Time for Congress to reform structured settlements

The Senate Finance and House Ways and Means Committees will see a full-court press this week as the structured settlement industry holds its annual convention in Washington, DC. Among the industry’s top priorities are new regulatory curbs on settlement purchasers — those companies running TV ads promoting “quick cash” for accident survivors selling their future payments rights.  

As the structured settlement industry’s lobbying guide states, “factoring transactions jeopardize the long-term financial security of injured victims and their families.” The industry has enlisted the American Association of People with Disabilities (AAPD) and the National Consumers League (NCL) to help with this effort.

{mosads}Having spent nearly 30 years working almost exclusively with injury victims as both a structured settlement consultant and settlement attorney, I believe action against these abusive practices is long overdue. 

But if government officials are serious about reforming structured settlements, they must also address practices within the structured settlement industry itself.  Unfortunately, many common practices harm accident victims at the most vulnerable point in their lives. Worse, these are often perpetrated by some of the same financial consultants and insurers who are in D.C. this week to promote settlement purchasing restrictions. 

As background, Congress created structured settlements to protect accident victims’ financial security. A structured settlement allows for a series of payments as settlement instead of a single lump sum. The income is exempt from Federal and state taxes.

But Congress’ noble goal of supporting accident victims has been upended by the current system in which insurers and their consultants often deceptively rig structured settlements against accident victims.

Consider recent evidence from the liquidation of Executive Life of New York (ELNY), easily the worst debacle in structured settlement history. It caused hundreds of innocent and severely disabled people to lose as much as 50 percent of their promised future payments.

Last year, evidence emerged that many accident victims had been pushed into ELNY structured settlements without being informed that the insurer was not licensed in their states of residence. Further, the structured settlement consultants in those cases, who worked for the defense, allegedly never disclosed that they pocketed large commissions by procuring these defective annuities.

This discovery has sparked class action litigation in Oregon and Florida against the financial consulting firms involved with these settlements. This year, in response to one such lawsuit, Ringler Associates, the country’s largest structured settlement company, submitted a remarkable court filing denying that it “owed plaintiffs a duty to exercise reasonable care.” 

Question for Congress: Did you really set up structured settlements so that a settlement consultant could deny the need to “exercise reasonable care” for the injury victim? 

It is also difficult to imagine AAPD or NCL endorsing such an anti-consumer statement.

Unfortunately, there are other examples of duplicity. The outside counsel for the industry’s trade association, which hosts this week’s convention, simultaneously represented a major insurance company in the Executive Life matter while he was also being paid to represent accident victims and the structured settlement industry.

As an attorney, I find that legal conflict of interest to be deeply troubling. It speaks volumes about how the structured settlement industry has been captivated by the insurance industry.

So what should be done to clean up structured settlements? If Congress or the Consumer Financial Protection Bureau takes action against abusive practices by some settlement purchasers (again, a wise action in my opinion), it should also demand reforms in the structured settlement industry.

Disability and consumer groups such as AAPD and NCL are in a unique position to join this demand. At a minimum, these should include:

1) Ensure victims have better access to their own structure consultants

In Ringler’s legal filing, the industry’s largest company dismissed any “reasonable care” duty to the victim.  Congress could help rectify this by passing a version of Rep. Brian Higgins’ proposed bill that protects plaintiffs’ rights to retain a structured settlement consultant. Since consultants are paid on commission by the life insurer issuing the annuity, there is no cost to the plaintiff.

2) Require diversification in large cases

Some structure consultants steer seriously injured people into accepting a single annuity.  This is folly.  If a plaintiff needs a multi-million dollar structured settlement to provide for decades of care, there should be multiple smaller annuities so as to minimize the harm from another insurance liquidation.

3) Demand better disclosure from the defense

This is a huge issue and for AAPD and NCL especially, it should be non-negotiable.  If a plaintiff ever has to rely on a defense consultant, “best practices” should mean that all representations of cost, commissions and settlement must be done in writing. If the defendant objects, the plaintiff should find her own consultant!

At least four members of Congress will speak at the industry’s convention this week: Reps. James Sensenbrenner (R-Wis.), John Lewis (D-Ga.), Jim Langevin (D-R.I.) and Sen. John Thune (R-S.D.).  All four know what the industry wants. 

The equally important issue is whether they demand the industry adopt reforms necessary to fulfill Congress’ goal of protecting accident victims.

Risk, an attorney, has 30 years experience as a structured settlement planner.