LAW TIMES / APRIL 4, 2005

STRUCTURED SETTLEMENTS BRIEF

PAGE 12

Oversight of details could be costly

BY DARYL LYNN CARLSON

For Law Times

f some clients were aware of how little their lawyers knew about structured settlements, theyd squeal. To use an old clich, the devil is in the details. Done properly, structured settlements are ideal vehicles for resolving personal-injury claims. They can save money for casualty insurers and yield high, tax-free returns for plaintiffs, producing win-win outcomes. But as Bob Nigol, managing partner of Henderson Structured Settlements, points out, there are many details and caveats to putting together structured settlements that are often overlooked. And they can be costly. For example, some, usually less-experienced, practitioners neglect to seek the consent to structure from the casualty insurer during settlement negotiations, only to find, after the fact, that this consent is a prerequisite, without which a structure is impossible, Nigol said. He noted that there are five major life markets for structured settlements in Canada, and some brokers may not be licensed with all five. It is important to select your structure firm wisely and the first question I would ask is, are you licensed with all five life markets? The next question would be

do you have the technical ability to conduct a full-spectrum final brokerage, so as to produce the best result possible? Finally, I would ask whether the firm always, in the final analysis, brokers a structured settlement with this objective in mind, without regard for the commissions paid to them. Assigning the ownership of a structured settlement which a casualty insurer may insist upon, as a condition to providing the consent to structure is also not as simple as it might appear, Nigol said. The assignment of the ownership of a structured settlement is usually done because the casualty insurer wishes to avoid the contingent liability for structure payments made by the participating life company or companies. If they dont want to own the structure, the ownership can be assigned, and there are currently three markets for that, Nigol said, noting that the number of markets has varied over the years. The fee associated with an assignment of ownership is either $2,000 or $2,500, depending on the assignment market used. However, an assignment of ownership might, depending on the structure plan under consideration, impose an indirect cost in terms of a reduction in the income that the structured settlement can produce, Nigol said. An assignment of ownership

restricts the market to one of three life companies. We [as brokers] then can no longer employ all five companies, he said, whereas, without this restriction, a final brokerage of a structure plan could conceivably have all five life companies participating in varying degrees. Its important for practitioners to know these things. Often they think that all an assignment of ownership attracts is a fee, but what it does is actually restrict the market and potentially the income yield. If that consent, which is of benefit to the plaintiff, is conditional upon an assignment of ownership, then again, objectively, there will be costs both direct and perhaps indirect. Who bears these costs is subject to negotiation. Everyone should know this going in, so there are no surprises and problems after the fact. All structured settlement income is guaranteed to the recipient for the term of the plan. Beyond that, structure income can be guaranteed to a beneficiary. Usually this beneficiary guarantee involves one party (e.g., the plaintiff or claimant) naming a person or persons as beneficiary. In a paper entitled Maximizing the settlement money, civil litigator Charles Gluckstein observes that a primary concern with structured settlements is that

at the end of the guaranteed period, or the death of the client, whichever is later, the insurance company that agrees to the structure could become the ultimate beneficiary of any funds remaining in the plan if a reversion clause is forced into the settlement minutes. In other words, he warns, the insurance company your clients used to obtain their settlement is the ultimate beneficiary of those funds. In some cases, says Gluckstein, it could be more appropriate to consider a tax-efficient investment program or a structured settlement coupled with a tax-exempt life insurance policy with an irrevocable beneficiary named to ensure dependents are provided for in the event of uncertainty over payments upon the death of a claimant. But assigning two or more beneficiaries with a concurrent or double guarantee can also extend the range of protection. Hendersons Nigol points out that while structured settlements usually involve a single beneficiary guarantee, there is the option of a concurrent or double guarantee whereby the claimant might name a beneficiary or beneficiaries and the casualty insurer could, likewise, be named as a beneficiary. In the event of death, the beneficiary or beneficiaries named by the claimant and the casualty

insurer would each receive the full amount payable to the claimant for the balance of the guarantee period. According to Nigol, however, there is only one life market for the product and it is only available in reference to a lifetime structure plan. Therefore, as is the case with an assignment of ownership, practitioners should know that a concurrent guarantee may, depending on the plan and market conditions at the time, restrict the ability to produce the best income yield, relative to what could be done with a full five market brokerage. Nigol maintains, however, that despite their complexities, structured settlements are an unparalleled investment option for those about to receive compensatory damages for personal injury or death. My point in drawing attention to the complexities of structures is certainly not intended to deter practitioners, he said. Quite the contrary, I think its incumbent upon all practitioners contemplating the settlement of personal injury or death claims to, at minimum, raise the prospect of a structure with their clients. The complexities need to be recognized and understood, so that the consent to structure can be negotiated on an LT informed basis.

2005 Law Times Inc. Reprinted with permission.