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S2KM Reviews Jeremy Babener's QSF Paper - 2

By Patrick Hindert

While researching his paper titled "Structured Settlements and Single-Claimant Qualified Settlement Funds: Regulating in Accordance with Structured Settlement History" (QSF paper), Jeremy Babener interviewed many structured settlement industry leaders including Patrick Hindert, Managing Director of S2KM Limited.

This S2KM blog post features Jeremy Babener's research interview with Patrick Hindert.

Secondary market

• Babener: how frequently do structured settlement consultants discuss the secondary market with injury victims?
• Hindert:
  
  • While some settlement planners may discuss the secondary market with their clients, most primary market structured settlement stakeholders have limited knowledge about IRC 5891 and the structured settlement protection statutes.
  • Most structured settlement annuity provider agents are not qualified to advise anyone about "structured settlement transfers" (aka "factoring").

Annuity commissions

• Babener: what is the typical commission for structured settlement annuities?
• Hindert:
  
  • The "standard" structured settlement annuity commission is four (4%) percent of premium which is paid by the product provider to its agents (aka "consultants" or "brokers") .
  • Frequently, multiple agents share the four percent commission.
  • Such "commission sharing" creates conflicts of interests which are rarely disclosed to the structured settlement recipient or his/her attorneys.

Anti-assignment clauses

• Babener: do courts enforce anti-assignment clauses in structured settlement documents?
• Hindert:
  
  • Structured settlement anti-assignment clauses are generally enforceable but not self-executing.
  • A party to the related documents (eg. annuity provider) must act to enforce the clause.
  • Since IRC 5891 was enacted, relatively few annuity providers attempt to enforce structured settlement anti-assignment clauses except in unusual circumstances.

Taxing structured settlement recipients

• Babener: many structured settlement consultants believe the majority of structured settlement recipients pay taxes - or would otherwise pay taxes but for the structured settlement tax subsidy.
• Hindert: Where is the objective proof? Many structured settlement industry "beliefs" don't square with the facts. Your dissipation paper helps to prove this thesis.

Do defendants save money using structured settlements?

• Babener: have defendants and their liability insurers historically saved money using structured settlements by negotiating based on nominal rather than present values?
• Hindert
  • Many structured settlement agents and intermediaries proclaim defendants save money using structured settlements.
  • Where is the independent, objective proof?
  • If true, what are the reasons?
    
    • Misrepresentation?
    • Failure to disclose?
    • Unauthorized practice of law?
  • Most structured settlements are negotiated using lump sums which are subsequently transitioned into structured settlements.
  • Why would any informed plaintiff attorney ever knowingly accept a lower fee from his client for a structured settlement settlement costing defendants less than an alternative cash settlement?
  • Under current CMS rules for workers compensation Medicare set-aside agreements (WCMSA), annuities are valued more cost advantageously for defendants because of the CMS required "set-off" method for calculating present value.
  • This CMS valuation method also means that annuities underfund WCMSAs because the annuities do not include any inflation provisions.

Defendant savings - 2

• Babener: how frequently would you estimate that defendants save money using structured settlements?
• Hindert
  • If and when defendants save money today using structured settlements, the primary reasons are misrepresentations, failure to disclose, unauthorized practice of law and/or undue sales pressure as part of a negotiation - eg limiting purchase options to affiliated companies and agents.
  • Plaintiff attorneys should be, and probably will become, more aggressive in discovery to elicit information from defendants about structured settlement compensation, conflicts of interest, and company policies as well as more accurate cost and present value calculations.
  • When calculating any cost savings from structured settlements, defendants should anticipate and factor in costs from potential lawsuits for bad business behavior.

Defendant savings -3

• Babener: what is your estimate of the amount of money defendants save using structured settlements?
• Hindert
  • I have never seen an independent study demonstrating or explaining whether, or more importantly why, defendants save money using structured settlements.
  • Any cost savings results primarily from:
    
    • Misrepresentations;
    • Failure to disclose; or
    • Negotiation pressure.
  • One of the results of high pressure structured settlement sales in a claim management context is to increase the likelihood the recipient will subsequently attempt to sell their payment rights.
  • If you ignore profits from product sales and assume full disclosure of compensation and costs with no misrepresentations and no unauthorized practice of law (agents providing legal services to save defendants legal costs), I don't see how defendants save money using structured settlements.

Approved lists

• Babener: have defendants and their liability insurers historically saved money on structured settlement costs by insisting on purchasing annuities from affiliates and particular life insurance companies?
• Hindert:
  • For the best evidence of defendant savings, and the best explanation for such savings, review the allegations of misrepresentation and non-disclosure in the Spencer v. Hartford case.
  • In calculating "defense savings", it is important to differentiate:
    • claim savings;
    • profits from structured settlement annuity sales; and
    • future liabilities resulting from structured settlement annuity sales.

Qualified Settlement Funds

• Babener: assuming there are no defendant savings, do you think that structuring a settlement with a QSF is superior to structuring directly with a defendant?
• Hindert:
  • Yes, I believe structuring a settlement with a QSF is inherently superior to structuring with a defendant in a claim management model.
  • The purposes and objectives are completely different in these two settings.
  • Both the plaintiff and defendant receive judicial protection and a trustee/administrator whose role is to develop settlement solutions for all QSF beneficiaries.
  • QSFs permit and require allocation among claimant beneficiaries and lien holders - Medicare and Medicaid. Claimants and their advisors can objectively consider plaintiff needs, resources and best interests.
  • The primary (only) negative of QSFs for plaintiffs is the cost.
  • Key questions about QSFs are the costs - and how to substantial decrease those costs and the time necessary for QSF termination.

Full post as published by Beyond Structured Settlements on September 23, 2009 (boomark / email).