Structured Settlements 4Real®Blog 2026

by Structured Settlement Watchdog

"Why should defendants or liability insurers ever agree to settle a personal injury case using a structured settlement?" is the question posed by Patrick Hindert in the second of a multipart series " Structured Settlement Metrics".

Hindert uses a national litigation management study as a new lever to attack national account structured settlement programs of defendants and liability insurers, including points which, in my opinion, no longer represent the status quo, just as he did in a panel that we both participated in at the November 2010 meeting of the National Association of Settlement Purchasers.

Unless there is a qualified settlement fund*, which Hindert has previously implied he favors, the current system features:

• The Defendant, or its Insurer (or possibly multiple Defendants and multiple Insurers) making a promise to pay for future periodic payments, the aggregate amount of which exceeds the consideration paid for them.
• The Defendant or its Insurer making a qualified assignment of the obligation to make the future periodic payments to a qualified assignment company., which then purchases an annuity contract or Treasury obligations as a qualified funding asset.

Provided the transaction meets the requirements of IRC 130(c) the transaction works.

• The Defendant or its Insurer receives a tax deduction for the amount paid to the assignee
• The qualified assignment company does not have to recognize the consideration received as income.
• The payee receives an income tax free payment stream and, with a few exceptions, secured creditor protection. 

If it later turns out that IRC 130(c) has not been satisfied, whether discovered by the assignee's internal audit or worse, an IRS audit, the qualified assignment can be unwound by the assignee.

This would potentially expose the Defendant or Insurer to:

1. Having to recognize the value of the qualified asset as income.
2. Having to pay taxes on the income,  under the "ownership of annuities by non natural person" rule [see IRC 72(u)(1)], from an asset which is no longer tax qualified
3. Having a reduced value asset (after taxes) which creates an asset/liability mismatch. On a large case it could be nothing short of disastrous with the Defendant or Insurer being obligated to pay more than they bargained for (with no added advantage to the Plaintiff)
   

While it is not hard to meet the requirements of IRC 130(c) there are a number of creative submissions that I have seen which give one reason for pause.

For example earlier this year I wrote about a death case where pre-death pain and suffering was extensively pleaded. Then then when the case settled the plaintiffs attempted to allocate all into wrongful death to avoid damages passing through the Estate and the inability to structure for that portion of damages.

Situations such as this are a reason why, irrespective of any alleged cost savings, a competent knowledgeable settlement consultant or settlement planner should be retained by the defense.

From the plaintiff's perspective, an IRC 130(c) unwind will result in a loss of secured creditor protection.Furthermore, please note that even if a structured settlement is created via a qualified settlement fund instead via a Defendant or Insurer, the IRC 130(c) unwind risk exists and more likely than not the qualified settlement fund will have been terminated if that occurs.

As an aside, with single claimant qualified settlement funds there is significant malpractice risk for both attorneys and plaintiff structured settlement brokers as there is only one annuity company in 2011 that will accept a qualified assignment from a single claimant qualified settlement fund  (see my 8/25/2011 post Qualified Settlement Fund: Why Single Claimant QSF in 2011 Could Mean Malpractice!".

_________________________________________________________________________________________

Due to the nature of the transaction a Defendant or Insurer needs a structured settlement advisor just like a plaintiff should have a settlement planner. The structured settlement industry is an industry of professionals. Like any industry one can always argue that some participants "are more professional " or "are less professional" than others, but it is up to the clients to sort out who meets their needs and requirements.

_____________________________________________________________________________________

Why does Hindert revive the 2009 findings of then NYU Law student Jeremy Babener in which the legal "sleuth" could not locate any studies that show that 9 out of 10 lump sum recipients dissipate their lump sums (note: the cite is usually 90% in 5 years, with one factoring company STILL clinging to an assertion that "one study found that 95% of claimants have exhausted their settlement within five years"!)? Hindert fails to acknowledge that Babener conceded that there was plenty of anecdotal evidence. Did he not state his belief that there should be a new dissipation study to "ground the tax subsidy" ? (see  Hindert,     June 23, 2009 " Dissipation Studies") 

In attacking structured settlement brokers (who allegedly) advertise that "seriously injured structured settlement recipients can survive without public benefits" Hindert refers to it as "nonsense- a Tea Party dream". Is Hindert suggesting that anyone who does work for defendants or insurers supports the Tea Party? Now THAT's nonsense.

Hindert is mistaken in saying that "at least prior to health care reform, no insurance company would offer medical insurance at any price for brain damaged babies, serious burn victims, or quadriplegics. There has been guaranteed issue medical insurance in New York and New Jersey for all since about 1993.  Such coverage, which featured guaranteed issue and community based pricing (where a 25 year old pays the same price a 60 old in the same community),  addressed availability but not affordability and was the insurance industry's response to the Clinton health plan of 1993.  Nevertheless  a consideration of alternative methods of financing healthcare is essential, not just the catastrophic cases to which Hindert refers. In fact national programs deal with cases of all sizes and shapes, not just catastrophic and not just personal injury.

The questions that Defendants and Insurers would get while on  Hindert's "couch" include:

• What performance metrics do you utilize to evaluate the effectiveness of your structured settlement program?
• Which metric is most important?
• Which metric is most difficult to obtain or confirm?
• Do structured settlements increase or decrease your claims costs?
• How do you measure the impact of structured structured settlements on your 1) current and 2) future claims costs?
• What is your structured settlement success ratio?
• How effective are your metrics in measuring the success of your structured settlement program?
• What changes in your program would improve your structured settlement performance?

Frankly I think the discussion would be far more interesting if Hindert actually spoke with those currently responsible for national account programs.