In part three of my review on the Executive Life of New York saga I look to begin a shift in the conversation to whether the current lawsuits filed against agents who sold structured settlements in states where ELNY was not approved or licensed for sale, have any hope of success. It is a big issue for structured settlement brokers, planners and settlement experts as a successful court challenge and verdict could impact access to E&O coverage, taint the structured settlement concept and financially impact major players in the profession.
You can check out my prior posts here, as well as part I here. I also want to recommend one of the most comprehensive reviews of the entire ELNY saga by LifeHealthPro which you can access by clicking here. You may also check out another recent Life Health Pro article on the lawsuits by clicking here, although keep in mind Attorney Stone is involved in litigation related to ELNY shortfalls and his commentary should note that fact.
So the final question and analysis revolves around the potential impact of lawsuits brought in Oregon and New Mexico against brokers from two of the industry giants, Ringler Associates and EPS. There is no question but that there will be substantial assets and legal talent brought to the table by each of these entities and I would imagine that simply getting these cases to trial is going to be a high bar to hurdle. You have contracts written decades ago, involving a liquidated company whose records and compliance were probably incomplete at best. As well you will have a situation where defendant owners of the contracts will argue that they were the real clients of the structured settlement brokers, not the annuitants as they were the ones who paid for and owned the ELNY contracts, which in turn funded the structured settlement agreements.
This long standing concept, that the duty of the broker was to the buyer of the annuity, not to the annuitant, is a foundational concept that is poorly articulated to claimants and trial lawyers. Only when a disaster like ELNY occurs does this fact rise to the surface, as the structured settlement profession likes to present an image where in the defendant broker is actually able to represent the best interests of both sides, when in fact they will deny such a relationship exists when issues of coverage and liability are asserted in cases such as this. At the time of the ELNY melt down there were few if any plaintiff experts to assist claimants with the process, and as such in almost every case, the only broker speaking to the parties at settlement were in fact working on behalf of the defendants.
If the lawsuits get past the key legal hurdles of client relationship, licensing, state approvals and other procedure, and get to the court room, it is likely in this post 2008 melt down world that most juries would not be entirely sympathetic to the brokers at trial. The outcome of such litigation is uncertain and only time will tell if these cases do in fact get to a jury. In the mean time the very fact of litigation and the on going reminders of how badly the ELNY rehabilitation was handled, how the liquidation was processed in almost total media silence and the deals simply crammed down on the 800 to 1000 short fall payees, is not news the structured settlement profession wants to have repeated in industry publications, legal journals and internet news services. Everyone really just wants for this to go away, but it isn't going away any time soon.
The sad reality is that this is news that needs to be discussed in order to bring some daylight to the sales practices of that era, the shrouded process by which state's such as NY run insurance company rehabilitation situations, as well as a review of other current marketing practices being pushed upon injury clients that could have disastrous financial impacts on these vulnerable people in the next few years. I believe that the current fad of pushing clients into managed trust accounts due to the low rate of return on structured settlements has yet to with stand the inevitable increase in interest rates on bonds as well as a decline in stock market yields. How many of these post 2008 clients who have been steered toward what ever was salable at the time of settlement, will eventually discover one day that the managed funds they trusted to a structured settlement firm, have declined in value at the exact moment when they need their funds the most?
The fact is that the income tax free structured settlement annuity product is one of the single most successful planning tools ever devised by the financial community, blessed by and enshrined in the IRC and which has rock solid support from Congress over the last 25 years. Unfortunately the careless sales practices and our profession's propensity to shove problems into the closet and hope they go away, has not served us or the ELNY claimants well in this situation. Just as the original ELNY and other life company liquidations brought about pressure at the governmental level to clean up investment, reserve and financial stability at life companies, I would hope this last chapter might bring light to the last major issue in our profession, that being sale practices which often time purport to be in the best interest of the injury victim, but in fact favor the defendants, the brokers and increasingly the investment advisors who simply want control of the assets being structured. A model where the plaintiff injury victim was dealt with under a fiduciary responsibility standard when it comes to the funding of the structure, would go a long way to improve long term success, avoid sales practice issues and remove many of the last lingering problems in the way we use these amazingly effective and powerful planning tools to protect their futures.