Articles

Insurers Have No Implied Duty of Good Faith to Stop Assignment

By Stephen R. Harris, ABA, Litigation Section

The recent decision by the New York Court of Appeals in Cordero v. Transamerica Annuity Service Corp.1—which held that the plaintiff did not sufficiently allege a breach of the implied covenant of good faith and fair dealing under New York law— affirms that there is no implied fiduciary duty on the part of annuity issuers or owners to protect a plaintiff from the consequences of their own breach. In Cordero, the U.S. Court of Appeals for the Eleventh Circuit certified to the New York Court of Appeals the question of whether a plaintiff sufficiently pleads a cause of action for breach of the implied covenant of good faith and fair dealing under New York law by alleging that, in connection with a Structured Settlement Protection Act proceeding, the defendant structured settlement obligor and the issuer of the annuity funding the settlement failed to enforce the anti-assignment provisions contained in the settlement agreement and qualified assignment.

Lujerio Cordero was a minor when his mother brought suit on his behalf against a landlord, alleging that he was exposed to lead paint. The case was resolved by way of a court-approved structured settlement. That settlement provided for the plaintiff to receive a stream of periodic payments. The insurer for the defendant in that case assigned to Transamerica Annuity the obligation to make those periodic payments. Transamerica Annuity, for its convenience, then funded that obligation by purchasing an annuity from Transamerica Life.

Starting in 2012, when Cordero was 22 years old, his mother encouraged him to enter into a transaction with a factoring company whereby he agreed to sell to the factoring company a portion of his periodic payments in exchange for a present discounted lump sum. Realizing that he could get quick cash, he proceeded to enter into a series of additional factoring transactions with that factoring company and another unrelated one of the plaintiff’s and/or his mother’s own choosing.

In each of the transactions, after the plaintiff and the factoring company entered into an agreement, the factoring company (or, in one case, the factoring company’s assignee) then filed a petition with a Florida court seeking approval of the transfer under the Florida Structured Settlement Protection Act (SSPA).3 That statute requires prior court approval of such transactions.

 Transamerica first learned of the transaction only when it was served with a copy of the factoring company’s petition, as required by the Florida SSPA. Transamerica then entered into a written stipulation with the plaintiff and the factoring company whereby the parties agreed (among other things) that Transamerica would not object to the transfer and would instead rely on the Florida court’s determination as to whether to approve it. The court subsequently entered an order approving the transfer, finding that the requirements of the Florida SSPA were met, the transfer was in the plaintiff’s “best interest,” and the transfer terms were “fair, just and reasonable.” The factoring company then paid Cordero a lump sum. 

Seeking a Do-Over

Years later, the plaintiff regretted his decisions and sought a “do over.” He sought both to keep the money he received from the factoring companies in exchange for his payment rights and to recover from Transamerica the balance of the “present value” of the payments he sold and other unspecified damages. According to the plaintiff, the transfers were not in his “best interest” and not “fair, just, and reasonable.” He argued that instead of relying on the court’s decisions, Transamerica should have conducted an investigation into whether the plaintiff suffered from any cognitive or mental deficiencies and should have objected to the transfers based on the anti-assignment language in the underlying settlement agreement.

Unsurprisingly, it appears that there is no precedent for imposing such liability against Transamerica. The reason is that settlement obligors and annuity issuers like Transamerica Annuity and Transamerica Life do not owe structured settlement payees like the plaintiff a duty to interfere with the assignment agreements those payees voluntarily enter into with factoring companies. As the Florida SSPA makes clear, it is for the court to decide whether to approve such transactions. In this case, it was undisputed that Transamerica knew nothing about the plaintiff’s lead paint exposure or any claimed cognitive deficiencies, which were not mentioned in the settlement contracts or Transamerica’s records.

Cordero’s court-approved structured settlement agreement with the tort defendant and its insurer, Continental Insurance Company, stated that it is governed by New York law and provided for the plaintiff to receive monthly payments of $3,163.84 beginning at age 18 and continuing for 30 years guaranteed. The settlement agreement stated that the periodic payments “cannot be accelerated . . . nor shall the Plaintiff(s) have the power to sell . . . or anticipate same, or any part thereof, by assignment or otherwise.” Transamerica was not a party to the underlying personal injury case or the settlement agreement.

Rather, pursuant to a “Transamerica Qualified Assignment and Release,” Continental assigned to Transamerica Annuity the obligation to make the periodic payments. For its convenience, Transamerica Annuity then purchased from Transamerica Life an annuity that generated a periodic payment stream identical to Transamerica Annuity’s payment obligation. The settlement agreement, qualified assignment, and annuity made clear that (i) Transamerica Annuity is nothing more than a payment obligor; (ii) Transamerica Annuity owns the annuity; (iii) Transamerica Life issued the annuity, and its only obligation is to issue the payments to the annuitant designated by Transamerica Annuity; (iv) the annuity is for Transamerica Annuity’s “convenience”; (v) the plaintiff has no rights in or control over the annuity; and (vi) the plaintiff “has no rights against Transamerica Annuity greater than a general creditor.”

Notably, the settlement agreement, qualified assignment, and annuity did not indicate the nature of the claim that gave rise to the settlement. Nor did they or any of Transamerica’s records mention lead paint or any cognitive impairment, handicaps, or other condition allegedly suffered by the plaintiff.

Professional Advice Waived

The plaintiff received the periodic payments of $3,163.84 per month from Transamerica starting when he turned 18 in December 2008. He received those payments for approximately four years before he entered into his first factoring transaction. Each of the subject transfer petitions stated that the plaintiff was advised of his right to obtain independent professional advice but elected to waive that right, that all requirements of the Florida SSPA had been satisfied, and that a notice of hearing was provided to all interested parties. The waivers filed with the petitions indicated that the applicable factoring company recommended that the plaintiff seek “advice from an attorney, certified public accountant, actuary or other licensed professional advisor” and that the plaintiff “waived” such advice. Affidavits signed by the plaintiff attached to each of the petitions stated, “I am of sound mind, sane and not under the influence of alcohol or drugs, and I am not suffering from any physical or mental impairment affecting my judgment.” Finally, the notice of hearing filed in each of the subject transfer cases indicated that a notice of hearing was served on the plaintiff.

 A claim for breach of contract under New York law requires proof of the “existence of a contract, performance, the defendant’s breach, and resulting damages.”4 The plaintiff claimed that Transamerica violated an implied covenant of good faith and fair dealing in the settlement agreement by failing to seek enforcement of that contract’s anti-assignment language. However, here, the plaintiff stipulated in writing that Transamerica would not object to the transfers and would rely on the court’s approval. And the anti-assignment language is for the benefit of the settlement obligor, Transamerica Annuity, which has the right to waive it. Even if that language is also (or solely) for the plaintiff’s benefit, the plaintiff waived it when he voluntarily entered into the transfer agreements with the factoring companies.

Moreover, to hold that Transamerica had an implied contractual duty to seek enforcement of the anti-assignment provision and object to the plaintiff’s transfers would be directly at odds with the Florida SSPA. That statute requires the Florida courts to determine whether to approve a transfer of structured settlement payment rights, and it does not impose any obligations on Transamerica.6 The Florida SSPA also allows a court to approve a transfer even over an objection based on contractual anti-assignment language and relieves settlement obligors and annuity issuers of liability.7 Indeed, if it were a breach of contract for a settlement obligor and annuity issuer not to object to transfer petitions under the Florida SSPA (and similar statutes in all other states), nearly every transfer would result in a breach of contract by those entities because nearly all structured settlements contain such language.

Given the thousands of transfer petitions filed by factoring companies throughout the country, opposing them on the basis of anti-assignment language (which appears in nearly all structured settlements) would be prohibitive. Like Transamerica in this case, such entities typically lack information about the payee’s original injury and the payee’s current condition. Nor are they obligated, equipped, or qualified to conduct mental capacity, “best interest,” and “fair and reasonable” evaluations.

There is no legal basis on which to find Transamerica breached any contractual obligation by deferring to the courts in connection with the subject transfers, as the New York Court of Appeals properly found.

The Cordero Case – Part 3

Stephen Harris, who represented defendant Transamerica in the Cordero case, and prominent plaintiff attorney Edward Stone debated the Cordero case during the Society of Settlement Planners (SSP) Annual Conference on March 6, 2023 in Nashville.

Their informative and entertaining Nashville presentation occurred prior to more recent decisions by the State of New York Court of Appeals and the Eleventh Circuit Court of Appeals – which now appear to have rendered a definitive Cordero case conclusion.

With knowledge of these court decisions, Harris and Stone resumed their discussion, offering more comprehensive analysis and informed predictions, during a June 27, 2023, SSP-sponsored Webinar, moderated by Patrick Hindert, author of the Independent Settlement Expert blog.

WEBINAR LINK

Here is a link – SSP June 2023 Webinar to the June 27, 2023 SSP webinar video recorded by SSP.

For additional background information about the Cordero case, see these two Independent Settlement Expert articles:

• The Cordero Case – Part 1

• The Cordero Case – Part 2

What follows is an edited transcript of the webinar including selected questions from audience participants.

CORDERO EDITED WEBINAR TRANSCRIPT

HINDERT: Welcome Stephen and Eddie. I would like to begin by asking each of you to summarize your professional experience with secondary market cases to explain how that experience qualifies you as an expert to discuss the Cordero case.

HARRIS: thank you, Pat. I represented the defendants, Transamerica Annuity Service Corporation and Transamerica Life Insurance Company, in the Cordero case. I have been representing life companies and brokers for more than 30 years and probably have more litigation experience with these types of cases than anyone else.

STONE: I have been involved in the structured settlement factoring business for decades predating enactment of IRC 5891 and the state structured settlement protection acts (SSPAs). I was formerly General Counsel for J.G. Wentworth. I worked with a number of state legislatures to help them enact their structured settlement protection acts (SSPAs) in the late 1990s and early 2000s. I believe factoring can have its place where a structured settlement no longer meets its intended purpose or there is an overriding need for additional cash.

What I have witnessed, since the enactment of those acts, has been predatory practices by factoring companies that have resulted in individuals who lack the ability to make sound financial decisions being left with nothing which in my view is contrary to the legislative intent of the SSPAs. My practice has included representing a number of these individuals and helping to restore their periodic payments in situations involving abusive practices involving a number of legal theories. This legal practice represents challenging and difficult work and I often encounter significant opposition.

One interesting aspect of the Cordero case is that the factoring companies were not sued and instead Cordero brought the action against Stephen’s clients.

HINDERT: Let’s move on to the Cordero case itself starting with two short summaries. Eddie, would you first give us a factual summary of Cordero case up until when Cordero filed his lawsuit against Transamerica.

STONE: I was not personally involved in the Cordero case. I can summarize what I have read and what I have learned from talking to Cordero’s trial attorney. Cordero’s initial lawsuit was against his New York landlord over a lead paint matter that was settled in the 1990s. There was an annuity issued by Transamerica Life and owned by Transamerica Annuity Service Corporation to fund Cordero’s structured settlement payments. Cordero sold his payment rights six (6) times to a couple of different factoring companies within a two-year period.

And it appears these factoring transactions involved multiple “abusive” business practices. For example, most of Cordero’s transfers occurred in Sumter County, Florida even though Cordero lived in Miami-Dade County. Every factoring company and insurance company knows that Sumter County has been an easy place to get transfers approved. Thousands of transfer petitions have been filed in Sumter County and almost none of the payees have lived in Sumter County.

Most importantly, in a section of Mr. Cordero’s settlement agreement titled “Payee’s Rights to Periodic Payments,” there is a clause that states “said periodic payments cannot be accelerated, deferred, increased or decreased by the payee nor shall the plaintiffs have the power to sell, mortgage, encumber or anticipate the same or any part thereof by assignment or otherwise.”

The factoring companies did not tell the Sumter County transfer court about that all important language and Transamerica didn’t tell the court about it either. Stephen is going to tell you that this assignment language, including the “no power” language, is only to protect the insurance companies.

HINDERT: Stephen, would you continue summarizing the legal proceedings with emphasis on the decisions by the State of New York Court of Appeals and the Eleventh Circuit – both of which occurred following the SSP Annual Conference.

HARRIS: The New York Court of Appeals reformulated the question certified to it by the Eleventh Circuit basically as follows: “does a plaintiff sufficiently allege a breach of the covenant of good faith and fair dealing under New York law when pleading that a structured settlement annuity issuer or obligor failed to object to plaintiff’s sale of periodic payments in an SSPA proceeding when the underlying settlement agreements contain anti-assignment provisions and the approved transfer by the SSPA court was not in the payee’s best interest?”

The New York Court of Appeals added that, in order to determine the certified question, they considered whether a reasonable person in the plaintiff’s position, at the time the agreements were made. would have thought the annuity issuer and owner were obligated to object at the time of a subsequent transfer. The New York State Court of Appeals decided “no” – no reasonable person at the time the settlement agreements were signed would have considered that the annuity issuer and owner had a subsequent obligation to object based on the anti-assignment provisions.

The New York Court of Appeals decision then went back to the Eleventh Circuit which decided the remaining questions which were: a breach of contract claim, which basically had been decided by the New York State Court of Appeals decision; and a Florida Adult Protective Services Act (FAPSA) claim, whether or not Transamerica had exploited Cordero. The Eleventh Circuit found no basis on which Transamerica could have exploited Cordero.

As Eddie mentioned, it is interesting that Cordero did not sue the factoring companies because it seems obvious the factoring companies did exploit Cordero and he could have prevailed on a FAPSA claim against them. I don’t expect any Motion for Reconsideration so I think the Cordero case is basically over.

HINDERT: Let’s turn to case analysis. Eddie, from the perspective of structured settlement recipients, what do you see as the key takeaways from the Cordero case?

STONE: The actual holding of the Cordero case, as Stephen has pointed out, is that neither the annuity issuer or owner had an affirmative duty to object to a transfer. However, Cordero could have alleged abuse by the factoring companies to deprive him of the use of those funds. I think a lot of what will come out of Cordero will be a better way to address these types of cases in the future.

The dissenting opinion argues the certified question should have been reformulated to “should the insurance company have disclosed their knowledge of Mr. Cordero’s health condition” – i.e. his exposure to lead paint? Then, after 8 pages discussing the harm caused by lead paint, the dissenting opinion makes the following statement which, for me, is the key takeaway of the Cordero case: “the facts that Cordero alleges are truly troubling. They describe a situation where an industry is able to systematically victimize individuals who are not in a position to protect themselves.”

This was a situation where Cordero was exploited and he was failed by the courts. I believe there will be changes. The changes may be legislative. The changes may be determined by future cases. The Cordero case is now history but the Cordero legacy will live on.

HARRIS: The New York Court of Appeals decision was 4-1 in favor of the defendants. The dissenting judge was misled by a misrepresentation made by Cordero’s attorney to the effect that Transamerica knew of the cognitive injuries Cordero had sustained. That misrepresentation led her to go off on her long dissent about requiring Transamerica to disclose facts it supposedly knew about Cordero. There was no evidence that Transamerica was even aware that Cordero was a lead paint victim.

STONE: Why was that? Why didn’t Transamerica have that information?

HARRIS: That information was not in the settlement documents and it was not in Transamerica’s files. There is nothing in the settlement agreement about how Cordero was injured or whether he had any cognitive deficiencies.

STONE: Did Transamerica do any underwriting?

HARRIS: Transamerica did not do underwriting. The annuity was for a period certain.  The settlement occurred in 1996. I am not sure what was in their case file. However, by 2018, when Cordero filed his lawsuit, nothing in Transamerica’s file indicated he had any cognitive difficulties. He also brought the lawsuit in his own name.

HINDERT: Stephen, what do you think the outcome of the Cordero case might have been if Cordero had been successful on appeal and had actually been able to have his case tried before a jury?

HARRIS: Even if Cordero had been able to get to trial he would have lost on other grounds. For example, the statute of limitations would have barred any recovery. This case was going nowhere from the beginning.

HINDERT: Eddie, both you and Stephen have suggested Cordero’s attorney should have brought a legal action against the factoring companies instead of Transamerica.  Your thoughts?

STONE: It was a fatal mistake not to sue the factoring companies. Also, why is it that insurance companies so frequently lose underwriting records? And why is it that these insurance companies receive billions of dollars of structured settlement annuity premium and they are allowed to take the position in court they don’t have any duty to structured settlement recipients? The only reason insurance companies receive structured settlement premiums is because of favorable tax laws that are supposed to prevent dissipation of settlement dollars.

HARRIS: The purpose of a structured settlement annuity is to generate funds for payments, often lifetime payments, for personal injury recipients. When payees attempt to transfer, they are basically breaching the structured settlement and the annuity contract. The SSPAs allow them to do that. The SSPAs require judges to decide whether transfers are in the “best interest” of the payees. Nothing in the SSPAs indicate the annuity issuers or owners have any obligations.

HINDERT: “Anti-assignment” clauses are discussed and debated in both the of New York State Court of Appeals majority and dissenting decisions. Stephen, what are “anti-assignment” clauses and why are they utilized in structured settlement documents?

HARRIS: Anti-assignment clauses were originally utilized to prevent the payee from incurring an economic benefit as a result of the annuity funds. That is why they benefit the annuity issuer and owner. Without those provisions, insurance companies couldn’t provide tax-free benefits to the structured settlement recipients.

STONE: The anti-assignment language in IRC 130 provides that the payments cannot be “accelerated, deferred, increased or decreased.” That is the only language related to economic benefit provided by IRC 130. The Cordero structured settlement agreement states in relevant part: “nor shall the plaintiff Cordero have the power to sell or to encumber same or any part thereof by assignment or otherwise.” That language is not a requirement of IRC 130. That language goes beyond IRC 130. If you talk to personal injury attorneys, they will all tell you the anti-assignment “power” language is put into settlement agreements to protect the beneficiary of the structured settlement and “power” means power.

HARRIS: “Power” language has appeared in other cases similar to Cordero. In those cases, the courts have ignored the “power” language and have just referred to the anti-assignment clause. “Power” language has no impact on anything. No court has ever said “Oh, its ‘power’ language so we are going to prevent this transfer.”

STONE: If you apply the “plain meaning” doctrine, you will get the plain meaning and it means that Cordero did not have the power to do what he purportedly did. It is time for the courts to wake up and realize that legal fact. Otherwise, it will be necessary to amend the settlement agreements and assignment agreements to put in more punitive language that would shift the burden away from the personal injury victim.

HINDERT: Eddie, just so we are clear, can you summarize once more the relationship between “power” language in a settlement agreement and IRC 130?

STONE: “Power” language does not apply to IRC Section 130. The only related requirement for IRC Section 130 is the statement “the payments cannot be accelerated, deferred, increased or decreased.” Stephen is correct. That language in IRC Section 130 is there to prevent “constructive receipt” or “economic benefit.” Annuities have been given their tax benefit because insurance companies told congress structured settlements would protect settlement awards from dissipation. What the Cordero case shows us is the structured settlement laws are not effectively accomplishing that anti-dissipation objective.

HINDERT: The Restatement Second of the Law of Contracts says that an “anti-assignment” clause is for the benefit of the obligor – unless a different intention is manifested.

The majority refused to accept that Cordero’s “no power” anti-assignment provision was, at least in part, for his benefit – meaning Transamerica (as annuity issuer and obligor) had the sole right to enforce or waive the anti-assignment provisions.

Stephen, assuming you agree with the majority, how do you justify the majority’s anti-assignment argument when, as Eddie has stated, structured settlement public policy is premised on preventing dissipation?

HARRIS: The reasoning behind the majority’s anti-assignment argument is based on New York state law cases and the expectation of the parties when the agreement was made. And that expectation did not include that the annuity owner issuer would object 20 or 30 years down the road if the payee decided he wanted to transfer payment rights. That is the crucial issue. If you made the annuity issuer and owner obligated to police future transfer transactions that would create a fiduciary duty that does not otherwise exist. You have Transamerica, as an annuity owner and issuer, who at no time had any direct contact with Cordero. You cannot create a fiduciary obligation out of nothing.

HINDERT: Eddie, do you agree with Stephen?

STONE: I agree with Stephen on the narrow holding of Cordero. Imposing a duty on Transamerica to object is a stretch under the facts of this case. The broader question that was not answered is what duty should an annuity issuer have when it issues a structured settlement annuity? That question was not answered in the Cordero case but hopefully will be in a future case.

HARRIS: The dissenting judge attempted to provide Cordero with a new cause of action during oral arguments. Cordero’s counsel agreed saying “yes” Transamerica should have disclosed. However, Cordero’s appellate counsel was not involved in the underlying case and probably forgot that discovery had been completed and no timely issue had been raised that Transamerica should have disclosed. When the dissenting judge goes off on her tangent about failure to disclose, the other judges disagree because that argument was never pled. If Cordero had previously pled a failure to disclose perhaps more judges would have supported the dissenting judge.

HINDERT: Eddie, in your previous answers, you have suggested changes in business practices are needed to prevent the types of problems that occurred in Cordero. What do you and Stephen suggest?

STONE: Let’s start by asking “what is a structured settlement?” You have a structured settlement agreement from which all of the rights and duties of the parties emanate. Without a settlement agreement, and the qualified assignment agreement thru which duties are delegated, you are not going to have a structured settlement annuity. To address the problems we have discussed in the Cordero case, the settlement agreement and qualified assignment agreements themselves need to more specifically address factoring transactions in a way that gives some sort of remedy to the plaintiff if violations occur.

If you want the “no power” anti-assignment clauses to protect plaintiffs, you have to put additional provisions in these agreements that provide notice to the plaintiff’s attorney and liquidated damages against factoring companies for failure to comply with the spirit and letter of the SSPAs plus a private right of action for any violation of IRC 5891.

Unless the IRS brings an action, IRC 5891 has absolutely no teeth even though it is a prerequisite under every SSPA. And the IRS rarely brings any action for violation of IRC 5891. So I would recommend that personal injury lawyers start drafting stronger provisions in settlement agreements and insist upon stronger anti-assignment provisions in qualified assignment agreements.

When you entrust insurance companies with billions of structured settlement dollars, is it in a trust, is it trust-like, is it fiduciary or fiduciary-like? There needs to be some responsibility linked to the structured settlement dollars when insurance companies receive structured settlement premiums the sole purpose of which is supposed to be to protect settlement awards from dissipation.

HARRIS: The problem is the factoring companies. Because of the Cordero case, some annuity issuers have changed some of their business practices. At least one company is now objecting if they have lead paint victims who are seeking transfers. We have tried judicial education to get the judges to become more proactive. New York by far is the best state for dealing with factoring. That is why it was the best state for the Cordero case. The judges in New York understand factoring. They know what the issues are.

STONE: Stephen, would you oppose legislation that required notification to the personal injury attorney?

HARRIS: I would be OK with that.

STONE: What about requiring individuals involved in repeat transactions to be represented by counsel and not allow waivers? Ninety-nine percent of the transactions I have seen have had a waiver of professional advice.

HARRIS: In Virginia, judges have read “independent” out of the existing statute. So, counsel for the plaintiff does not need to be independent.

STONE: There have been other cases where attorneys have gotten in trouble because they have not actually provided “independent” professional advice. Actions were brought against these attorneys under state consumer protection laws. Waiver of professional advice should not happen especially in situations involving multiple sales. Plaintiff attorneys should also be given notice. There needs to be a penalty for knowing violations of the SSPAs that are punitive including attorney fees and liquidated damages.

HARRIS: What about requiring factoring companies to be licensed? The people who object to licensing generally are the owners of smaller factoring companies. Perhaps there could be a tiered system of costs for licensing to account for a company’s size.

STONE: Licensing would get rid of at least one evil. All of the factoring companies use some sort of special purpose vehicle (SPV) to acquire structured settlement payment rights. For the most part, these SPVs are not the factoring companies themselves.  If someone files a lawsuit against one of these SPVs, they are often suing a company that no longer exists and they have no recourse. Licensing might take care of that problem.

[Stone and Harris next respond to questions from Webinar Attendees]

QUESTION: Is it too late for Cordero to sue the factoring companies?

STONE: I think so. I am not an expert on the Florida Statute of Limitations. However, unless you can bring a claim for Fraud on the Court, which I can tell you from experience is difficult to win, most of the other claims will have been time barred. Stephen, when was the first case filed?

HARRIS: 2018. And in terms of Florida’s Statute of Limitations, we found that all but Cordero’s last transfer would have been time barred by Florida’s Statute of Limitations.

STONE: OK. When were the first transfer petitions filed?

HARRIS: The first transfer was in 2012 and the last was in 2014.

STONE: Yes, so except for Fraud on the Court, most other actions would now be time barred. And it does not appear that Fraud on the Court is a valid claim here.

QUESTION: Does IRC 5891 overrule “power” language in settlement documents?

STONE: IRC 5891 doesn’t overrule “power” language. IRC 5891 is supposed to be a punitive statute that imposes an excise tax if a factoring company does not obtain a “Qualified Order.” However, I have very rarely seen that excise tax enforced. So, I don’t think it overrules “power” language which is a question of state law.

QUESTION: If a plaintiff is represented by counsel and there is no minor involved, why should the life company go further to determine the plaintiff’s competence – especially when no state will allow someone who is not competent to enter into a contract? Should a life company question an attorney’s competence in every case?

HARRIS: The fact that Cordero brought the lawsuit in his own name is for me determinative. I took Cordero’s deposition. He is a normal functioning human being. I think Cordero knew what was happening when he transferred his payment rights.

STONE: People who have impairments might understand a number of things but not understand a complex financial transaction. If you have ever read factoring company documentation, it contains a lot of information even persons on this call would not easily understand.

HARRIS: I think Cordero understood he was selling payment rights at a discount and he was receiving a lot less money than if he waited for future payments. That is a relatively easy concept to understand.

STONE: I don’t know if he did or did not understand. I know that some clients I have represented have clearly not understood what they were doing.

QUESTION: Can a settlement broker be sued for putting all of a settlement into a structured settlement annuity?

STONE: Yes, there have already been a couple of those lawsuits involving Executive Life of New York brokers. However, what is the intent of the question? Is the question, should people diversify and not put all of their money in one product? Or is the question factoring related?

CLARIFICATION: What type of risk do brokers have in Cordero type situations?

STONE: What structured settlement brokers should be concerned about is what some people call “JG Wentworth proofing settlement agreements.” Are there ways to make settlement agreements more powerful tools to protect periodic payments from dissipation? What language can you put into a settlement agreement to make it more powerful? Should you consider using settlement trusts as structured settlement payees? In serious cases, periodic payments need to be protected not just from predatory factoring companies but also from family members.

HARRIS: I agree with Eddie that there needs to be more emphasis on the settlement process and the brokers need to be more involved with monitoring what happens down the road with the structured settlements they help set up.

HINDERT: What advice do either of you have, or what best practices do you recommend, for annuity providers based upon the results of the Cordero case to help limit factoring and factoring abuses?

HARRIS: Here are steps some companies have already taken: limiting the number of transfers; setting a time limit by, for example, not accepting a sale within a year of the most recent transfer. Some companies will bring information about cognitive deficits to the courts’ attention if that information is in their files. Very few companies are likely to just ignore transfers following the Cordero case.

STONE: As I have already recommended, you need to put provisions in settlement documents that allow the settlement recipient to receive liquidated damages, attorney fees and penalties if there are violations of the SSPAs. Although the SSPAs make it the responsibility of the factoring company to comply with the statute, generally there is no penalty for non-compliance. And the recourse option is asymmetrical if an injury victim has to sue a factoring company because a factoring company generally has thousands of transactions and an individual usually only has one structured settlement.

HINDERT: Do either of you have any final comments about the Cordero case or lessons from the Cordero case that you would like to communicate to our audience?

HARRIS: At the SSP annual meeting, when I raised the possibility of insurers being sued by payees if they intervened and opposed a transfer, there was audible disbelief. During the Cordero oral arguments, however, two of the New York Court of Appeals judges raised that same question. So, I think that issue exists. Can an insurance company intervene in a transaction that a payee says he or she wants without fear of a lawsuit by the payee?

STONE: I would summarize by reinforcing what settlement planners can and should do:  put stronger language in settlement agreements and also insist on language in qualified assignment agreements as well to make it an obligation of the annuity provider to bring material information to the attention of the transfer court when presented with a factoring transaction. And that should be done especially with large settlements which have a protective purpose.

Other recommendations: don’t allow waivers of professional advice and require sellers to appear in court with counsel especially if sellers are doing more than one transaction within a certain time frame as Stephen suggested. And you have to have a penalty when factoring companies violate the SSPAs. There have to be liquidated damages and recovery of attorney fees in the event of a successful recovery if you are going to hold factoring companies responsible for complying with the SSPAs.

HARRIS: The Cordero case would be different now that the Florida SSPA has been amended because Cordero could not have done his transfers in Sumter and Broward Counties. Cordero would have had to petition his transfers in Miami-Dade County where he lives and he would have had to show up in court. Showing up in court in Miami-Dade County might have changed the result.

Stephen and Eddie, thank you both for this informative discussion.