by Structured Settlement Watchdog®
When does an insurance company flag a structured settlement factoring case for intervention?
Are insurers doing enough? Should an insurer play a larger role in safeguarding its insured structured settlement annuitants? They need protection from abusive structured settlement cash now hustlers, both now and in the future. A scene about ” free will” from the movie “Bruce Almighty” comes to mind.
According to a legal complaint filed in Federal Court in Alexandria, Virginia in March 2015. Terrence Taylor was a West Virginia resident. He was essentially “seduced” by a series of structured settlement factoring companies. This led to a total of 11 structured settlement factoring transactions in less than 2 years. These transactions were approved in Portsmouth Virginia Circuit Court.
Shortly after that legal complaint was filed, a milquetoast article by Leslie Scism, published in the Wall Street Journal said:
“People like Mr. Taylor shouldn’t be capable of cashing out easily. They have settlements meant to give income over many years. Since the late 1990s, 48 states have passed consumer-protection laws. The federal government has also enacted these laws. They need a state judge to decide if it is in a seller’s best interest to do such deals.
The competition is intensifying. Some consumer advocates, state lawmakers, and industry participants say this leads to a pickup in questionable deals. These deals have exposed soft spots in state and federal statutes. Now, lawmakers, consumer advocates and even some industry participants are pushing to strengthen laws”
The Taylor case was the poster child for a system failed. The Washington Post published blistering exposes. They played a significant role in structured settlement protection act and factoring reforms in Virginia, Maryland, and DC. In Taylor’s case, much of this came after… well, see for yourself…!
What is the Rooker-Feldman Doctrine?
The Rooker-Feldman doctrine asserts that lower US federal courts, except the Supreme Court, shouldn’t review state court decisions directly. This is unless Congress has specifically authorized such relief. In short, federal courts below the Supreme Court must not become a court of appeals for state court decisions. The state court plaintiff has to find a state court remedy, or obtain relief from the U.S. Supreme Court. Plaintiffs withdrew their Federal case without prejudice. Before one of the entities sued Bexhill, LLC, a Client First Funding associated entity settled out.
Structured Asset Funding LLC, along with several associated entities named in the Federal complaint, does business as 123 Lump Sum. They were involved in the majority of the Taylor transactions. They subsequently filed a declaratory judgment action in Virginia state court in Portsmouth VA. For local counsel, they used the same lawyer, Stephen Heretick, who represented the buyers in the 11 Taylor sales. Taylor responded with counterclaims. He named New York Life Insurance and New York Life Insurance and Annuity Corporation as Third Party Defendants. These entities are the annuity issuer and qualified assignee. Download Taylor Answer and Counterclaims v SAF, isettlements, Jay Gee LLC, 123 Lump Sum
At the time of the 11 Taylor sales Heretick was also a local politician. He has since become a Delegate member of the Virginia House of Delegates. Heretick has apparently used his privileges from his legislative role to delay proceedings to his client’s advantage until April 2017. This postponement avoids necessary questions. These questions are important to consumers. They are also crucial for structured settlement factoring reforms across the United States.
- Were the Taylor transactions void ab initio? Did they violate a court order in the underlying case? This case led to the establishment of the Terrence Taylor structured settlement with New York Life Insurance Company. It specifically identified the need to protect Terrence Taylor. SAF and other factoring companies do not want this part of any legal finding answered. They are concerned about what is at stake. What other matters around the country lie in wait.
- How did the 11 sales of Terrence Taylor’s structured settlement payment rights occur in less than two years? Were these sales in Terrence Taylor’s best interest under the laws of the Commonwealth of Virginia?
- How is it that there were 11 sales of Terrence Taylor’s structured settlement payment rights? These sales were made to clients of lawyer and Virginia delegate Stephen Heretick in less than two years. How have these been in Terrence Taylor’s best interest under the laws of the Commonwealth of Virginia?
- How did 11 sales of Terrence Taylor’s structured settlement payment rights occur in less than two years? How were these sales in Terrence Taylor’s best interest under the original intent of Congress?
The speed at which the laws were reformed in Virginia after the Taylor lawsuit was telling. Exposes in national news media confirmed the inadequacy of the Virginia protections. These left consumers vulnerable to financially devastating exploitation. But where does that leave Terrence Taylor and victims of the system around the USA?
The role of the attorney for the life insurer or qualified assignee in Structured Settlement Transfers
The life insurer/qualified assignee’s attorney role in Structured settlement Factoring
Most life insurers charge fees to structured settlement factoring companies for each deal. This is done to subsidize the cost of legal fees. These fees help with compliance with structured settlement protection acts. Fees range from $500 to $3,000 per deal.
So when should attorneys start to question serial structured settlement factoring deals?
- More than two petitions in 6 months, is that reasonable?
- Are 4 petitions in 1 year a cause for concern? The Michael Lafontant case suggests something is amiss.
- Should multiple petitions in the same month in different states be cause for alarm, like the Shaqira Wilder case?
- When should the hemorrhaging in Terrence Taylor’s case have been stopped? There were 11 petitions in less than 2 years. Should one or more petitions have been called into question? In Taylor’s case, the annuity issuer or assignee would hold a copy of the Order. This Order prohibits the sale of payments as part of the issue requirements.
- What actions do lawyers for Allstate Life Insurance Company take when a transfer petition comes in? The discount rate charged to the annuitant grossly exceeds the AFEN rate. (see below re: Hardship Commutations)
In 2015, I notified a representative of a law firm known to represent a particular life insurer. I informed them about a tip concerning a New York to Florida forum shopping case. The lawyer in charge of the file chose to verbally harass me. The harassment was about the Terrence Taylor case where the same firm represented a different insurer. This was rather than taking steps to prevent a non compliant deal from happening with days to spare. I felt that saving her client money on legal fees was prioritized. The interests of the insurer’s annuitant were of less concern.
What if life insurers raised their deal fees? This would be a hugely unpopular move with structured settlement factoring companies. They would argue that it increases the cost of access to an annuitant’s money.
Life Insurer Hardship Commutations
Several companies that issued structured settlement annuities were initially and overtly proactive
Symetra
Symetra set up its own factoring company, Clearscape Funding. Their launch went over like a lead balloon for various reasons. One reason was that the company gave no reasonable advance warning of Clearscape’s January 2006 unveiling. Kim McSheridan, then an officer of Symetra, neglected to disclose a conflict of interest. She did not recuse herself from strategic discussions about factoring during a long-range planning committee meeting in October 2005. When the unveiling happened, it was clear that Clearscape was soliciting its own annuitants. It was also soliciting annuitants of other companies. Symetra’s exit from NSSTA soon followed. To Symetra’s credit though, it obtained a favorable Private Letter Ruling in May 2009 that supports “restructured settlements”.
Allstate
Allstate Life Insurance Company and Allstate Life Insurance Company of New York took the lead. They were the first structured annuity issuers. They addressed the factoring issue with their annuitants. They did this by creating an Advance Funding Exchange Notice (AFEN). This notice was issued with every policy. The initial discount rate was 11% and years into the program the rate was dropped to 8%. Allstate sent notices to its annuitants annually. This approach did not sit well with primary market structured settlement brokers. They saw it as a solicitation. While I respect my industry colleagues that take that point of view, I do not share their point of view. I wrote in 2006 and 2007. The AFEN enabled Allstate annuitants to do something unique in financial terms. It was equivalent to a basketball move known as “a pick and roll”. If there are no alternatives but to sell, an Allstate annuitant should only sell after exhausting all possibilities. The discount rate should not be greater than Allstate’s AFEN. Public records show that some factoring companies claim to be structured settlement experts. Yet, after reviewing an annuitant’s paperwork, they fail to inform the annuitant about the AFEN option. They continue to charge Allstate annuitants discount rates exceeding the 8% AFEN rate.
Pacific Life
In 2014, Pacific Life sought a Private Letter Ruling. They received it for a commutation provision that has yet to be introduced.
Other annuity issuers
One current annuity issuer will proactively seek out its annuitants if it sees a transfer demand. It will then try to gazump the structured settlement factoring company with a lower discount rate. The issuer will finish a deal that complies with IRC 5891. Hugely unpopular with factoring companies for obvious reasons.
Yet another structured settlement annuity issuer takes a passive approach. They will consider hardship commutations on a case by case upon inquiry. Nonetheless, they do not advertise.
Annuity issuers can and should play a greater role in th structured settlement protection for their annuitants
In my opinion, the judge should play the role of policeman. This should be in tandem with a consistent state regulation. The regulation should include a licensing and/or registration standard. It should also have more clearly defined protocols for the conduct of structured settlement factoring companies and their representatives. Additionally, it should include a “toothy” means of enforcement, yet life insurers can’t stand idle. Protocols should be put in place to flag serial transactions and if appropriate, make objections.
Factoring of structured settlements serves a purpose for a few people, but not the majority
Nonetheless, there has been too much documented abuse. Life insurers should engage to protect their annuitants and should actively take part in how to fix it nationwide.
Servicing agreements should be examined carefully. Stories have emerged about overbearing buyers. These buyers act in the dual role as payment servicers,through affiliates or subsidiaries
I understand that servicing is necessary by certain insurers. They do this for administrative cost savings in partial sales of structured settlement payment rights. This necessity must be weighed against the loss of repeated customer contact. The loss of repeated customer contact is a significant concern. There’s also the resulting exposure to the wolves and scavengers of the structured settlement secondary market. Additionally, the loss of branding value must be considered.