Structured Settlements

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The August, 14, 1995 issue of the National Law Journal has a thoughtful article by Gail Diane Cox on structured settlements - "Life After Victory: How To Insure a Win." Cox points out that with the demise of double digit interest rates and several insurance companies there is a growing concern by plaintiff lawyers about malpractice liability if a structure goes into default. This has led to a switch from defense brokered structures to plaintiff designed packages. As argued by plaintiff brokerage services, letting the defense take the lead in designing the structure is like letting the mice guard the cheese. The fear is inflated annuity costs, use of insurance companies with inferior ratings, use of a structured settlement when a lump sum is more advantageous to the client, and creative valuation tactics similar to the addendum to the sticker price on a new car (e.g., including tax savings as part of direct compensation). Pro-plaintiff structures include provisions for secured creditor status, spreading the annuity among several insurance carriers, and accommodation of lawyer fees on the basis most favorable to the client.

The July 1995 issue of the Oregon State Bar "In Brief" includes this checklist for evaluating a structured settlement by Jack L. Meligan, Certified Structured Settlement Consultant, Settlement Professionals, Inc., 1001 SW Fifth Ave., Suite 1410, Portland, Oregon 97204 (1-800 666-5584):

1. Does the structure meet the present and future needs of the client?
2. What are the names of the annuity company and the assignee company (they should be different)?
3. Do the annuity and assignee company have top ratings from four of the five rating services? (A.M. Best - no less than Class A+; Standard and Poors - one of the top 4 ratings; Moody's Investor Services - one of the top 4 ratings; Duff & Phelps - one of the top 4 ratings; Weiss Research - B or higher rating)
4. If the assignee company does not have assets of its own, what additional protections are available? (Protections might include corporate board guarantees, secured creditor status, or a surety bond.)
5. Is the annuity funded by the United States Government obligations? (An alternative to getting a company which has excellent ratings from four services.)
6. Is the company writing the structure admitted to do business in the state of Oregon [Kentucky]? Will the structure be protected by the Oregon Insurance Guaranty Association [Kentucky Insurance Guaranty Association]?
7. Is the claimant being "rated-up" for age because of health impairments ? This means that the biological age, rather than the chronological age of the claimant is being used for the purposes of calculating the annuity. This could effect the annuity cost substantially.

Also helpful is KBA Ethics Opinion E -339 (1990) which gives guidance on the proper way to compute contingent fees in structured settlements. The fee agreement should specify whether the lawyer's fee is to be paid in a lump sum or incrementally. If in a lump sum, it should be based on a percentage of the discounted present value of future periodic payments.

Is the company writing the structure admitted to do business in the state of Oregon [Kentucky]? Will the structure be protected by the Oregon Insurance Guaranty Association [Kentucky Insurance Guaranty Association]?

1. Is the claimant being “rated-up” for age because of health impairments ? This means that the biological age, rather than the chronological age of the claimant is being used for the purposes of calculating the annuity. This could effect the annuity cost substantially.

Also helpful is KBA Ethics Opinion E - 339 (1990) which gives guidance on the proper way to compute contingent fees in structured settlements. The fee agreement should specify whether the lawyer’s fee is to be paid in a lump sum or incrementally. If in a lump sum, it should be based on a percentage of the discounted present value of future periodic payments.