Disability Law

Spencer v. Hartford - 9

By Patrick Hindert

If you are re-thinking structured settlement business practices in the context of the Spencer v. Hartford class action lawsuit and announced proposed settlement, a recent paper ("Structured Settlements and Single Claimant Qualified Settlement Funds: Regulating in Accordance with Structured Settlement History"), written by Jeremy Babener, provides valuable analysis.

Babener's single claimant 468B paper is one of several structured settlement papers he has written and published during the past 12 months. In his single claimant 468B paper, Babener traces structured settlement public policy history and finds public policy support for single claimant 468B qualified settlement funds.

Section IV of Babener's single claimant 468B paper is titled "Helping the Wrong Party". Babener reports his research and analysis about how defendants save money using structured settlements. Babener also argues that defendants' ability to save money using structured settlements may contravene the basic purpose for why Congress subsidizes structured settlements. Babener's paper was published prior to the announced proposed settlement of the Spencer v. Hartford class action lawsuit.

Although Babener did not discover much empirical evidence to support defense savings through the use of structured settlements, his research uncovered plenty of historical anecdotal evidence. According to Babener's research, industry estimates of defense structured settlement savings have decreased:

• From between 50% and 75% in 1974;
• To between 20% and 40% in 1978; and
• More recently to between 20% and 25%.

By comparison, in Spencer v. Hartford, plaintiffs have alleged that Hartford utilized a program called "Secured Benefit Services" (SBS) to systematically retain for its own benefit at least 15% of amounts it should have used to fund its structured settlements.

Whether or not such savings occur frequently today, Babener maintains defendants and their liability insurers have proven themselves capable of utilizing three structured settlement strategies to minimize their personal injury damage payments.

What follows are S2KM comments about defense structured settlement strategies as identified and discussed by Babener in Section IV of his single claimant 468B paper. For Babener's own analysis, see Babener's structured settlement writing generally and his single claimant 468B paper more specifically. S2KM's structured settlement public policy wiki features S2KM interviews with Babener and related S2KM commentary.

Defense Strategy 1: Negotiating with nominal terms rather than real value.

• Examples
  • A defendant offers (negotiates) to pay a plaintiff's future damages using an annuity without any annual increases to address future inflation.
  • The CMS policy memorandum (2004) for discounting and inflating workers compensation Medicare set-aside arrangements (MSA) resulting in lower costs and underfunding when annuities are used.
• Issues
  • When do any case-specific defense cost savings result from this structured settlement strategy - as opposed to other negotiation factors (such a weak plaintiff position on liability) forcing plaintiffs to compromise on case value and/or future damages?
  • Why would an informed plaintiff, and/or a plaintiff represented by a competent attorney, ever accept nominal value instead of real value for future damages unless other negotiation factors (or regulatory requirements) exist?

Defense Strategy 2: Profiting from the purchase of a structured settlement annuity.

• Examples
  • The plaintiff allegations in Spencer v. Hartford including Hartford's use of its affiliated life company to fund its structured settlement annuities.
  • When a defendant or liability insurer, with or without an affiliated life company, shares a commission with a structured settlement agent directly or indirectly.
• Issues
  • How much money do defendants and their liability insurers save if and when they profit from the purchase of structured settlement annuities?
  • What are the risks for defendants, compared with cash settlements, associated with various methods for funding structured settlements - including buy-and-hold; 130 qualified assignments; and 468B qualified settlement funds?
  • What disclosures, if any, are required (post Spencer v. Hartford) if and when defendants or their liability insurers profit from the purchase of structured settlement annuities?

Defense Strategy 3: Negotiating to benefit from the tax subsidy.

• Examples
  • A defendant offers to settle for $100,000 or, alternatively, to pay some cash and fund a structured settlement with a combined cost of $95,000.
  • A defendant initially reserves a case for $120,000, then subsequently settles a case including a structured settlement for $100,000.
• Issues
  • In the first example: how many plaintiff attorneys are willing to accept a lower attorney fee to obtain a structured settlement for their clients?
  • If a claimant is unrepresented, what structured settlement disclosures should a defendant and/or its liability insurer make to the unrepresented claimant?
  • In the second example: assuming a cash (or cash equivalent) negotiation and/or an alternative $100,000 cash settlement offer, why and when should a defendant (from a risk management perspective) ever credit a structured settlement with saving money compared with a prior case reserve?

For complete S2KM reporting and commentary about Spencer v. Hartford, see S2KM's structured settlement wiki.

Full post as published by Beyond Structured Settlements on May 22, 2010 (boomark / email).