Beyond Structured Settlements

Structured Settlements in 2012 - 3

Secondary Market

In contrast to anticipated 2012 sales declines in the U.S structured settlement primary market, industry experts interviewed by S2KM agree the U.S. structured settlement secondary market achieved record sales and profits in 2012. 

S2KM secondary market estimates for 2012 - based on interviews with industry experts:

• 12,000 secondary market transfers - with less than 120 contested by annuity owners and/or providers.
• $360 million of total secondary market purchases (money paid to transferors).
• $30,000 average individual transfer.
• Average discount rates in the low double digits - with the lowest average discount rates (high single digits) provided by AllState's commutations.
• Total industry profit of $120 million calculated as follows:
  • $1 billion received from investors;
  • Less: $360 million paid to transferors;
  • Equals: $640 million of revenue;
  • Less: $520 million of expenses;
  • Equals: $120 million of profits.

Discount Rates

• As explained by Earl Nesbitt, Executive Director of the National Association of Settlement Purchasers (NASP), during his presentation at the NASP 2011 Annual Meeting: the concepts of "discount rate" and "discounted present value" both play an important role in court hearings to evaluate structured settlement transfer proposals.

• The Model State Structured Settlement Protection Act defines "discounted present value" to mean: "the present value of future payments determined by discounting such payments to the present using the most recently published Applicable Federal Rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service."

• Secondary market experts interviewed by S2KM agree generally that discount rates for structured settlement transfers were "low" during 2012 compared with prior years - especially when compared with 2009 when discount rates were exceptionally "high" as a result of the 2008 financial crisis.
• "Average" discount rates are difficult to define because many factors determine the discount rate for a specific case. For examples: cost and availability of funds; single vs. multiple bid transactions; duration and amount of payments; and whether payments are certain or life contingent.
• During his 2011 NASP presentation, Nesbitt summarized these results from a 2011 survey he conducted of the discount rates approved by judges in Harris County Texas:
  • The average discount rate: 15.8 percent;
  • The weighted average (i.e. taking into consideration the relative case size): 12.96 percent;
  • The lowest discount rate: 7.4 percent; and
  • The highest discount rate ($3494 paid for $7282 due in less than one year): 61.3 percent.

Market Shares

• Industry experts interviewed by S2KM disagree on who controls what percentages of the structured settlement secondary market.
• Estimates of the post-merger 2012 market share (revenue and sales) of the now-combined J.G. Wentworth and Peachtree Financial Solutions (JGW/Peachtree) vary from a low of 50% to a high of 75%.
• The remaining 2012 market shares (revenue and number of transfers) are believed to be split relatively evenly among other NASP members and non-NASP members including re-sellers.
• Not all secondary market participants, however, share equally in industry profits.
• Some industry experts believe JGW/Peachtree's share of the estimated 2012 industry profits of $120 million was $100 million, or 83%.
• Many new secondary market participants, including re-sellers, who began entering the market in 2009, are experiencing lower profits (or losses) in 2012 according to industry experts interviewed by S2KM. In addition, attorneys representing insurance companies report these newer (non-NASP member) factoring companies and re-sellers frequently lack legal and transactional knowledge ("don't know what they are doing") and cause an inordinate number of transfer problems.

Primary Market Response

As S2KM previously reported, continuing secondary market sales growth has occurred despite restrictive actions by primary structured settlement participants. Examples:

• The National Structured Settlement Trade Association (NSSTA) continues to prohibit its members from "actively soliciting and promoting structured settlement factoring transactions to individuals who are receiving periodic payments under structured settlements?"
• In Stone Street Capital v. McClendon, a Louisiana state court ruled that Travelers Insurance, as owner of structured settlement annuities, had no right to order structured settlement annuity issuers (in this case MetLife) to stop making payments to transfer companies following the death of the original annuitant/payees because of the existing court orders approving those transfers.

Historic Metrics

Based upon interviews with industry experts and DBRS' June 8, 2011 Pre-Sale Report for J.G. Wentworth's Fixed Rate Asset-Backed Notes Series 2011-1, S2KM estimates the following historic (1986-2012) structured settlement secondary market metrics:

• 136,000 transfers - involving 68,000 structured settlement recipients.
• $4 billion - aggregate sums paid to transferor structured settlement recipients. For comparison, S2KM estimates the primary market has sold $134 billion of structured settlement annuities since 1975.
• $10.4 billion - aggregate periodic payments purchased by secondary market companies.

2012 Secondary Market Developments

• Vermont became the 48th state to enact a structured settlement protection statute. The new Vermont statute is generally based upon the NCOIL Model Act with some variations related to independent professional advisors, notice requirements for certain state agencies and the required court appearance by the structured settlement payee.
• JLL Partners, owners of J.G. Wentworth, are reportedly attempting to sell the company for $1 billion with several private-equity firms identified as potential purchasers.

For additional S2KM structured settlement secondary market reporting and resources, see the structured settlement wiki.

Additional post in S2KM's blog series: "Structured Settlements in 2012":

• Part 1 - Primary market

• Part 2 - Settlement planning

• Part 3 - Secondary market

• Part 4 - Executive Life of New York

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).

NASP 2012 Annual Conference - 3

The National Association of Settlement Purchasers (NASP) hosted its 8th annual educational conference October 16-19, 2012 in New Orleans with a record number of attendees consisting of transfer company executives and staff, in-house and outside legal counsel, investors, service providers and, for the first time, primary market participants.

NASP President Matthew Bracy set the conference theme by challenging speakers and attendees to continue to improve the structured settlement secondary market: "We have some of the brightest minds in the country assembled here to discuss the status of this industry and how to improve what we do. And, as is our habit, we have invited people who might have critical things to say about how we are doing and what we can do better. Improvement can only come from the honest and sometimes harsh assessment of outside critics."

One of those critics was keynote speaker Jan Schlictmann who called out "cash now" advertizing as a "primitive denomination". Schlichtmann's broader message echoed Bracy's theme of bettering oneself through self-criticism and the need for higher industry goals. "It is not just who we serve that matters, but how we serve", Schlictmann stated. Schlictmann reviewed his client experience with structured settlements and acknowledged a personal paradigm shift resulting from recent industry developments including low interest rates and the ELNY liquidation.

The Judges Panel has become a regular and popular feature of NASP educational conferences. Moderator Earl Nesbitt encouraged this year's panel members, Judge Patricia Wise, Chancery Court Judge, Hinds County, Mississippi and Judge Dean Lum, Superior Court for King County, Washington, to share their concerns about structured settlement transfers and their advice for transfer company representatives and attorneys. Selected highlights:

• Judge Wise: "We (Mississippi judges) have a good relationship with transfer attorneys. I don't look at transfers as inherently good or bad. I don't have any preconceived notion whether to approve or disapprove."
• Judge Lum: "It is not my job to talk someone into or out of a transfer. Judges, however, think about the worst case scenario - a recipient who has just turned 18. The closer to this worst case scenario, the more scrutiny a person receives."
• Judge Wise: "What judges are looking for is credibility and what structured settlement payees say they will do with the funds. We do focus on whether prior transfers have occurred. Also, the older the payee, the more likely they have the ability to make a good decision."
• Judge Lum: "Attorneys should prepare the structured settlement payee for his or her court appearance - how to dress and behave; how the best interest test applies; what the impact will be on dependents."
• Judge Lum: "We have a saying in King County: 'there is no party like ex parte'. In unopposed cases, people try to run things by you. Its kind of like the wild west. In unopposed cases, it is important for attorneys to go the extra mile. Your reputation matters. There are two degrees of separation in the legal profession."

Another regular and popular feature of NASP educational conferences are the small group break out sessions. The individual breakout sessions S2KM attended addressed participants' state-specific experience with:

• Court Approval Issues - judicial negotiation of discount rates; the meaning of full disclosure; statutory history of the "best interest" test; independent professional advisor qualifications and fees; transfer application exhibits; and the importance of judicial education.
• Underwriting Issues - annuity provider transfer requirements; "applicable state laws" requirements; judgment creditor issues including bankruptcy and child support; annuity provider administrative fees; and problems related to incompetent payees, identity theft and relatives or friends coercing payees.

The NASP conference doubled down on underwriting issues with an informative presentation about "Life Contingent Transactions" by NASP President-elect Patricia LaBorde. LaBorde, who also served as Chairperson for the 2012 NASP conference and was credited with upgrading the NASP website, discussed the two paths for funding life contingent transactions:

• Purchasing a life insurance policy to hedge against the risk of an early annuitant death; or
• Evaluating the risk and pricing the risk into the transaction.

Jack Kelly, a federal lobbyist who assisted NASP in securing enactment of IRC 5891 in 2002, provided a Legislative Update. Kelly summarized NASP's 2012 involvement with legislative proposals in Vermont, Minnesota and New Hampshire. Vermont, in 2012, became the 48th state to enact a structured settlement protection statute. The new Vermont statute is generally based upon the NCOIL Model Act with some variations related to independent professional advisors, notice requirements for certain state agencies and the required court appearance by the structured settlement payee.

Earl Nesbitt, NASP's Executive Director and General Counsel, presented the 2012 Litigation Update. Among several important court decisions, Nesbitt highlighted the Stone Street v. McClendon case which he characterized as an "important victory" for NASP and the structured settlement industry in general. In McClendon, a Louisiana state court found that Travelers Insurance and MetLife had no grounds for withholding payments following a valid transfer of payment rights pursuant to the Louisiana structured settlement protection statute. The court ordered MetLife to pay interest from the date the payments were originally due. Note: S2KM will publish a more detailed review of the McClendon case in a subsequent blog post.

Attorney Joseph Feltes' 2012 NASP presentation titled "Privacy Issues in Structured Settlement Transactions (Part 2)" supplemented his 2011 NASP presentation on the use and disclosure of confidential information by transfer companies. This year, Feltes discussed privacy issues related to electronic and digital communications, especially Internet-based communications. Among other issues, Feltes highlighted: cyber-bullying; the increase in defamation cases; the blurred boundaries between public and private communications; FTC blog rules requiring disclosures of paid endorsements; social media policy and practices; limits on constitutional rights; cloud technology issues; and the importance of company Internet policies.

In his "Primary Market Update", Mark Wahlstrom emphasized why the primary and secondary structured settlement markets are part of the same business. He called the primary market "the secondary market's best friend" despite the primary market's criticism of, and "needless obstacles" for, the secondary market. As one example of "needless obstacles", Wahlstrom mentioned Chartis for aggressively promoting an anti-factoring pledge among its structured settlement brokers.

Wahlstrom described 2012 as "another bad year for the primary market". He characterized declines in primary market annuity premium as a "negative trend that will eventually impact the secondary market" and identified the following causes:

• The structured settlement is an insular, closed community with aging leadership and a shrinking sales force.
• Structured settlement annuity providers, and most brokers, lack marketing and innovation skills.
• Primary market participants are intimidated by the Internet.
• Instead of offering customer solutions, the primary market continues to sell a single product.
• With historically low interest rates, that product produces a zero return when you consider inflation.
• The primary market has not responded strategically to tort reform and increasing competition from other professionals.
• By continuing their "factoring wars", the primary market has missed opportunities to cooperate with the secondary market.
• The ELNY liquidation means the primary market can no longer claim all structured settlement recipients have received 100% of their payments.

Kira Brereton, an attorney who specializes in asset-backed securitizations, provided a comprehensive introduction to "Financing Structured Settlements". Her presentation: reviewed a typical transaction structure; provided a market overview including legal and regulatory developments; summarized rating agency considerations; discussed split payment issues; addressed the creditworthiness of insurers backing the collateral pools; considered bankruptcy and receivership issues; and highlighted relevant securities laws and regulations including the Investment Company Act of 1940, private placements, Dodd-Frank and Regulation AB 2.0.

Elizabeth Yingling, a securities law expert, discussed "Implications of Federal and States Securities Laws on Structured Settlements". She addressed fundamental issues such as: What statutes govern securities? What is a "security"? What is an "investment contract"? and How do promotional materials impact the analysis? In addition, Yingling offered a detailed analysis of the "Howey test" and provided practical tips.

Alexander Hamilton Award

NASP also named S2KM blog author, Patrick Hindert, as the 2012 recipient of its Alexander Hamilton Award. NASP has bestowed this award five times "to distinguished individuals who have supported and defended the right to free alienability of property rights. This right is the corner stone of NASP and the foundation of the structured settlement factoring business." Previous Alexander Hamilton Award recipients:

• State Senator Alan Sanborn of Michigan.
• U.S. Representative Eric Cantor of Virginia.
• State Representative Van Tran of California.
• Earl S. Nesbitt, Esq., of Texas.

In announcing the 2012 award, NASP President Matt Bracy stated: "Hindert was chosen to receive this award based upon his longstanding support of the factoring business and option. In particular, his position as a founder and leader in the primary structured settlement business, who early on recognized the legitimacy and value of the secondary market, led to this honor."

For complete S2KM reporting on NASP conferences plus other structured settlement and settlement planning conferences, see the structured settlement wiki.

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,