Beyond Structured Settlements

Stone Street Capital v. McClendon

A Louisiana state court has ruled in Stone Street Capital v. McClendon that MetLife and Travelers had no right to withhold a structured settlement payment from Stone Street Capital which Stone Street had previously purchased, with court approval pursuant to the Louisiana structured settlement protection act, despite the original annuitant/payee's death prior to the payment date.

This 2012 case, which was featured in a presentation by Earl Nesbitt at the NASP 2012 Annual Conference, reinforces the finality of settlement transfer orders. According to Nesbitt, it also calls into question other cases where Travelers, as owner of structured settlement annuities, has ordered structured settlement annuity issuers to stop making payments to transfer companies following the death of the original annuitant/payees despite existing court orders approving those transfers.

Background

• In 1990, Shelia McClendon entered into a structured settlement in which Travelers Insurance Company, as assignee, purchased an annuity from Travelers Life and Annuity Company, which later became MetLife Annuity Company of Connecticut in 2006.
• On July 27, 2007, Shelia McClendon entered into a purchase and sale agreement with Stone Street Capital to sell her right to a $51,800.51 payment due October 15, 2010.
• On September 20, 2007 the same court which subsequently heard the Stone Street v. McClendon case signed an order approving the transfer.
• In the 2007 transfer proceeding, Stone Street gave proper notice to MetLife (as annuity issuer) and Travelers (as annuity owner) neither of whom raised any objections.
• MetLife subsequently sent a letter to Stone Street advising that MetLife would make the assigned payment to Stone Street in compliance with the order.
• The transfer order provided an indemnity, allegedly requested by Travelers and MetLife, to protect them from any further suit by any party asserting an ownership claim or a right to the assigned payment.
• Shelia McClendon died in 2008.
• Pursuant to instructions from Travelers, MetLife did not pay Stone Street the October 15, 2010 payment when due.
• Following Stone Street's inquiry, MetLife and Travelers informed Stone Street that other persons had competing demands for the October 15, 2010 payment and, to resolve the conflict, Stone Street must file a declaratory judgment action which Stone Street did file.
• On July 15, 2011, Travelers filed a preemptory exception of nonjoinder of indispensable parties.
• Travelers' exception claimed Shelia McClendon had passed away and that both her estate and the estate of Peatrice Jackson, whom Travelers claimed was the annuity beneficiary, were indispensable parties to Stone Street's declaratory judgment lawsuit.
• On August 4, 2011 MetLife answered Stone Street's petition and included a reconventional demand for consursus (a form of interpleader).
• None of the parties disputed, either at the time of the 2007 transfer hearing or at the time of the subsequent declaratory judgment suit, that Stone Street properly complied with Louisiana's structured settlement protection act.

Stone Street's Argument

• The declaratory judgment action was filed against MetLife and Travelers and also against the parties Travelers told Stone Street to file against.
• Stone Street subsequently asserted, however, that MetLife was the only party against whom Stone Street needed a judgment in this lawsuit.
• Therefore, Stone Street asked that everyone else be dismissed from Stone Street's motion for summary judgment.
• According to Stone Street, the declaratory judgment proceeding should not have been necessary.
• Stone Street fully complied with the Louisiana structured settlement protection act and a transfer order was previously entered without objections from MetLife or Travelers.
• The 2007 transfer order required MetLife to make the October 15, 2010 payment to Stone Street.
• MetLife ignored their own prior letter wherein MetLife stated it received the order and agreed to comply.
• The principle of res judicata should prevent MetLife from pleading concursus because its claim was previously prosecuted to judgment.
• Traveler's request for a declaratory judgment and MetLife's consursus proceeding represented "improper accumulations of actions".
• Although some state structured settlement protection statutes require a change of annuity beneficiary, the Louisiana statute does not because beneficiaries are not required to receive notice or be named parties.
• Louisiana law further holds:
  • Until a person dies that person has the right to sell assets that person owns.
  • Except for irrevocable beneficiaries, no one has a vested right to the status of a beneficiary under a life insurance contract if the death of the insured has not occurred.

MetLife's Argument

• Neither MetLife nor Travelers were parties to the 2007 transfer order so that order had no res judicata effect on MetLife.
• Travelers, the annuity owner, told MetLife not to make the October 15, 2010 payment to Stone Street.
• Nothing in the 2007 transfer order addressed what would happen to the October 15, 2010 payment if Shelia McClendon died prior to that date.
• When Shelia McClendon died, her named beneficiary in the annuity contract was Peatrice Jackson who predeceased McClendon.
• Peatrice Jackson's heirs filed a competing claim for the October 15, 2010 payment.
• Although Stone Street alleges Shelia McClendon filed a request to change her annuity beneficiary, neither MetLife nor Travelers had any record of receiving this request.
• Because a discrepancy existed among the documents submitted to MetLife, a concursus proceeding became necessary and appropriate.

Travelers' Argument

• The Louisiana structured settlement protection act did not impact Shelia McClendon's settlement agreement.
• The settlement agreement remained valid even following the transfer agreement.
• The transfer agreement did not change either the settlement agreement or the annuity contract beneficiary designation.
• The settlement agreement and the annuity contract both provide that Peatrice Jackson, the named beneficiary, would receive the future payments in the event of Shelia McClendon's death.
• If Stone Street and Shelia McClendon had followed through on their request to name Stone Street the annuity beneficiary, this declaratory judgment lawsuit would not have been necessary.
• Travelers had no proof that Shelia McClendon made any attempt to initiate a beneficiary change.
• Therefore, material issues of fact existed concerning: 1) who was Shelia McClendon's rightful beneficiary; and 2) who was entitled to the October 15, 2010 payment.

Judgment - Louisiana District Court Judge Kay Bates:

• Dismissed MetLife's concursus with prejudice and costs payable by MetLife.
• Denied Travelers' exception of failure to join indispensable parties with costs payable by Travelers.
• Granted Stone Street's motion for summary judgment with costs payable by MetLife.
• Granted Stone Street's motion to dismiss the other defendants without prejudice.
• Ordered MetLife to remit the October 15, 2010 payment to Stone Street within 15 days of the mailing of the judgment.

Judge Bates' Reasoning

• In the 2007 transfer proceeding, Shelia McClendon and Stone Street were parties, and MetLife and Travelers were properly notified and served with the petition and order.
• Under the Louisiana structured settlement protection act, Shelia McClendon was clearly entitled to sell the October 15, 2010 payment.
• The 2007 transfer order was valid, final, and not subject to appeal as all delays had passed.
• MetLife's claims against Stone Street arose out of the same subject matter as the 2007 transfer proceeding.
• MetLife's issues existed when the 2007 transfer order was signed and neither MetLife nor Travelers objected at that time.
• Therefore, MetLife's concursus is barred by res judicata.
• Neither MetLife, nor Travelers, nor any of the other claimants had any continuing interest in the October 15, 2010 payment.
• Because Stone Street established it was entitled to the October 15, 2010 payment as a matter of law, no genuine issue of material fact remained.

Additional Resources

• For a 2009 California appellate case addressing the finality of structured settlement transfer orders, see Henderson v. Ramos reported in "Fresno County Factoring Cases" - Part 1 and Part 2 .
• For S2KM's complete reporting about the structured settlement secondary market, see the structured settlement wiki.
• For a more comprehensive and updated analysis of structured settlement transfers, see Chapter 16 of "Structured Settlements and Periodic Payment Judgements" (S2P2J).

S2P2J Release 52

Publisher Law Journal Press anticipates a late October 2012 distribution date for hardcopy supplements for Release 52 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Online S2P2J will also be updated late October 2012 to include Release 52 materials. First published in 1986, S2P2J is co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) utilize S2P2J as an educational resource for their certification programs.

Release 52 Highlights

Documenting a structured settlement is generally more complicated than the paper work involved with a lump sum settlement. Structured settlement documentation can be further complicated depending upon the number of claimants and annuities, whether plaintiff attorneys defer their fees, the need to allocate damages, the degree of government benefit planning and the growing integration of annuities and trusts into blended products.

Increasingly, therefore, the parties to a structured settlement agreement must endeavor to implement complex settlement plans, using multiple funding devices, designed to address both the intent of the parties and compliance and accountability requirements from the public sector.

To assist structured settlement participants in achieving these objectives, S2P2J Release 52 features new sample structured settlement forms with suggested alternate clauses for use as circumstances change. The new sample forms include a model Structured Settlement Agreement, with a Supplemental Schedule to more conveniently address funding details, plus an optional Advisory Disclosure document specifying the involvement, services and commission sharing (if any) of structured settlement consultants used by the claimant, defendant and liability insurer(s).

The Supplemental Schedule provides a useful, alternative format for specifying the funding details of the settlement, including:

• The amount of up-front payments and their recipients.
• The cost to purchase funding for the periodic payments.
• A provision if the claimant’s attorney will receive periodic payments.
• Allocations by the parties between tax-free and taxable payments.
• Amount of monthly payments and whether they will extend for the claimant’s lifetime or for the greater of claimant’s lifetime or a set period of time.
• Any deferred lump sums to be paid.
• Contingent payee provisions in case payments remain due after claimant’s death.
• Provisions needed for minor’s or protected person’s settlements.
• Specific payee designations, including post office addresses or account information for electronic deposits.
• Designation of attorneys to be paid and at what address or to what account number.
• Language used to permit or disallow later transfers of periodic payment rights.

To help explain these new structured settlement forms, the authors have added extensive related commentary discussing how to create enforceable structured settlement agreements that minimize the risk of post-closing issues.

Release 52 also features a comprehensive update of the Executive Life of New York (ELNY) liquidation plus new and/or expanded analyses for the following structured settlement industry issues and case developments:

• International use of structured settlements.
• Whether defendants save money, historically and currently, using structured settlements.
• New Treasury regulations for IRC section 104(a)(2).
• Allocating settlement proceeds between taxable and tax-exempt elements.
• How special needs trusts can prevent private health care organizations from obtaining subrogation reimbursements from SNT beneficiaries.
• New case law addressing structured settlements for minors issues.
• Bankruptcy court decisions analyzing whether and when a bankruptcy trustee can access structured settlement benefits.
• New cases addressing differences between state periodic payment of judgment statutes that do and do not include termination provisions.
• The State of Washington's new Claims Resolution Structured Settlement Agreement for workers compensation cases.
• The new CMS Medicare Secondary Payer Recovery Portal offering authorized users access and the ability to update pending case information.
• Secondary market case update including:
  • Approval and denial of transfers based upon the "best interest" and "fair and reasonable"  tests.
  • Whether a structured attorney fee is subject to the state structured settlement protection statutes.

For highlights of prior "Structured Settlements and Periodic Payment Judgments" updates, see the structured settlement wiki.

Structured Settlements in 2011 - 2

In a prior blog post, S2KM highlighted the historic significance of the ELNY liquidation as the dominant 2011 structured settlement industry development. This blog post offers a strategic perspective of the industry's status in 2011 focusing in part on the industry's three national associations and also providing a broader perspective for ELNY.

Strategic Overview - Primary Market

The National Structured Settlement Trade Association (NSSTA) celebrated its 25th anniversary in 2011. Among its 2011 accomplishments, NSSTA noticeably improved its marketing and educational programs while focusing substantial resources to help minimize problems related to the ELNY liquidation. NSSTA has attempted to balance the need to inform its members (not the public) about ELNY's status with the need to promote the strength of its life insurance markets and the state guaranty fund system.

Speaking at NSSTA's 2011 Annual Meeting, Thomas Ronce, Chairman of NOLHGA, described the current life and health guaranty system in the United States as experienced, well-financed and armed with a multitude of optional legal and financial tools. Applied to ELNY, this state guaranty system will substantially improve the recovery for many ELNY structured settlement recipients. The state guaranty system, however, will not make whole every ELNY structured settlement recipient. Unfortunately, even with guaranty fund payments and additional enhancements, many ELNY structured settlement recipients are expected to experience shortfalls.

NSSTA's 2011 Annual Meeting and Fall Educational Conference also showcased the current strength of the structured settlement market and its product providers.

• Jim Morris, President, Chairman and CEO of Pacific Life Insurance Company, accentuated the current financial strength of U.S. life insurance companies generally and explained why structured settlement annuities represent an excellent strategic product for life companies. Confirming Morris' assessment, three new product providers (Mutual of Omaha, National Indemnity and Hartford) entered (or re-entered) the structured settlement marketplace during 2011.
• William T. Robinson III, President of the American Bar Association (ABA) strongly endorsed structured settlements as "professional and dignified solutions" for injury victims based upon his first-hand experience as a litigation attorney. Robinson also suggested the ABA and NSSTA should identify shared interests and lobbying opportunities.
• American General Life President Mary Jane Fortin described AIG, a structured settlement product provider that received more than $180 billion of loans and investments from the United States government in 2008, as "a strong, stable and resilient company dedicated to keeping our promises". Fortin also dispelled several "myths" about AIG, summarized AIG's recovery from the 2008 financial crisis and expressed optimism about the future of life insurance industry and structured settlements.

Despite these positive assurances, however, primary market structured settlement annuity sales have continued to trend downward for the past three years, arguably because of the 2008 financial crisis and historically low interest rates which many experts predict will continue for the foreseeable future. What has been missing from NSSTA's leadership during 2011 has been a positive vision for NSSTA's own future and the future of structured settlements.

David Ringler, NSSTA's first President, spoke during the NSSTA 2011 Annual Meeting. Ringler stated the most important reason for creating NSSTA was "having a place where everyone and anyone can sit down with each other and discuss the issues and viewpoints regardless of beliefs."  Sometime during the past 25 years, NSSTA lost sight of this original vision and now generally excludes industry voices and perspectives that challenge traditional structured settlement business models and practices.

As one result, two additional professional associations have formed with alternative structured settlement perspectives:

• The Society of Settlement Planners (SSP) - SSP espouses the claimant's right to select his or her own structured settlement adviser and funding company. SSP promotes structured settlement annuities as a core product for special needs settlement planning and favors greater utilization of IRC 468B Qualified Settlement Funds (QSFs).
• The National Association of Settlement Purchasers (NASP) - NASP promotes the right of structured settlement recipients, in compliance with federal and state laws, to sell their payment rights provided a state judge approves the sale in advance as being in the "best interest" of the transferor/payee taking into account the welfare and support of the payee's dependents.

To its credit, NSSTA expanded the scope of its educational programs in 2011 to discuss QSFs and to provide its members with more detailed information about structured settlement secondary market. The perspective for these NSSTA discussions, however, remains defensive and protective without any attempt to envision or discuss new business opportunities or product improvements.

By comparison, SSP's vision for the the future of structured settlements is defined and supported by its "Standards of Professional Conduct". SSP views structured settlements as a core product for personal injury settlement planning. SSP's vision agrees with and encompasses the business model Joseph DiGangi introduced to NSSTA in 2009 as "Settlement Consulting" which he characterized as "a wake up call for the industry." SSP's educational conferences continue to push structured settlement industry thinking beyond its historic boundaries and the inevitability of its path dependence.

In addition to SSP, three national legal associations are developing special needs business practices and models that expand the framework and opportunities for structured settlements:

• Academy of Special Needs Planners (ASNP)
• National Academy of Elder Law Attorneys (NAELA)
• Special Needs Alliance (SNA).

Faced with the ELNY crisis, declining annuity sales and the continuing prospect of low interest rates, some primary market structured settlement stakeholders now recognize that business practices and models that made sense in the past may have survived despite the eclipse of their earlier justification.  S2KM believes more primary market stakeholders should expand their strategic perspectives and re-think structured settlements in the context of the changing legal and financial landscape.

For example, here are four 2010 developments with important consequences for structured settlement stakeholders that have heretofore received inadequate primary market educational attention:

• Patient Protection and Affordability Care Act - how does health care reform impact injury victims and what opportunities does it create for structured settlements?
• Dodd-Frank Wall Street Reform and Consumer Protection Act - how will the Consumer Financial Protection Bureau (CFPB) address structured settlement complaints?
• NAIC Suitability in Annuity Transactions Model Regulation - what does "suitability" mean for structured settlement annuities and how does "suitability" differ from the "best interest" standard applicable to trustees, investment advisers and structured settlement transfers?
• Spencer v. Hartford class action settlement - what are the lessons learned and resulting new best practices for structured settlements?

Strategic Overview - Secondary Market

The ELNY liquidation is also having a negative impact on the secondary structured settlement market. Some industry experts have estimated that as many as 1000 of ELNY structured settlement annuities (out of the 4168 total) have undergone transfers of some or all payment rights. Investors who have purchased ELNY annuity payment rights may not be eligible to receive contributions from state guaranty funds which historically protect "consumers". The NYLB's December 7, 2011 letters warned ELNY payees "if you have transferred any part of your right to receive ELNY SSA benefits to a third party, you may not be eligible to receive benefits from CABC related to the benefits you transferred."

Although the financial crisis of 2008 had a devastating short term impact on the structured settlement secondary market, the market has experienced robust sales in 2011 as institutional investors continue to be attracted to the relatively high rates of returns generated by restructured (post transfer) payment right obligations. More individual investors, including personal injury claimants and their attorneys, have also begun purchasing restructured payment rights although some industry experts caution against potential tax and securities law uncertainties.

The structured settlement secondary market changed dramatically in 2011 with the announced merger of  J.G. Wentworth and Peachtree Settlement Funding. The merger combined the two largest purchasers of structured settlement payment rights with an estimated 80-85 percent of the market.

The merger highlights a remarkable turnaround for Wentworth whose shareholders control the majority of the combined companies. In 2009, Wentworth and two affiliated companies entered Chapter 11 bankruptcy protection after the company "encountered liquidity problems amid a tightening credit market". Wentworth laid off 120 of its 200 employees and closed its office in Las Vegas. Its general corporate bonds were "almost worthless" and were trading, if at all, for pennies on the dollar. Less than six months later, Wentworth emerged from bankruptcy with an announcement that JLL Partners (Wentworth's owners) had invested an additional $100 million in the firm.

In a significant case (Symetra v. Rapid Settlements) highlighting controversial business practices which were opposed by NASP as well as structured settlement annuity providers, a Texas court issued injunctions during 2011 prohibiting Rapid Settlement's prior business practices of using arbitration to by-pass state structured settlement protection statutes and taking security interests to gain rights of first refusal for future transfers.

Check the structured settlement wiki for additional S2KM structured settlement reporting:

• ELNY liquidation
• Annual industry reports
• Professional association meetings

ADDENDUM (12/12/2011) - S2KM's report above omits at least one important 2011 strategic structured settlement development. NSSTA and its product provider members launched the first-ever industry metrics study during 2011. For more information about metrics, see S2KM's "Structured Settlement Metrics" series featured on the structured settlement wiki.

NSSTA 2011 Education Meeting

The National Structured Settlement Trade Association (NSSTA) hosted one of its best-ever educational programs November 2-4, 2011 in Austin, Texas. The conference primarily showcased NSSTA members and NSSTA member executives and encompassed a variety of important industry topics.

Speakers and topics:

NSSTA President Dan Finn - Finn summarized NSSTA's current projects, emphasized NSSTA's improved structured settlement marketing and announced the 2012 NSSTA Annual Meeting which will take place in Washington, D.C. and feature Congressmen Dave Camp and Paul Ryan as Keynote Speakers.

NSSTA Executive Director Eric Vaughn - In addition to reviewing the 112th Congress and Super Committee, Vaughn discussed the following NSSTA challenges and priorities:

• Protect IRC sections 104(a)(2) and 130.
• Defend structured settlements.
• Promote the expanded use of structured settlements.
• Expand the markets for structured settlements.
• Enhance the CSSC designation.
• Provide state court judicial education about structured settlements.

AIG Chief Economist Ardanvan Mobasheri - Mobasheri's economic overview highlighted China's emerging leadership, outlined a "very healthy non-financial business world" and predicted low interest rates for the foreseeable future.

American General Life President Mary Jane Fortin - Describing AIG as "a strong, stable and resilient company dedicated to keeping our promises", Fortin dispelled several "myths" about AIG, summarized AIG's recovery and expressed optimism about the future of life insurance industry and structured settlements.

John McCulloch and Michael Miller - Reprising NSSTA "Tax Posse", McCulloch and Miller introduced the new IRS audit guide for lawsuits, awards and settlements and reviewed recent tax cases addressing employment, factoring and Qualified Settlement Fund issues.

Peter Vodola, Stephen Harris and Amy Ravitz - The co-chairpersons of NSSTA's Legal Committee participated in two separate panels moderated by James Ebel and Michael Kelly and discussed non-tax cases and issues including state structured settlement protection statutes, issues arising from transfer petitions and minors statutes and settlements.

Len Blonder and NSSTA General Counsel Craig Ulman - Blonder and Ulman reported the status of the Executive Life of New York (ELNY) liquidation, discussed the consequences for structured settlements and reviewed hypothetical case examples from the proposed ELNY Restructuring Agreement.

Karen Meyers, LeAnne Sprague, Doug Brand and Kathy Moghadas - In addition to discussing changes to the CSSC designation that will require annual CE credits, NSSTA sponsored a special four hour annuity education session designed to meet the requirements of the new state annuity transaction suitability laws.

CNA Commercial Liability Claims Vice President James Martin - Championing structured settlements as an "important competitive advantage" for liability insurers, Martin also emphasized the importance of linking structured settlements and structured settlement sales to claim department goals and metrics.

Ringler Radio Broadcaster Larry Cohen - When announced co-interviwer Mark Wahlstrom proved a "no show", Cohen glibly volleyed Eric Vaughn toughest questions. Three memorable Cohen quotes: "a lot of a little is a lot"; "vision without execution is hallucination"; and (applying his grandfather's wisdom to Executive Life's annuity rates ) "there is something wrong with this tuna fish."

Liberty Life Chief Underwriter Kevin Smith - Speaking about "Life Company Operating Metrics", Smith pointed out the dearth of structured settlement metrics and announced a collaborative project among multiple NSSTA life company members to develop a preliminary set of structured settlement operating metrics.

Attorney William C Chriss - Author of the new book "The Noble Lawyer", Chriss discussed legal and structured settlement ethics. Among his observations while discussing NSSTA's Code of Ethics:

• "We cultivate beliefs that justify our behaviors, not the other way around.
• "Unconscious bias, as opposed to intentional venality, cannot be deterred by criminal laws or post hoc sanctions.
• "The more people involved, the easier it is to defuse moral responsibility."

Congratulations to NSSTA's speakers and leaders (especially Education Chairpersons Toni Warbington and Don Engels as well as Finn, Vaughn and Associate Director Peter Arnold) for substantially upgrading NSSTA's educational program.

For S2KM reports about prior conferences of NSSTA and other structured settlement and settlement planning professional associations, see the structured settlement wiki.

SSP and NSSTA 2011 Annual Meetings - 5

One of three fundamental transitions reshaping the structured settlement industry is the change from a singular, illiquid and non-assignable product to multiple products with greater flexibility to address changing needs and circumstances of injury victims. This transition includes the potential of greater product liquidity for traditional structured settlements provided by IRC section 5891 and the state protection statutes.

During their 2011 annual meetings and educational conferences, both the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) addressed this structured settlement industry transition.

NSSTA's Legal Committee organized two educational programs featuring secondary market structured settlement issues:

• Peter Vodola, Katherine Scanlon and Amy Ravitz - "Legal Committee Update on Developments in the Law"; and
• Judge Edward Burke and Judge Steven Denton (moderated by Vodola) - "Judicial Perspective" (on structured settlements).

The Legal Committee Update approached "factoring" from the perspective of "what is it and why should we [NSSTA] care?" Their "what is it" segment:

• Introduced NSSTA members to IRC section 5891;
• Highlighted the "best interest" test and disclosure requirements of state protection statutes; and
• Summarized the Ceron v. Henderson case which S2KM previously reported as part of S2KM's "business standards and practices" series.

NSSTA's "why should we care" (about factoring) comments focused upon:

• How factoring companies are "adversely defining" the term "structured settlement" with aggressive television and internet advertising;
• How structured settlement factoring cases have inundated many state court dockets; and
• How NSSTA members should respond to plaintiff attorneys and judges who resist structured settlements because of proliferating factoring transactions.

The theme of NSSTA's "Judicial Perspective", as stated by participating Judge Denton, might have been: "don't presume that judges understand structured settlements". Previously a plaintiff attorney, Judge Denton claimed a familiarity with structured settlements but acknowledged he had never been asked to approve a structured settlement transfer application. Conversely, Judge Burke stated that his structured settlement experience was limited to reviewing and approving transfer applications.

Among his NSSTA comments, Judge Burke identified his "heroes" to include the superior court judges involved in the California Fresno County factoring cases. Judge Burke's judicial praise is both noteworthy and difficult to understand. In Henderson v. Scieteco (one of the Fresno County factoring cases) , a California appellate court subsequently reversed the entire consolidated order from the Fresno County Superior Court because of "multiple prejudicial errors in making its factual findings and in reaching legal conclusions" (emphasis added).

Also in Henderson v. Scieteco, the California appellate court held that public policy supports state court approved structured factoring transactions (emphasis added). NSSTA's Legal Committee representatives failed to mention this case when they discussed "public policy" and factoring during their structured settlement legal update.

Some judges not only understand structured settlements, but also have experience with both primary and secondary market structured settlement cases and publish local court rules for structured settlements. See, for example, Rule 68.2 and Rule 68.3 of the Local Rules for the Hamilton County, Ohio Probate Court.

SSP offered three presentations about non-traditional structured settlement products as part of its educational program segment titled "Practice Improvement: Marketing and New Products",

• Anthony Prieto and Tim Denehy - "The Use of Structured Settlement Annuity Payment Rights";
• Brian Michaels - "Expanded Use of Non-Qualified Assignments"; and
• Rick Miller - "Equity Indexed Annuities and Settlement Planning".

Prieto and Denehy introduced a product called "The Settlement Asset Management Trust (SAM trust) with Enhanced Structured Income (ESI)" which is essentially an irrevocable spendthrift trust generating level monthly income payments for durations of 10-30 years plus access to discretionary distributions.

The ESI component, according to Prieto and Denehy, consists of payment rights previously sold (i.e., transferred or factored) by a structured settlement recipient to a third party purchaser (factoring company) with an approved court order pursuant to a state protection statute. The SAM trust product managers purchase the payment rights from one or more factoring companies and transfer the payment rights to the SAM trust.

According to Prieto and Denehy, the resulting SAM trust can produce a taxable interest rate that is "typically three (3%) percent higher than comparable fixed products with similar guarantees and safety." Their explanation for the enhanced interest rate: the ESI does not have the same high internal costs as a typical annuity during the first few years of the annuity policy.

Although the flow of structured settlement payment rights purchased from various factoring companies is typically uneven, Prieto and Denehy maintain the SAM trustee can consolidate selected payment rights to create an even payment flow to the SAM trust beneficiary who might be an injury victim or a plaintiff attorney.

In addition to an interest rate risk, Prieto and Denehy acknowledge the ESI has an insurance company insolvency risk similar to a traditional structured settlement. According to Prieto and Denehy, however, a typical SAM trust will include between two and ten separate payment rights purchases thereby diversifying the insolvency risk.

Although some secondary market brokers and factoring companies have previously sold "re-cycled" structured settlement payment rights to individuals, Prieto and Denehy believe their product is different because the SAM trust integrates multiple streams of separate payment rights and also includes a cash allocation permitting discretionary distributions.

For additional S2KM reporting about the SSP and NSSTA 2011 Annual Meetings, see the structured settlement wiki.

See "Structured Settlements and Periodic Payment Judgments" (S2P2J) for additional information about:

• Non-qualified (under IRC section 130) assignments and products - Section 3.08A; and
• Judicial review of transfer applications - Section 16.05

SSP and NSSTA 2011 Annual Meetings - 3

Whether and when personal injury settlements are taxable to their recipients represents one of the most important structured settlement legal issues. Both the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) featured multiple tax presentations during their 2011 educational conferences.

At the SSP conference, Robert Wood and Jeremy Babener each separately addressed multiple settlement tax issues. Wood discussed: "468B Qualified Settlement Funds" (QSFs) and "Common Settlement Tax Mistakes and How to Fix Them". Babener's SSP presentation addressed three topics:

• Maximizing the medical expense deduction;
• Emotional distress and the medical care exception; and
• Inheritance of personal injury proceeds.

The NSSTA conference also featured a QSF presentation by Martin Jacobson titled "The Ins and Outs of 468B Funds". In addition, NSSTA's Legal Committee Update included a summary of a 2011 tax case, Espinoza v. Commissioner, plus an introduction to IRC Section 5891 as part of a discussion about the secondary structured settlement market.

Wood, who has written both a textbook and a Tax Management portfolio about QSFs, utilized case examples to explain several QSF issues: when is a QSF available; formation of a QSF; who should serve as QSF administrator; what are the QSF administrator's responsibilities; determining QSF income and deductions; information reporting responsibilities; amounts to report and forms to use; reporting of structured settlements; and terminating a QSF.

In his presentation about identifying and fixing settlement tax mistakes, Wood highlighted several issues: the need for professional tax computations; interest is always taxable; punitive damages; attorney fees; tax allocations; miscellaneous itemized deductions; above-the-line deductions; the unclear scope of section 104; sex abuse and wrongful imprisonment cases; the Murphy case; constructive receipt; employment disputes; Form 1099; as well as qualified and non-qualified structured settlements. For related writing by Wood, see the Wood & Porter website as well as S2KM's structured settlement public policy wiki.

Like Wood, Babener is both a prolific writer about settlement tax issues, as evidenced by Babener's website and related commentary appearing on S2KM's structured settlement public policy wiki, and a frequent speaker at educational conferences sponsored by SSP and the National Association of Settlement Purchasers (NASP). Also similar to Wood, Babener's SSP presentation and handouts utilized case examples (as well as tables) to help communicate his analysis. Equally appropriate for their audience, both Wood and Babener emphasized settlement tax planning and incorporated structured settlements into their discussions.

Jacobson's QSF discussion at the NSSTA conference specifically addressed the single claimant issue. Jacobson focused his analysis on the statutory language of IRC 468B, related Treasury Regulation 1.468B-1(c) and related Revenue Procedure 93-34.

• Treasury Regulation 1.468B-1(c) requires and permits a QSF to be "established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability ..." (emphasis added).
• Revenue Procedure 93-34 sets forth the rules under which a QSF will be considered a "party to the suit or agreement" for purposes of Section 130 and includes a stipulation that all Section 130 requirements still apply (emphasis added).

Jacobson highlighted the issue of whether Revenue Procedure 93-34 means that constructive receipt and economic benefit apply to single claimant QSF-funded Section 130 Qualified Assignments. For purposes of the single claimant QSF issue, Jacobson identified what he termed "the real questions":

• Does a single claimant have economic benefit of the funds placed in the QSF?
• Does the single claimant have "unqualified availability" of those funds?
• Has IRC Section 130(c) been satisfied?
• Is there going to be an IRS ruling applicable to single claimant QSFs?
• In the continuing absence of such an IRS ruling, Jacobson quoted Robert Wood's recommendation to "avoid the single claimant controversy" by establishing QSFs with multiple claimants.

With deference to Martin Jacobson for his valuable presentation and gratitude that NSSTA's educational programs have begun to address important and controversial industry issues, S2KM suggests these additional "real questions" concerning single claimant QSFs:

• Why haven't any NSSTA or SSP members applied for one or more IRS rulings applicable to single claimant QSFs?
• For example, what constitutes "multiple claimants" for purposes of QSFs - multiple family members as claimants? government liens? a plaintiff attorney's compensation claim?
• Does public policy favor or not favor single claimant QSFs? If not, why not?
• As Jeremy Babener addresses in his important QSF paper, how far has existing federal legislation eroded the applicability of the constructive receipt and economic benefit tax doctrines to structured settlements:
  • Technical and Miscellaneous Revenue Act of 1988 - allowing "secured creditor status"; and
  • Victims of Terrorism Tax Relief Act of 2001 - allowing transfers of payment rights ("factoring") pursuant to state protection statutes.

For additional information about:

• Structured settlement tax issues - see Chapter 2 of "Structured Settlements and Periodic Payment Judgments" (S2P2J);
• Single claimant 468B QSFs - see S2KM's blog post "Single Claimant QSF Update"
• SSP and NSSTA 2011 Annual Meetings - see S2KM's structured settlement wiki.

SSP and NSSTA 2011 Annual Meetings - 2

This blog post continues S2KM's discussion of the 2011 annual conferences of the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) with a strategic perspective. A prior S2KM blog post identified speakers and topics featured by SSP and NSSTA. Subsequent S2KM blog posts will summarize and provide commentary about selected speaker presentations.

SSP's conference, open to members and non-members, addressed two general topics: "Special Needs Settlement Planning" and "Practice Improvement: Marketing and New Products". NSSTA's conference, for members only, celebrated NSSTA's 25th anniversary. It also included a NSSTA business meeting with reports from immediate Past-President Michael Kelly, new President Dan Finn, Executive Director Eric Vaughn, Assistant Executive Director Peter Arnold and the Chairpersons of NSSTA's several committees.

One of the highlights of NSSTA's 2011 conference was the honoring of NSSTA's past presidents. David Ringler, NSSTA's first president, spoke briefly at the conference and re-stated his original vision for NSSTA:

"Although we do need to constantly be on the watch for legislative change, I still believe having a place where everyone and anyone can sit down with each other and discuss the issues and viewpoints regardless of beliefs is the most important reason for NSSTA. I have called it a common “talk table”, although I agree that is not exactly a very elegant term. If we can continue this tradition, there is no problem we cannot overcome."

Many industry participants, including some NSSTA members, question whether NSSTA has lost sight of this original purpose and tradition. Does NSSTA continue to represent "a place where everyone and anyone can sit down with each other and discuss [structured settlement] issues and viewpoints regardless of beliefs"? The answer, unfortunately, is "no".

For the past several years, NSSTA's leadership has superimposed a strict political litmus test for membership as well as for topics and speakers at its educational conferences. As one result, structured settlement industry participants with alternative issues, viewpoints, beliefs and educational interests have founded two other national structured settlement associations: the National Association of Settlement Purchasers (NASP) in 1996 and SSP in 2000.

Fortunately for NSSTA members and the structured settlement industry, based upon its 2011 conference, NSSTA appears to be expanding the scope of its educational programs to address important but controversial industry topics such as IRC 468B Qualified Settlement Funds, IRC 5891 and state structured settlement protection statutes. The educational programs offered by both NSSTA and SSP also increasingly discuss three fundamental transitions reshaping the structured settlement industry:

• From structured settlements to settlement planning;
• From a singular, illiquid, and non-assignable product to multiple products with greater flexibility to address changing needs and circumstances of injury victims;
• From traditional (pre-Internet) to web-based business models, processes and skill sets.

With the structured settlement industry facing these and other challenges, including aging leadership, declining structured settlement annuity sales, anticipated legislative changes plus an increasingly complex legal and regulatory business environment, where is the strategic vision and what are the strategic priorities for NSSTA and SSP?

NSSTA President Dan Finn and Executive Director Eric Vaughn identified the following:

• NSSTA challenges:
  • Promote the expanded use of structured settlements
  • Expand the structured settlement market
  • Protect structured settlement annuitants
  • Defend IRC sections 104(a) and 130
  • Enhance the Certified Structured Settlement Consultant (CSSC) program
  • Unify the structured settlement industry
• NSSTA objectives
  • Expand IRC section 104 (a)(2) to include wrongful imprisonment and sexual abuse cases
  • Expand government use of structured settlements
  • Promote structuring of MSAs in liability cases
  • Promote the structuring of Social Security disability payments
  • Promote the professionalism of structured settlements

SSP President Jack Meligan prioritized three objectives:

• Improve SSP's marketing to plaintiff attorneys
• Create an SSP lobbying presence
• Enhance the Registered Settlement Planner (RSP) certification program

Two of NSSTA's featured speakers, Jim Morris, President, Chairman and CEO of Pacific Life Insurance Company, and William T. Robinson lll, President-Elect of the American Bar Association (ABA), added important and positive assessments for structured settlements.

Morris accentuated the current financial strength of U.S. life insurance companies and explained why structured settlement annuities represent an excellent strategic product for life companies. As corollaries to Morris' presentation:

• NSSTA announced that two highly rated annuity providers, Mutual of Omaha and Berkshire Hathaway, have re-entered the structured settlement market; and
• Thomas Ronce and Craig Ulman clarified the life and health guaranty association system and how that system applies to structured settlements.

Robinson praised structured settlements as "professional and dignified solutions" for injury victims based upon his first-hand experience as a litigation attorney. Structured settlements represent "state of the art" tools for all attorneys to consider when negotiating and resolving personal injury cases according to Robinson. In his capacity as President-Elect of the ABA: Robinson also:

• Spotlighted the current funding crisis facing state courts; and
• Suggested the ABA and NSSTA should identify shared interests and lobbying opportunities.

For S2KM's reporting and commentary about past SSP and NSSTA conferences, see S2KM's structured settlement wiki.

Tools for Strategic Thinking

Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have announced agendas for their 2011 annual meetings. Faced with declining structured settlement annuity sales and significant and continuing market changes, it is disappointing, but not surprising, that neither announced educational program includes specific strategic analysis and/or debate about how to improve and grow the structured settlement industry.

By comparison, the National Association of Settlement Purchasers (NASP), regularly features primary and secondary market structured settlement strategic analysis and debate during its annual meetings. For recent examples, see these S2KM blog posts:

• NASP 2009 Annual Meeting
• NASP 2010 Annual Meeting

As intellectual fuel to help jump-start strategic thinking within the structured settlement primary market, S2KM recommends a recent article by David Brooks in the New York Times titled "Tools for Thinking". Brooks' article discusses a recent symposium sponsored by edge.org which addressed the question: "What scientific concept would improve everybody’s cognitive toolkit?" Selected quotes (bold highlights by S2KM) applicable to the primary structured settlement market:

• "John McWhorter, a linguist at Columbia University, wrote that people should be more aware of path dependence."
• Path dependence "refers to the notion that often 'something that seems normal or inevitable today began with a choice that made sense at a particular time in the past, but survived despite the eclipse of the justification for that choice.'” 
• "We often try to understand problems by taking apart and studying their constituent parts. But emergent problems can’t be understood this way. Emergent systems are ones in which many different elements interact. The pattern of interaction then produces a new element that is greater than the sum of the parts, which then exercises a top-down influence on the constituent elements."
• "Culture is an emergent system. A group of people establishes a pattern of interaction. And once that culture exists, it influences how the individuals in it behave."
• "Emergent systems are bottom-up and top-down simultaneously. They have to be studied differently, as wholes and as nested networks of relationships."

Prior S2KM blog posts related to structured settlement "path dependence", "emergent systems" and "culture":

• Spencer v. Hartford - 9
• Business Standards and Practices - 3
• Structured Settlement Credo - 5

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

Business Standards and Practices - 4

In a decision filed January 26, 2011 (Ceron v. 321 Henderson Receivables), a California Court of Appeals has unanimously affirmed one portion of a California Superior Court judgment sustaining demurrers by J.G. Wentworth and its affiliates (J.G. Wentworth) to purported class action legal challenges against prior court approved structured settlement transfers while simultaneously reversing another portion of the same Superior Court judgment which had denied injunctive relief under California's unfair competition law for alleged continuing violations by J.G. Wentworth of the California Structured Settlement Protection Act.

Plaintiff Raul Ceron alleged in his complaint that J.G. Wentworth violated the California Structured Settlement Protection Act by deducting up to $1500 from every transfer purchase to off-set independent legal and/or financial advice received by plaintiff and other structured settlement payment right transfer payees as required under the California statute.

Plaintiff's complaint further alleged:

• In making the structured settlement transfers, J.G. Wentworth engaged in an illegal scheme of directing individuals towards specific attorneys;
• J.G. Wentworth required plaintiff and other individual transfer payees to pay up to $1,500 for the purported independent professional advice whereas the California protection act requires the factoring companies to pay the cost;
• J.G. Wentworth concealed the facts it made attorney referrals and that individual transfer payees paid up to $1,500 for the referrals in violation of the California protection act.
• This scheme violated section 10134, subdivision (f)(3) of the California protection act;
• Section 10134, subdivision (f) sets forth requirements for an independent adviser: "Independent professional advice' means advice of an attorney, certified public accountant, actuary, or other licensed professional adviser meeting all of the following requirements:
  • "(1) The adviser is engaged by a claimant or payee to render advice concerning the legal, tax, or financial implications of a structured settlement or a transfer of structured settlement payment rights.
  • "(2) The adviser's compensation for rendering independent professional advice is not affected by occurrence or lack of occurrence of a settlement or transfer.
  • "(3) A particular adviser is not referred to the payee by the transferee or its agent, except that the transferee may refer the payee to a lawyer referral service or agency operated by a state or local bar association."
• Plaintiff and other potential class members were damaged because J.G. Wentworth paid plaintiffs' attorneys, who were unlawfully referred, out of plaintiffs' proceeds;
• J.G. Wentworth continues to violate the California protection act by asserting plaintiffs' costs for independent legal and financial advice may be collected from transfer payees.

The plaintiff's complaint contained claims for: declaratory relief; unjust enrichment; conversion; unfair business practices in violation of the California Business and Professions Code; injunctive relief; and an accounting. The complaint requested damages and equitable relief including: declarations that J.G. Wentworth's conduct violated the California protection act and the prior court orders approving the transfers were void; determinations that J.G. Wentworth's conduct constituted an unfair business practice; restitution; disgorgement; an accounting; and an injunction against future unlawful, unfair or fraudulent acts. The plaintiff argued his 2004 and 2007 court orders approving transfers were subject to collateral legal attack because J.G. Wentworth obtained the court orders through extrinsic fraud

In response, J.G. Wentworth:

• Demurred to the complaint generally and sought judicial notice of plaintiff's prior written transfer declarations noting inconsistencies between plaintiff's allegations and exhibits attached to his complaint;
• Argued the demurrer should be sustained without leave to amend as to multiple causes of action because Superior Court Judges had approved plaintiff's transfers under the California protection act;
• Pointed out that some of the exhibits attached to the complaint showed that plaintiff was given notices and disclosures about his right to seek independent counsel for his prior transfers and that plaintiff also was advised J.G Wentworth:
  • Would pay up to $1,500 for an attorney to provide legal advice concerning the transfer petition; and
  • Could not make referrals to any specific adviser.
• Asserted plaintiff's unjust enrichment claim had no merit because:
  • Plaintiff did not allege that he paid any attorney fees in connection with the petitions;
  • Plaintiff had confused the duty to notify the payee of the right to seek independent professional advice before entering into the purchase agreement (section 10136, subdivision (b)) with the obligation to pay fees of up to $1,500 in connection with the petition proceedings. (section 10139.5, subdivision (e).);
  • An exhibit to the complaint showed that plaintiff engaged his attorney in connection with the purchase agreement, not the petition proceeding;
  • J.G. Wentworth had no obligation to pay any fees for independent professional advice regarding the purchase agreement.
• Argued plaintiff's unfair competition claim had no merit because plaintiff did not allege he had suffered any injury from the improper referral;
• Asserted some of plaintiff's claims were time barred and the class allegations should be stricken.

California Superior Court Judge Anthony J. Mohr had dismissed the plaintiff's complaint, sustained without leave to amend J.G. Wentworth's demurrer to a purported class action and additionally ruled:

• The transfers of structured settlement payment rights were not subject to collateral attack because they had been approved as fair and consistent with the California protection act in prior final court orders;
• The approval petitions had been litigated to decision where potential class members had received hearings;
• He could not set aside decisions of other judges in the absence of extrinsic fraud;
• To the extent that plaintiff alleged fraud in the complaint, it was only intrinsic fraud which did not provide a basis for relief;
• Factoring companies were not fiduciaries subject to a greater standard of care;
• Plaintiff filed a timely notice of appeal from the order dismissing the complaint.

In its review of the Superior Court decision, the California Appellate Court:

• Noted that California amended its structured settlement protection act in 2009 including section 10136, subdivision (b) which addresses "independent legal and financial advice". Unlike the pre-2009 statute, Current section 10136, subdivision (b) provides that factoring companies must pay the costs for independent professional advice. Because the plaintiff's attorney referral and structured settlement transfers occurred in 2007, the California Appellate Court applied the pre-2009 version of section 10136, subdivision (b) in deciding this case.
• Ruled that Judge Mohr correctly sustained J.G. Wentworth's demurrers to the claims which sought to set aside the prior court approvals stating: "... once a transfer of structured settlement payments has occurred through the detailed court approval process, it cannot be collaterally attacked as void by any party as a violation of statute, absent direct and affirmative evidence of fraud."
• Disagreed with the plaintiff that the court approvals can be collaterally attacked in this case because J.G. Wentworth fraudulently misrepresented the facts in the petition process. According the Appellate Court,
  • Extrinsic fraud (showing that a party has been deprived of a fair opportunity to present a claim or defense in court) provides a basis for relief but intrinsic fraud (when the party has been given notice of the action and has had an opportunity to present his case and to protect himself from any mistake or fraud of his adversary but has unreasonably neglected to do so) does not;
  • Plaintiff's only claims of fraud in this case were intrinsic - i.e. that J.G. Wentworth misrepresented it had complied with the California structured settlement protection act during the court approval process;
  • The plaintiff did not allege he was denied a fair hearing or prevented from presenting any evidence as a result of his legal representation;
  • Although there may be an exception to the extrinsic versus intrinsic fraud rule in some cases where the party concealing material evidence has a fiduciary relationship with the other litigant. the complaint did not allege sufficient facts to show J.G. Wentworth had a fiduciary relationship with the plaintiff or any possible class members;
  • The complaint did not allege that:
    • The lawyers provided to plaintiff or other class members gave incorrect advice; or
    • The plaintiff was improperly advised about the propriety of entering into the transfers; or
    • The plaintiff sought leave to amend to set forth such allegations.
• Dismissed the plaintiff's unjust enrichment claim for past court approved transfers for similar reasons - i.e. the transfers had been adjudicated to be fair, reasonable and lawful through the court approval process and may not subsequently be collaterally attacked.

The California Appellate Court, however, did reverse the Superior Court dismissal related to one cause of action ruling that the plaintiff's complaint sufficiently alleged a claim for injunctive relief against unfair business practices.

• The Appellate Court noted section 10139.4 of the California structured settlement protection act provides that a violation of the act is an unfair business practice within the meaning of the California Business and Professions Code section 17200.
• The complaint alleged that, since March 2002 and continuing to the present time, J.G. Wentworth engaged in conduct which violates the act and sought injunctive relief against the alleged continued violations.
• In reversing the Superior Court on this one cause of action, the Appellate Court did not address the statute of limitations and class certification issues or express any opinion concerning the plaintiff's standing to pursue post-2009 claims for payments made by J.G. Wentworth to alleged unlawfully referred attorneys.

For additional information about transfers of structured settlement payment rights and the California structured settlement protection act see S2KM's structured settlement wiki and Chapter 16 of "Structured Settlements and Periodic Payment Judgments". For S2KM's continuing coverage of structured settlement business standards and practices, see S2KM's structured settlement wiki.

Business Standards and Practices - 3

This S2KM blog post summarizes the emerging business and professional models that are competing with the traditional structured settlement models. It continues S2KM's series analyzing structured settlement business standards and practices.

• Business Standards and Practices-1 highlights historical events that helped to develop traditional structured settlement business and professional models. 
• Business Standards and Practices-2 addresses two strategic issues:
  • What are the traditional structured settlement business and professional models?
  • What problems have traditional structured settlement models created that have restricted industry growth?
• Subsequent S2KM blog posts will address differences between the new structured settlement business standards and practices and the business standards and practices associated with traditional structured settlement models.

The traditional structured settlement "claim management" business model and "annuity broker" professional model are being challenged by a more comprehensive and customer-centric "settlement planning" model. Settlement planning, sometimes referred to as "special needs settlement planning" or "settlement consulting", proposes a different set of business standards and practices than traditional structured settlements. Although structured settlement "annuity brokers" participate in the settlement planning market, other product and service providers also participate. Individually or collectively, all of these professional participants may be referred to as personal injury or special needs "settlement planners" or alternatively as "settlement consultants".

The Society of Settlement Planners (SSP) has become the preeminent architect of and advocate for the settlement planning business model. In 2008, SSP adopted and published its "Standards of Professional Conduct for Settlement Planners". The Preamble (subtitled: "A Settlement Planner's Responsibilities") to SSP's Standards of Professional Conduct incorporates the following descriptions of settlement planners:

• "A settlement planner is a representative of a person participating in the design, negotiation and implementation of a settlement or satisfaction of a judgment for the benefit of a person claiming a legal entitlement to an award of damages or other compensation."
• "A settlement planner may represent a plaintiff, a defendant, an insurer, a guardian ad litem, an heir of a claimant, an attorney, or another person participating in the settlement process."
• "Settlement planners may provide advice and other services to their clients concerning claim valuation, negotiation strategy, the determination of rated ages based upon impaired life expectancy, life care planning, ..., allocation of proceeds, taxable and non-taxable periodic payments, structured settlements, [Medicaid and Medicare preservation], investments, irrevocable trusts, assessment of a plan's financial risk, and estate liquidity for tax planning.
• "....[T]o the extent permitted by these rules, [settlement planners] may provide advice and assistance to payees in connection with the factoring of a structured settlement plan."
• "Settlement planners may also play other roles ...such as a lawyer representing a claimant or obligor, a financial planner, an annuity broker, or a sales agent for an issuer of an annuity or provider of trust-based investment management products."

Although the settlement planning market encompasses the structured settlement market, it is substantially larger and more complex. Based on market surveys, estimates of the total annual U.S. market for potential personal injury settlement planning products exceed $160 billion (source: Towers, Perrin Annual Updates of U.S. Tort Cost Trends) compared with a current annual primary structured settlement annuity market of less than $6 billion.

Because the settlement planning market is emerging and its definition is complex with multiple professional participants, settlement planning education, certification and business models are still evolving. Settlement planning business models are also subject to change based upon continuing legal, technology and product developments.

Among professional primary market structured settlement participants, both SSP and the National Structured Settlement Trade Association (NSSTA) offer educational programs featuring settlement planning components. SSP's annual educational conference is open to non-SSP members and SSP encourages attendance by non-SSP settlement planners. NSSTA's educational conferences are restricted to NSSTA members and focus more narrowly on structured settlement topics.

Beginning in 2007, SSP has offered the only settlement planning certification program, the Registered Settlement Planner (RSP). NSSTA's Certified Structured Settlement Consultant (CSSC) program includes settlement planning components. Associations composed of other settlement planning professionals, including special needs attorneys, Medicare set-aside professionals, life care planners and structured settlement transfer companies, offer settlement planning and structured settlement presentations as part of their educational programs.

How does the emerging "settlement planning" business model differ from the traditional structured settlement "claim management" model? From a structured settlement perspective, the settlement planning business model is more claimant-controlled and customer-centric and subject to greater supervision than the traditional structured settlement claim management business model. Here are some of the developing characteristics:

• IRC 468B Qualified Settlement Funds represent the standard funding model for complex cases;
• Multiple settlement funding product alternatives exist including structured settlement annuities;
• Funding product selection and court approval are determined by "best interest", "suitability" and/or "prudent man" standards;
• Settlement planners offer insurance and non-insurance products and services, requiring additional licenses, training and credentials, to satisfy legal requirements and to meet competitive qualification standards;
• Structured settlements are increasingly:
  • Integrated with other government benefits;
  • Payable into trusts or custodial accounts which include other financial products; and
  • Construed as a separate asset class when measuring their interactive effects on an integrated, comprehensive settlement plan;
• Personal injury claimants have the right to:
  • Select their own structured settlement and/or settlement planning consultants, agents, brokers and product providers;
  • Full disclosure and written informed consent concerning:
    • Product and service provider compensation, fees and conflicts of interest;
    • Structured settlement laws including case-specific state protection statutes.

For comparable characteristics of the traditional structured settlement business model, see Business Standards and Practices-2.

For S2KM's continuing analysis of structured settlement business standards and practices, see S2KM's structured settlement wiki.