Will the ELNY structured settlement lawsuits lead to an investigation of the NYLB?

In a recently published piece in the online publication "Inside Sources", serious questions were raised for the first time regarding the management of the New York Liquidation Bureau (NYLB) in the matter of the Executive Life of New York insolvency and subsequent liquidation. These questions and issues are some of the first trade or online reporting outside of the claims or settlement profession which has taken a serious look at the ELNY insolvency, the management of the estate both at the time of the takeover by the State of NY Insurance Department, and at the subsequent management which led to a decision to liquidate the company. 

You can access the full article here, entitled somewhat provocatively, as "Andrew Cuomo's secret plan that took from the pockets of 1500 widows, accident victims and handicapped.

While I understand the need for big headlines to draw traffic, I'm not sure I can go so far as to say the intent of the Governor was to wipe out widows, orphans and the injured, but there is no denying that was the result of the actions taken once ELNY was taken into liquidation over the Christmas holidays a couple years back, with almost no notice to trial lawyers, claimants or the press. As the article notes, and as I vividly recall, the venue of the hearing to object to the plan was stuck out in Long Island, ostensibly to make it harder for large numbers of people to get there and object. I have always wondered what the great rush was, after 20+ years of NYLB management, to close the deal over the Christmas Holiday, in an obscure court outside of Manhattan, with almost no time for claimants to review information, obtain counsel and raise serious questions or objections to the plan. It looked like it was railroaded on a fast track for a reason, but what that reason was remains unclear two years later. 

Clearly the author of the article is looking for a deeper investigation as to why the decision was made at that time, how the payout arrangements were arrived at and more importantly how a prior deal worked out just years before, to great acclaim, had come financially unwound so quickly at a time in which the stock market was rebounding from the 2008 meltdown and bonds were in the early stages of yet another massive rally in value. How was it that the previous plan, which was to assure all parties of full payment, vaporized at almost light speed? Or was that previous plan, put in place by then Governor Elliot Spitzer, based on flawed actuarial and investment assumptions which never had a chance to come true, and thus was nothing more than a cruel mirage to placate injury victims at that point in time? The fact is, as the article points out, that the entire process was then, and is now, shrouded in secrecy and no one is talking. Even those of us in the structured settlement profession have had to rely on press release information from our trade association to glean some of the facts, while only a few intrepid souls even bothered to report on the hearings and subsequent haircut the 1500 took in various amounts once the plan was put into action. 

Those of us in the settlement profession are used to only getting filtered information from our trade association, which in my opinion, has largely done the bidding of the few major structured settlement brokerage firms that wrote the bulk of structured settlements over the last 25 years. We have become accustomed to getting an executive summary of actions after the deals are cut. However, now a series of lawsuits from angry ELNY plaintiffs who were short changed in this deal, with almost zero information as to the reason why it happened, are going showing up in court looking for answers. These victims and their counsel want to reveal in court the process by which the meltdown at NYLB occurred, why the process of objection was railroaded so quickly and why it is still covered by confidentiality agreements. I am sure as discovery takes place in these lawsuits, uncomfortable questions will need to be answered as to the entire deal, not just the sales practices of a few brokerage firms in the 1980's.

 As I have often said, if the sales practices and tactics of many firms from that era were ever held up to examination in a court of law vs. a quiet debate among those in the settlement profession, a lot of necessary daylight would be shone upon both past and current sales practices. Only in such an environment which gets rid of the "family secrets" of the past will we be able to have a serious debate as to how to best use these wonderful planning tools going forward and how to use them in a fashion that truly benefits the injury victim, who ultimately relies upon them for their very financial existence. Discussion on and about the entire sad ELNY saga from 1985 to the present day is a healthy thing for the structured settlement profession and should not be avoided out of fear it might embarrass a few key industry players.

Mark Wahlstrom is a 30 year veteran of the structured settlement profession and his commentary appears on The Settlement Channel as well as on The Legal Broadcast Network.

Westrope and Kelly v. Ringler Associates Inc, regarding ELNY structured settlement shortfall. A win for the plaintiffs

In a decision dated 12/5.14 in US District of Oregon, in the case of Marie Westrope and Reggie Kelly v Ringler Associates Inc, Paul Hoffman, and DOES 1-100, for the first time in my professional life I saw a court dismiss the arguments of defense brokers regarding no statutory or fiduciary duty of care to plaintiffs and instead determined, that under Oregon law, that defense structured settlement brokers owed plaintiffs a special duty of care under a third party beneficiary theory. 

A full copy of the the decision is available here, or you can search under Case No. 3:14-cv-00604-ST, USDC, Oregon, Portland Division, Magistrate Judge Janice M. Stewart. 

What does this all mean for plaintiffs in the Executive Life of New York litigation which seeks' class status in 26 states, where it is alleged that Ringler Associates brokers sold ELNY contracts using qualified assignments which exposed plaintiffs to excessive financial risk and which relieved defendants of liability to fund payments in the event of an insolvency, which in fact is what occurred in 2013. 

What is stunning about this to me is that for the first time in decades we had a major annuity brokerage firm arguing passionately that when they are working on a structured settlement, they are in fact working specifically on behalf of the defendants and "that defendants (Ringler) owed no fiduciary duty to plaintiffs as their broker", a finding the court agreed with factually and which should be a reminder to trial lawyers all over the country that just because a defense broker says he is working for you, when pressed in court they will vehemently deny that they have ANY duty to you or your injured client what so ever.

Instead of fiduciary standards of care, the Court this time found that Oregon law provided a level of care responsibility for the broker to be held, as the annuity, while purchased and funded by the defendants, was an " annuity intended to benefit plaintiffs and the broker signed both applications". ( emphasis added by the court). This status as benefits intended for plaintiffs thus demanded a heightened duty of care from defendants and to exercise reasonable care in the procuring of structures settlement annuities. As such the negligence claim asserted by the plaintiffs survived under Oregon law due to their status as third party beneficiaries. Again, what this means is that a standard of care was recognized by the court in this decision that prevented the standard industry defense that their client is the defendant and they have no duty to the plaintiff, an argument plaintiff experts have been pointing out to trial lawyers for decades as to why they must engage their own experts to protect their clients in a structured settlement negotiation. 

Not all the news was bad for the defense as the court found that Ringler did NOT have a continuing duty to inform plaintiffs over time of ELNY's declining financial condition, as their was no way the contracts could be surrendered or replaced after issuance. However, I do find it interesting that no one raised the issue that a robust secondary market for the sale of ELNY contracts existed for much of the later part of the 1990's and early 2000's based on the fact it was protected income under the supervision of the NYLB at that time. Possibly that will be pled again at a future date, or the more likely the plain language prohibiting surrender and commutation, will be sufficient to win this argument every time for defense brokers. 

Also, another clear win was on the statutory issue of whether or not brokers have liability for contracts written on behalf of beneficiaries in states where Executive Life of NY was not approved for sale. The court found clearly that was a violation of statutory law and allowed it to go forward as part of the case and complaint as well. 

I will cover this case again later this week in a video commentary, but suffice it to say that ELNY class action litigation was not killed in motions to dismiss and now will move to a district judge, with objections due Monday, December 22, 2014, and with responses due with in 14 days after that. 

The bottom line here is that the mythology that defense brokers working for defendants will be able to safely hide behind the "no fiduciary duty" argument in perpetuity, has for the first time been exposed. Whether the magistrate judges ruling and thinking on this carries forward to US District Court and to trial remains to be seen. However, I will state again the key point for trial lawyers and that is you need to get your own advisor and stop using defense brokers if you want to make sure that if something like this ever occurs again, that they don't immediately dive for cover behind the kind of arguments which were made in this case so far.

Our profession has come a long, long way since the early to mid 1980's when these contracts were sold, but one area we need to further bolster is greater clarity on who actually has a duty to protect the future of the plaintiff as it is abundantly clear that defense broker argue that they have no such duty in cases such as this. 

Should you use a single premium immediate annuity to "buy a pension" income?

There was an excellent article in the weekend edition of the Wall Street Journal, authored by Matthias Rieker an entitled " Pros and Cons of "Buying a Pension".  You can link to it here but it might be stuck behind the pay wall, so dig around if you can and get a copy. 

Essentially it is a mirror discussion of the issues many of us in the structured settlement profession deal with every day, which is questions as to whether or not the trade off for a safe, secure and fixed rate check is worth the risk that it might erode over time when impacted by inflation. The fact that these single premium immediate annuities are rising in popularity is not surprising to those of us in the structured settlement profession, but it always seems to stun the investment advisory world who hates losing control of assets under management upon which they can charge a substantial fee each year. 

The reality is for those of us who have been in the business of providing guaranteed income to people who DEPEND on regular income and no longer have employment options due to retirement, illness, disability or injury, the value of guaranteed income for life is a huge planning tool and benefit that works for the vast majority of claimants who rationally look at their options. Covering your reasonable monthly expenses and bills with a fixed income is exceptionally prudent, with the balance of your assets invested for growth so as to hedge against inflation and provide for unforeseen or additional expenses as time goes on. I can't tell you the number of people I've seen dissipate lump sums in a short period of time, when a fixed life time income could have saved them from financial issues down the road. 

Take the time to read this, it's a nice collection of facts and ideas and start to question those who make money from managing your assets over long periods of time and charge you a percentage of assets fee while doing so.