Litigation

Structured settlement lock-ins offer valuable benefits to plaintiffs, defendants, their respective attorneys and insurers.

They enable settling parties to fix benefits that are being submitted for Court approval, where the court approval process make take months and where the Court needs to see actual not hypothetical benefits. With a lock-in, and provided the structure funding is timely, the benefits submitted in the attorney's affirmation and plaintiff's permission are the benefits they plaintiff will receive.

They enable settling parties to fix benefits where a period of time will pass before the defendant is legally required to pay. For example, the City of New York has up to 90 days to pay from the time it receives its requirements. Another of many example is where certain insurers negotiate at mediation on large cases to pay the cost of settlement over a series of months. The settlement planning process may be complex, but the structured settlement element of the plan may be decided. With a lock-in, and provided structured settlement funding is timely, adverse interest rate movement can be avoided.

It's important that judges, attorneys, insurers and litigating parties understand that lock-ins are a privilege granted by the structured settlement annuity issuer.

There is sometimes confusion about whether you are locking in a rate or locking in benefits. The latter is true, although the rate (Internal Rate of Return) is a by product. You must have a benefit stream or benefit streams to lock-in. You cannot for example, say I'm going to lock-in the rate at 5.5%.

The following excerpt from one life insurer's lock-in commitment form does an excellent job of explaining the commitment offered by the lock-in and what goes on within the insurer when a structured is locked in.

"The Broker acknowledges that the Settlement Parties understand and are in agreement with the following:

• Investment commitments will be made in anticipation of the payment of the Premium to Prudential on the Purchase Date. As a result, once the attached quote is acknowledged and locked in by Prudential, if the cost for these benefits goes up, the Settlement Parties will not be responsible for the additional cost. Similarly, should the cost drop, the Settlement Parties are not entitled to any additional benefit or cost savings.
• The quote is locked in on the current rate series indicated on the attached quote and no changes may be made unless acknowledged in writing by Prudential.
• The lock in may not be canceled by any of the Settlement Parties. Should a Court disapprove this settlement, a written request must be submitted to Prudential for cancellation of the lock-in or refund of the Premium (if funding has already taken place).
• Any delay in funding may result in i) the movement of the quote payment dates by the same number of days as the delayed funding or ii) a higher annuity cost.

*IMPORTANT NOTE: The submission of this form should only occur after a settlement has been reached. If the terms of this deal may change, this form should not be submitted and this case should not be locked in. If the quote is not locked in, the Settlement Parties should be aware that the benefits and/or purchase price under the quote in question might change due to changing market conditions and pricing of the annuity issuer".

One of the key points is "Investment commitments will be made in anticipation of the payment of the Premium to Prudential on the Purchase Date".

This is important because if the deal goes South the life insurer may lose tens of thousands of dollars, particularly if interest rates move in the wrong direction.

Understand what a lock-in is and what at can do for but do not abuse the privilege.