Do Maryland revisions on structured settlement cash flow sales raise issues of suitability?

"Structured settlements" have recently gotten back in the news through a series of articles by Terrence McCoy in the Washington Post. The stories covered the lead paint cases arising in Baltimore, Maryland. The tragic death of Freddie Gray has also brought the lead paint litigation issue and the widespread use of structured settlements to resolve personal injury litigation to the forefront, as it turned out that Gray was a lead paint victim. The stories discussed problems which arose long after his settlement and structured settlement were put in place and involved the purchase of his future structured settlement payments at a discount of their present value for cash. 

The issue that brought structured settlements into the news was the purchase of structured settlements by companies that engage in the business of factoring, or purchasing future cash flows at a discount in return for a lump sum. Many of these purchases discussed in the Post story were made of victims of the Baltimore lead paint cases. Children who ingested the paint had filed claims against landlords and building owners who had failed to re-mediate the properties that had lead paint in them. Many of the lead paint victims had severe cognitive problems as a result, something that is common in almost all lead paint injuries, leading to the wide spread use of structured settlements at the time of settlement to pay out their damages over a period of years. This fact and the contention that “A lot of them can barely read.” is the topic of interest I cover in this video commentary for The Legal Broadcast Network. 

The articles in the Washington Post prompted the Maryland Court of Appeals to adopt some new rules regarding the purchase and sale of structured settlements. Which, like 47 other states, has in place a structured settlement protection law which requires the involvement of an independent professional advisor and court approval in the sale of the settlement benefits for cash. However, what came to light in the investigation appeared to be the rubber stamping of proposed structured settlement sales through essentially the same professional advisor on almost all of the cases, with what the courts in retrospect feel was less than rigorous analysis whether the sale would be in the best interests of the structured settlement payee. However, it is still to be determined if the parties involved in those sales were doing anything less than what the law required in order to obtain court approval. 

While this apparently lax approval of process in selling benefits in the courts, as well as aggressive sales tactics used by representatives of factoring companies, has been the primary focus of the articles and the primary structured settlement industry. Yet for me the troubling issue not being discussed in these cases is that many, if not all, of these child or young adult plaintiffs apparently had mental or cognitive disabilities at the time of settlement. These plaintiffs clearly had the same mental problems when the structured settlements were put in place at settlement. 

Look, the job of trial lawyers is to get the largest possible settlement for their clients based upon the facts of the case and the economic recovery possible given insurance overages and the assets of the defendants. From all reports that was clearly done by the attorneys in these cases. However, once the settlement distribution process was locked into the use of structured settlements due to the impaired mental and cognitive capacity of these clients a decision had to be made as to whether an irrevocable fixed payment program was going to adequately address the future needs of the victim. If, as is contended, these plaintiffs were not so impaired as to require a Guardianship or incompetency hearing, should not at least a suitability assessment as to the use of a structured settlement annuity program have been done to determine if they might not be better served by a managed settlement preservation trust account? If you sell an annuity to a senior citizen in most states in the US you are required to do a full suitability assessment, as the presumption of potential Elder Abuse by recommending long term, low liquidity investments is high on regulators radars. There are civil and criminal penalties if those annuities turn out to be unsuitable for seniors, but in the settlement profession we are under no similar guidelines when it comes to the use of structured settlement annuities.

Under the new standards adopted by the Maryland Courts just the other week, Independent advisors on the sale of the cash flows now must appear before the court, explain their business relationship with the purchaser and also be willing to address the cognitive, educational and comprehensive ability of the person selling their payments. This is clearly a higher standard, one that makes sense, however my concern is if this standard is now going to be used on the liquidation of cash flows, plus we have state laws on annuity sales suitability, how much longer is it going to be before structured settlements experts on the front end of the process are swept under these exact same standards. I believe that most independent advisors are incapable of making decisions and assessments on competency and cognitive ability of a client and would be foolish professionally to even attempt that analysis. So who is going to make that decision going forward and what is that process going to look like? Only time will tell. 

In conclusion,  if structured settlement payees were being taken advantage of in these court-approved sales of their future cash flows, the solution to the correct solution to that problem is better oversight by the courts involved, which appears to be how this is going to resolve. However, before the primary structured settlement tears a rotator cuff patting itself on the back we might want to prepare ourselves for what I feel is going to be  heightened oversight and analysis of the cognitive abilities of these and many other structured settlement clients on the front end. I have no doubt that once the dust settles that factoring companies will start pushing to apply the same oversight at the beginning of the process, when structured settlements are being considered and put into place. Structured settlement companies are not presently required to do a suitability assessment for the sale of the annuities that make up structured settlements, I fear that won't be the case for too much longer and experts are going to need to prepare and upgrade their standards.

Why do trial lawyers use defense structured settlement brokers?

COURT CASE MAKES CLEAR, DEFENSE STRUCTURED SETTLEMENT BROKERS HAVE NO FIDUCIARY RESPONSIBILITY TO PLAINTIFFS. SO WHY WOULD ANY TRIAL LAWYER USE A DEFENSE BROKER NOW?
 

In this weeks video commentary Mark takes a deeper look at the issues being revealed in last weeks decision in USDC of Oregon. A decision in which defense brokers argued, and the court agreed, that no fiduciary relationship exists between a defense structured settlement broker and the injured plaintiff who relies upon their advice regarding the selection of the life company that funds their injury settlement. Knowing this is the position of the brokers and courts, why then would any trial lawyer settle a case using a structured settlement where they did not engage a plaintiff broker who would have a clear fiduciary responsibility to the injured party? Have trial lawyers been so seduced by years of financial contributions to trial lawyer associations from defense structured settlement firms, or has it just become routine to deal with one broker and for them to not bother with engaging their own expert? 

Structured settlement guru Mark Wahlstrom discusses the failure and liquidation of Executive Life Insurance Company of New York (ELNY) and the class action suit that arose out of it, Westrope v. Ringler Associates Inc.. The Westrope case underlines the reality that the brokers for the defense interests in a structured settlement negotiation do not represent the interests of plaintiffs. The structured settlement industry should take the lead in providing useful factual information to people involved in these transactions. You can learn more about http://thesettlementchannel.com and http://wahlstromandassociates.com by clicking on the links and subscribing to Mark Wahlstrom's weekly video and written commentary on structured settlements, mass torts, settlement administration and litigation.

I also discuss the increasing outside scrutiny of the process by which political figures in New York decided to liquidate ELNY and why that process is still shrouded in secrecy two years after it occurred. I believe it is time for trial lawyers to stop passively taking at face value the defense industry narrative on how structured settlements are used, sold and funded when it comes to assisting your injured clients. Trial lawyer have for years now the right to engage their own structured settlement experts, to create Qualified Settlement Funds and control the process by which the financial settlement decisions are made for you and your clients. The question we will look into early in 2015 is why aren't they doing it?

This commentary originally was posted on The Settlement Channel and is authored by Mark Wahlstrom
 

Will the ELNY structured settlement lawsuits lead to a deeper look into NYLB politics?

In a recently published piece in the online publication "Inside Sources", serious questions were raised for the first time regarding the management of the New York Liquidation Bureau (NYLB) in the matter of the Executive Life of New York insolvency and subsequent liquidation. These questions and issues are some of the first trade or online reporting outside of the claims or settlement profession which has taken a serious look at the ELNY insolvency, the management of the estate both at the time of the take over by the State of NY Insurance Department, as well as the subsequent management which led to a decision to liquidate the company. 

You can access the full article here, entitled somewhat provocatively, as "Andrew Cuomo's secret plan that took from the pockets of 1500 widows, accident victims and handicapped.

While I understand the need for big headlines to draw traffic, I'm not sure I can go so far as to say the intent of the Governor was to wipe out widows, orphans and the injured, but there is no denying that was the result of the actions taken once ELNY was taken into liquidation over the Christmas holidays a couple years back, with almost no notice to trial lawyers, claimants or the press. As the article notes, and as I vividly recall, the venue of the hearing to object to the plan was stuck out in Long Island ostensibly to make it harder for large numbers of people to get there and object. I have always wondered what the great rush was, after 20+ years of NYLB management, to close the deal over the Christmas Holiday, in an obscure court outside of Manhattan, with almost no time for claimants to review information, obtain counsel and raise serious questions or objections to the plan. It looked like it was railroaded on a fast track for a reason bu what those reason's are is still unclear two years later. 

Clearly the author of the article is looking for a deeper investigation as to why the decision was made at that time, how the payout arrangements were arrived at and more importantly how a prior deal worked out just years before to great acclaim, had come financially unwound so quickly at a time in which the stock market was rebounding from the 2008 melt down and bond were in the early stages of yet another massive rally in value. How was it that the previous plan, which was to assure all parties of full payment, vaporized at almost light speed? Or was that previous plan, put in place by then Governor Elliot Spitzer, based on flawed actuarial and investment assumptions which never had a chance to come true, and thus was nothing more than a cruel mirage to placate injury victims at that point in time? The fact is, as the article points out, is that the entire process was then, and is now, shrouded in secrecy and no one is talking. Even those of us in the structured settlement profession have had to rely on press release information from our trade association to glean some of the facts, while only a few intrepid souls even bothered to report on the hearings and subsequent hair cut the 1500 took in various amounts once the plan was put into action. 

Those of us in the settlement profession are use to only getting filtered information from our trade association, which in my opinion, has largely done the bidding of the few major structured settlement brokerage firms that write the bulk of structured settlements over the last 25 years. We have become accustomed to getting an executive summary of actions after the deals are cut. However, now a series of lawsuits from angry ELNY plaintiffs who were short changed in this deal, with almost zero information as to the reason why it happened, are going showing up in court looking for answers. These victims and their counsel want to reveal in court the process by which the melt down at NYLB occurred, why the process of objection was railroaded so quickly and why it is still covered by confidentiality agreements. I am sure as discovery takes place in these lawsuits, uncomfortable questions will need to be answered as to the entire deal, not just the sales practices of a few brokerage firms in the 1980's.

 As I have often said, if the sales practices and tactics of many firms from that era were ever held up to examination in a court of law vs a quiet debate among those in the settlement profession, a lot of necessary daylight light would be shown upon both past and current sales practices. Only in such an environment which gets rid of the "family secrets" of the past will we be able to have a serious debate as to how to best use these wonderful planning tools going forward and using them in a fashion that truly benefits the injury victim who ultimately relies upon them for their very financial existence. Discussion on and about the entire sad ELNY saga from 1985 to the present day is a healthy thing for the structured settlement profession and should not be avoided out of fear it might embarrass a few key industry players.

Mark Wahlstrom is a 30 year veteran of the structured settlement profession and his commentary appears on both The Settlement Channel as well as The Legal Broadcast Network.