by John Darer CLU ChFC MSSC CeFT RSP CLTC
Types of Assignments when a Structured Settlement is Established
There are two types of assignments that may be used when a structured settlement is established, a qualified assignment and a non-qualified assignment
An assignment, whether qualified or non-qualified, is the second step in most structured settlements. It is the step that occurs after the parties have agreed on a schedule of future periodic payments. How Structured Settlements Work | Structured Settlements Explained (4structures.com)
While structured settlements are generally supported by Defendants and Insurers who want to do the right thing, few Defendants or insurers will be receptive to a long tail contingent liability for the duration a structured settlement.
What is a Novation?
A novation is an agreement made between two contracting parties to allow for the substitution of a new party for an existing one. The assignment is a substitution of obligors from the Defendant, Insurance Company or Qualified Settlement Fund to the assignment company. The assignment company receives a certain amount of cash for taking on the assignment of future periodic payment obligations, deducts its assignment fee and then buys the funding instrument. In a qualified assignment these are called qualified funding assets and are mostly structured settlement annuities, but also could be United States Treasury obligations. Market based structured settlements are generally done by way of a non qualified assignment.
What are the Typical Assignment Fees with Structured Settlements?
- Qualified Assignment fees from assignment companies related to structured settlement annuity issuers range from $0-750
- Non qualified assignment fees typically range from $500-$1,400, with higher fees for independent assignment companies, not affiliated with insurance companies.
What Consumers Need to Watch Out For
Asset based qualified and non qualified assignment fees can run upwards $10,000 on a $1,000,000 case. That’s a pretty heavy cost to bear. It’s way more than a normal assignment fee. The fees may not be disclosed and simply built in to the illustrated cost of the structure. What you, or your lawyers may encounter is obfuscation by multiple layers of complexity. That’s not good.
For instance, consider a scenario where a settlement planner recommends a MassMutual annuity for an asset. However, it may not be known to the plaintiff or their attorney that MassMutual Life Insurance Company has not issued structured settlement annuities since 2006 and no longer has a qualified assignment company for new business.
So a wily settlement planner may use an independent assignment company to take on the periodic payment obligation from the Defendant, Insurer or qualified settlement fund. The independent assignment company may charge an asset based assignment fee, The settlement planner makes a commission on the sale of the annuity and the client gets walloped with the outsize assignment fee.
It gets even more squirrely if the settlement planner has a direct or indirect ownership interest in the assignment company.
Like the chorus of the 2002 Grammy Award winner from Santana featuring Michelle Branch “a little bit a this, a little bit of that”, but it ain’t no “game of love” baby.