primary market.
• Part 2 - Settlement planning.
• Part 3 - Secondary market.

An ELNY Nightmare

While almost 1500 Executive Life of New York (ELNY) structured settlement shortfall payees await the outcome of continuing ELNY litigation, it is worth remembering how seriously Judge John Galasso's ELNY liquidation order and related restructuring agreement will impact some of these unfortunate individuals assuming his order and the restructuring agreement are ultimately upheld and implemented.

Glenn Arensdorf 

Glenn Arensdorf is one such individual. Glenn is a 49 year old Florida resident who is permanently and totally disabled. He cannot work in any capacity. Glenn's ELNY structured settlement payments are scheduled to be reduced by 58 percent which places him among the most drastically reduced of all the ELNY shortfall payees. 

Significantly, Glenn's structured settlement was funded in 1984 with two "buy and hold" annuities issued by ELNY and owned by Lumbermens Mutual Casualty Company, then known as Kemper Insurance Company, ("Lumbermens") one of the liability insurers in Glenn's personal injury case.

"Buy and hold" annuities, whereby an underlying insurer (in Glenn's case, Lumbermens) retained the liability for future periodic payments, and funded that liability through its ownership of qualified funding assets (in Glenn's case, two ELNY annuities), might appear advantageous compared with ELNY qualified assignments.

With qualified assignments, defendants and their liability insurers often seek to transfer their future liability for periodic payments to a qualified assignee which for ELNY annuities is First Executive Corporation. Unfortunately for ELNY qualified assignee payees, First Executive Corporation ceased to exist in 1991. 

Lumbermens, however, was ordered into rehabilitation July 2, 2012 so its financial and legal ability to fulfill its structured settlement obligations to Glenn are uncertain.

To add insult to injury: although Glenn has an application pending with the ELNY Hardship Fund, the fund specifically excludes applications for which the underlying insurer may still be responsible. To date, Glenn has not received any notification of an award or a rejection by the ELNY Hardship Fund.

Glenn, therefore, appears to face a "Catch 22" which he refers to as "my ELNY nightmare". Glenn's attorneys expect he will qualify under the Illinois Life and Health Guarantee Fund (Lumbermens' home state) where the combined coverage for both of Glenn's ELNY annuities appears to be $168,750.

Glenn's Personal Injuries

Three days after he began college in 1981, Glenn was a rear seat passenger in a one car accident in which a friend and driver lost control, hit a tree and died. Glenn was admitted to the hospital in an unconscious condition and was not expected to live. Although he survived, Glenn sustained traumatic brain injury, multiple fractures, and broken teeth among other injuries. He remained in a coma for five weeks. Glenn has no memory of either the accident or his first days in college.

Due to his brain injury, Glenn has subsequently developed permanent double vision and partial paralysis of facial muscles resulting in disfigurement. His left arm and hand are virtually useless. Glenn walks with a limp following 11 surgeries to his left leg. Both his left arm and left leg are noticeably smaller than his right as a result of muscle atrophy. Glenn also suffers psychological issues, neurological limitations, motor function impairment, cognitive limitations, impaired problem-solving skills, poor short-term memory, a short attention span and slow information processing speed - all as a result of his personal injuries.

Before his accident, Glenn played guitar and was a member of a rock 'n roll band - or, at least, that is what Glenn has been told. He cannot remember playing his guitar. After his accident, when Glenn finally returned home, he found a huge guitar amplifier and a Fender Stratocaster guitar. Having lost both his sense of rhythm and use of his left hand, Glenn became so depressed, he sold his amplifier and guitar "for pennies".

"Glenn's World"

With support and encouragement from his family, Glenn has learned to adapt to his handicapped status and has made progress toward living independently. Glenn lives in a gated community attached to a plaza with a grocery store, several restaurants, and various professional offices. He refers to his community as "Glenn's World" where he serves as an inspiration to other disabled persons who endeavor to live an independent life style.

Every morning, Glenn rides his three-wheel bike to his favorite restaurant, Pete's Place, where he eats breakfast and socializes with the staff and regular customers "by telling them bad jokes". He visits a chiropractor three times each week for treatment of the scoliosis he developed from accident-related injuries. Everyday, Glenn also visits his other favorite restaurant in the plaza, Duffy's, where he helps the staff set up for a busy lunch hour by folding napkins and telling more bad jokes. Although he cannot cook, Glenn generally returns home in time to prepare a sandwich for lunch. 

During the afternoon, Glenn watches TV or reads his emails. Then he rides his bike back to the plaza for dinner at one of several restaurants. The staff of these restaurants have known Glenn for 20 years. When Glenn orders his dinners "chop chop", they help cut up his meals because he is unable to do so himself. Like other brain injured individuals, Glenn's life requires and benefits from similar daily and weekly routines. This includes Glenn's nighttime routine when, due to back pain, he always sleeps on his left side on the right side of his bed.

The ELNY Liquidation

Glenn's ability to sustain his life in "Glenn's World" depends upon his monthly ELNY annuity payments. His financial needs are extraordinary and his limitations profound. Glenn is completely reliant and dependent on others to do what he cannot do for himself. Besides his ELNY annuity payments, the only income Glenn receives is a monthly Social Security Disability payment in the amount of $720.

Glenn is presently being treated by a psychologist for the emotional stress and anxiety created by the ELNY liquidation. He suffers from depression and has difficulty sleeping at night. Glenn does not understand why the State of New York or other insurance companies did not bail out ELNY or why ELNY shortfall payees with catastrophic injuries will be forced to exist on budgets that do not meet their needs. Although Glenn would like to be part of an ELNY support group with other shortfall payees, Judge Galasso has ruled that Glenn and other shortfall payees cannot have access to each others names and contact information.

Some proponents claim that structured settlements are "the ultimate safeguards to guarantee the long term financial health of people harmed in accidents". For Glenn Arensdorf and similarly situated ELNY shortfall payees, however, the structured settlement system has failed them. To protect their rights, they have been forced to challenge the legality and unfairness of Judge Galasso's liquidation order and restructuring agreement against long odds and powerful opponents.

Additional Information

For profiles of five additional ELNY structured settlement shortfall payees, see "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the lead article in a comprehensive ELNY analysis published in 2012 by LifeHealthPro.

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