by John Darer CLU ChFC MSSC CeFT RSP CLTC
Maryland EXCLUDES Acquired Structured Settlement Receivables From Guaranty Fund Cover
You aren’t going to get any protection from the Maryland Life and Health Guaranty Corporation in the event the insurance company issuing the investor’s checks goes insolvent and liquidates.
To be clear, the latest revision to Maryland law affects investors who buy other people’s structured settlement payment rights, not structured settlement payees who are receiving structured settlement payments from their own settlement claim, or as a beneficiary.
EFFECTIVE DATE: July 1, 2020
SENATE BILL 186 / HOUSE BILL 141 (CHAPTER 74 / CHAPTER 73) – LIFE AND HEALTH INSURANCE GUARANTY CORPORATION ACT — REVISIONS
- Revises the Life and Health Insurance Guaranty Corporation Act.
- Incorporates the 2017 changes to the NAIC’s Life & Health Guaranty Association Model Act (#520) whose purpose was to provide a mechanism to more fairly assess for receiverships involving long term care insurers.
- Includes health maintenance organizations (HMOs) as assessable ‘member insurers.‘
- Excludes coverage for a person who acquires rights to receive payments through a structured settlement factoring transaction.
Guaranty Fund Exclusion of Investors in Structured Settlement Receivables is the Real Deal
The Maryland move is part of a trend to exclude such investors and rightly so, in my opinion. According to the National Association of Life and Health Guaranty Associations (NOLHGA):
- “State life and health insurance guaranty associations provide a safety net for their state’s policyholders, ensuring that they continue to receive coverage (up to the limits spelled out by state law) even if their insurer is declared insolvent. Working together through NOLHGA, the guaranty associations form a national safety net, protecting insurance consumers all across America in their time of need”.
- Acquired structured settlement receivables are frequently promoted to unsuspecting investors using terms like SMA, SMIA, “recycled structured settlements,” “used annuities,” and the misleading label “secondary market annuities.” However, these instruments are definitively not classified as annuities under case law or by the National Association of Insurance Commissioners.
- Unfortunately, some marketing efforts have involved a handful of dishonest settlement planners—those “wolves in sheep’s clothing,” or as some might say, “Ewe, ewe, and Ewww.” These individuals jeopardize personal injury victims and their attorney clients by deliberately misrepresenting investments. Guaranty Fund coverage is already limited as it is.
The purpose of state guaranty laws is clearly to protect insurance consumers. Investors, however, are not considered insurance consumers, as what they are purchasing does not constitute insurance.
For Maryland fiduciaries, Investments in Structured Settlement Receivables have new potential exposures
Trustees managing trusts for injury victims and fiduciary financial advisors in ALL states must remain vigilant about the new Maryland development, as it is reasonably foreseeable that the trend of excluding investors from acquired structured settlement payment rights will persist.
There may also be specific ecxlusions under liability insurance policies. Check your policy. Most polices incude insolvencies.
Postscript: Since July 2023, 80% of USA states had adopted the 2017 Revisions to the Life & Health Guaranty Association Model Act (#520), which contains the aformeentioned exclusion.