by John Darer® CLU ChFC MSSC RSP CLTC
The ELNY debacle has to be the hardest on those who were minors, like one of my readers, Jennifer, who did not make personal decisions to place their future with Executive Life Insurance Company of New York. Decisions were made for them by parents, guardians or their lawyers.
Despite it perhaps being beyond statutes of limitations, ELNY annuity victims who were minors at the time of settlement can at least take some solace in having an accurate story of what happened recorded in the history books. This has been what has been driving my inquest for the last several years. There are lessons to be learned by others.
But one must also consider this reality. The structured settlement itself was not the problem, the insurance company was.
If a plaintiff did not do a structured settlement, or used the cash portion of a settlement and placed it in a single bank and that bank failed, just as hundreds did during the recent 2008-2009 financial crisis, and 1,500+ did from 1990-1993 during the savings and loan crisis of that period they might have been worse off. The current FDIC limit is $250,000 per depositor. Between 1980 and October 3, 2008, when President George W. Bush signed into law the Emergency Economic Stabilization Act of 2008 (subsequently made permanent by “Dodd-Frank”), the limit was only $100,000.
According to a 1992 article in Business Economics by R. Charles Moyer and Robert E. Larny (published only a few years after then minor ELNY payees’ structures were established) “Legally the FDIC has an obligation to protect depositors up to the limits of deposit insurance. Since the passage of the Garn-St. Germain Act in 1982, the FDIC has had the authority to use “purchase and assumption” transactions as an alternative to liquidation, if the former has a lower cost. Over the ten-year period ending in 1989, the FDIC actually protected 99.7 percent of all deposit liabilities for failed banks.(6) Thus the FDIC has provided nearly 100 percent deposit insurance coverage. The primary exceptions to this rule have been large (over $100,000) depositors in smaller banks”. (emphasis added)
Statutory prohibitions by insurance regulators on insurance agents discussing statutory protections with prospective insurance purchasers may be part of the problem.
The ban is designed to mitigate the possibility that an insurance agent encourages an annuity or insurance purchaser to patronize a financially weak company (where they otherwise would not) because of statutory protection. Yet would a consumer opt put all his or her (or his or her ward’s ) eggs in one basket if such information could be made known at the time of sale?
The State of New York is particularly strict on this. I personally sought and received several published opinion letters from the New York Department of Financial Services (then New York Insurance Department) Office of General Counsel in 2008-2010 on various scenarios relating to the subject.
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