Commission theft, or "why do plaintiff experts want to end the defense monopoly."

One of the biggest, if not the biggest issues, in the arena of settlements is the contentious area of who controls the annuity purchase, and who should get paid for the selling, design, placement and servicing of a structured settlement annuity.

Over the last 5 to 6 years it has become increasingly common that brokers on both sides of a case will work out a deal in which the commission for placing the annuity is split in some fashion between them, typically with some greater proportion going to the firm that actually did the selling of the concept, handled the applications and paperwork, and then the eventual placement of the annuity. Still, the greatest source of irritation in the business is the perception, on both sides, that the broker on the other side, is coming in at the last minute, does no work, yet expects a full 50% or more, of the commission. I would hazard a guess that this dynamic is the single greatest issue dividing our business at this time. (I'll save a discussion of approved lists from casualty companies for a future commentary)

In fact, I will further contend that the single largest reason the settlement industry is a flat or stagnant industry as far as growth is concerned is directly a result of the unresolved conflicts between defense and plaintiff interests, and the fact that the vast majority of trial lawyers and their clients are turned off by this unseemly dynamic of fighting for control and commissions, and in many cases not even caring about the injured parties right to representation and input into their financial future.

This was driven home to me the other day when a long running dispute i've been nominally involved in came to a head when the clients, two orphaned young women each under the age of 22, called me to see if they could cash in their annuity contracts after they learned that the defense broker for the hospital that was responsible for their fathers death, had, against their direct wishes and instructions to their attorney, insisted on a commission on the case, and in fact took the ENTIRE commission and reneged on a verbal deal to split it 50/50. It was one of the more obnoxious cases of a broker "insisting on his rights" and basically saying to hell with the clients that I've seen in the last 20 years. Their attorney refused to revisit the deal, saying what was done was done, the plaintiff broker that represented them was powerless to stop this commission grab, and in effect a party that had never even met these young women, and that did maybe 10% of the work, got 100% of the commission, only offering a nominal amount to the plaintiff experts that did most of the work to get this done.

Who do I blame in this scenario? Well, certainly the defense broker who manipulated the system to get paid a great deal of money for very little work is a fault, but I don't REALLY blame him as he's doing what he was taught, and what the system allows him to do, which is to strong arm plaintiffs and force his will on the transaction. In this instance I blame the plaintiff broker who worked the case almost as much, for over playing his hand, trying to freeze out the defense and implying to his clients that he had the situation under control, when in fact, he didn't. Yet,despite all that, I save my greatest blame for this situation for the various life markets, who I think usually want to do the right thing and make sure brokers get paid and that their policyholders are happy, but, and it is a big BUT, they are handcuffed by archaic general agency agreements that long ago inserted language stating in effect that " whoever brings the premium check is considered the broker of record"  and this provision  largely freeze out plaintiff experts as virtually all premium checks were then, and are now, written by the casualty company and sent through their broker. Thus, when push comes to shove, the defense broker knows the plaintiff is left to beg for a few scraps even after they have spent weeks selling the concept, attending conferences, etc, as the contract in place clearly gives the power to the defense interests and they know they can always go to "the nuclear" option and just seize the commission, which is what happened here.

While self policing and professional standards would be the best solution to most cases, i.e. gentleman agreeing on a fair split, the fact is that many cases still are resulting in strong arm tactics to place the annuity and exclude advisors, and when that happens all it does is embitter the advisor, increase the use of 468B trusts and alternatives to annuities, and drives otherwise decent professionals out of the business or to more profitable areas. I am utterly convinced that the explosion in trust products and alternatives to structures is a direct result of one too many advisors being short changed, and the cumulative effect is fewer and fewer advocates of structured annuities, which is a long term planning disaster, as it is still the single most effective financial tool for the typical claimant in planning their financial future.

It is naive to think that a party in such a position of power is going to willingly relinquish that power, and as long as it stands as life company policy, you can not have a fundamentally fair negotiation between the parties representing plaintiffs and defendants. My suggestion is that NSSTA and SSP  stop throwing rocks at each other, and looking for ways to continue or create new levers that disenfranchise either the plaintiff or the defense, and instead begin to take a hard look hammering out a code of ethics on commission sharing that all parties can buy into, or the explosion in alternative investments and trusts is going to continue to sweep over our industry with both the plaintiff, the trial lawyer and the life insurance industry as the ultimate losers.  

Comments

[Michael Kaplen, Esq.]

Well said. Unfortunately in negotiating some very large structures for my clients with brain injury, I have come up against this issue on many occassions. I have always taken a very hard line up front, that I insist that my own broker be part of the negotiation and share in the commission. When I get a refusal, I inform the carrier and the defense broker of the antitrust laws, civil rico, the state insurance code and the New York General Obligations Law provision which requires me client to seek indendent advise. If they still refuse (which none have) then no structure will be done with them and I will report them to insurance commissioner and the Judge handling the case.

I suggest this approach to your readers. It is unfortunate that many of my collagues back down rather than fighting for their clients and seeking independent advice.

Michael V. Kaplen, Esq.
De Caro & Kaplen, LLP
President, Brain Injury Association, NYS
Past Chair, ATLA Motor Vehicle, Highway and Premise Section
Past Chair, ATLA Traumatic Brain Injury Litigation Group
Past Chair, Tort Section, New York County Lawyers Association
Member, NYS Traumatic Brain Injury Services Coordinating Council
Certified, Civil Trial Advocate, National Board of Trial Advocacy
20 Vesey Street
NY NY 10007
212 732 2262
mvk.brainlaw@verizon.net
www.braininjury.blogs.com

[The Settlement Channel]

Michael,

Thanks for your response and boy you hit the nail on the head. If more trial lawyers took the approach you take, of being informed, knowing the issue, but more importantly being able to call the bluff of the defense, think how much better of so many plaintiffs would be. In the case I mentioned, the lawyer was afraid to take on the defense, didn't force them to honor a provision allowing them to select their own advisor, and then refused to help in undoing the structure when the clients asked to cash out. Thanks for your forceful advocacy of your clients, i'm sure they appreciate it and are better for it.

[Jack]

Mark, I think your aim at the life markets is misplaced. While we'd prefer they step in and play policeman, they have no legal basis, no privity of contract for doing so. On what basis do they determine who gets what? Having been on the receiving end, it's always a "he said, she said" scenario, and honestly, they're in no position to know how much or how little work you or I do on a case. And don't you think they'd be inclined to side with the big firms anyway? Or risk retaliation? We, the brokers, need to police ourselves. I agree that we need NSSTA and SSP to step up and show us the way. Both organizations have new leadership...let's see what they can do.

[John Darer]

Mark,we've actually seen great broker cooperation in the New York Metropolitan area and in most of the Northeast. The situation you describe would only happen in NY involving one particular insurance company that purportedly forbids its approved brokers to share commissions with brokers appearing on the plaintiffs behalf.There seems to be greater friction in CA and TX but even there I have had no problems personally.My firm and one other employs a structured settlement affidavit in all of our cases and this cleans up the process from the perspective of all.The Court in Bronx County requires such an affidavit but we do it voluntarily.

I agree that rock throwing is destructive but in my opinion more destructive rock throwing is being done by SSP against NSSTA, an organization inaccurately portrayed as defense only but actually includes brokers who serve plaintiffs only, defendants only or both. The NSSTA has some interesting new initiatives and I think that brokers of all types should participate and support some of the new ideas being bandied about.

I am starting an apolitical structured settlement/settlement planning "think tank" whose sole purpose is "to innovate". Conceptually it will be open to all brokers with an open mind. Naysayers need not apply. It will be the case of "those who think it can't be done should move out of the way of those who are doing it". It will be fun, constructive and permit its participants to leave a positive mark on the future of the industry. Please contact me for further details if you wish.

Attorney Kaplen is quite right about the NY GOL and laws in effect in FLA, MN and MA would seem to be similarly useful if obstacles arise.

[The Settlement Channel]

John, I think the idea of an open forum think tank is long overdue in our industry. There has been a great deal of intellectual stagnation, and most of the energy has been in fighting opposing view points and factions in the business, instead of the development of new products, markets, methods and human capital. I'll get in touch with you on this. As to NSSTA becoming more balanced and looking at the totality of the business, I'd agree with you that it has made a lot of strides in that area. Hopefully it continues.

Jack, I think we agree that the companies are NOT going to be the source of the solution on commission disputes. Your points are right on. I do think if we want a solution we could do worse then to look at what I consider to be the premier industry association, The Million Dollar Roundtable, and look at how they handle it. They have a model that members agree to abide by in handling commission disputes, allocation of commissions, sharing business, etc. Our problem is we haven't even taken the first step to formulating a model, and until we do as an industry, we will continue to look ridiculous to the professionals and clients we serve.