Last week those of us in the structured settlement profession were treated to a CBS Evening News story covering the uproar over the purchasing of settlement payments by a number of factoring/settlement purchasing companies. This followed on a series of stories first reported in the Washington Post last year, along with subsequent legislative changes in both Maryland and Virginia tightening the process required for a party to sell their payments to a third party. Among the companies discussed in the report were Stone Street Capital, and interviews with Attorney Earl Nesbitt who is a long time industry spokesman in his role with NASP.
So what you might ask? Isn't it a good thing that the factoring companies are being exposed for alleged abuses? In a way, yes. I don't think I've spoken to a single factoring or settlement purchasing company who doesn't agree that certain abuses needed to be addressed and procedures tightened in the court approvals that already governed these transfers.
However, if you watch this CBS report and take in the sound bites regarding the pathetic lead paint damaged woman they profiled, you can't help but come away from it asking a very simple question. "If she was so clearly impaired and incapable of making even simple decisions, why weren't her funds placed or paid into a trust or guardianship?" This will of course elicit the usual protests from my friends at NSSTA and the structured settlement primary markets that I'm some how implying that the attorney's, brokers and settlement professionals were somehow incompetent. So let me address directly my thoughts on this and some suggestions for trial lawyers and others who wish to avoid seeing their clients sharing equally tragic stories in the future.
- If you have a class of victims who are either incompetent, brain damaged or have a very high probability of being incapable of managing their affairs, you should set up an asset protection trust, a guardianship, a settlement trust, etc. There are multiple ways to insure that the structured settlement payments go into a managed trust where these vulnerable injury victims can be protected long term. Specialized trust companies, such as First Capital Surety & Trust in Milwaukee, WI, offer a wide range of services tailored specifically for personal injury victims that could prevent most of these abuses.
- Be sure to engage a PLAINTIFF settlement planner to work with the trial lawyer, the client and the rest of the team. It has been noted in recent litigation involving a major defense broker where in they stated in testimony that they believe they owe no duty to the plaintiffs for their long term financial protection. Their duty is to the defendants. The solution is to bring in a settlement professional who represents the long term interests of the plaintiff and can assist in the type of planning that protects the future payments. Dual broker arrangements where both parties are represented is the industry norm these days, single broker deals are the exception.
- Don't throw the concept of structured settlements under the bus! The long term, or life time, payment options offered by a structured settlement are ideally suited to injury victims who struggle with decision making, financial concepts and are vulnerable. However, you have to provide a post settlement management process that prevents them from making decisions with out the assistance or approval of a guardian, trustee or adviser. Defense brokers by their very business model do not provide long term, personal service to structured settlement beneficiaries. They have no idea in almost every case that payments are being factored or sold. The client must have a party to rely upon over time to hold off the solicitations to sell their payments if it's not suitable.
- Does a long term guardianship or trust cost some money or potentially reduce the amount allocated to a structured settlement annuity? Yes absolutely it adds cost and may result in less premium for the brokers. However, isn't the benefit of protecting people from unwise and reckless financial decisions well worth the price of having a professional trust company or guardian watch over the assets?
In short, the structured settlement profession, who put the annuity payments in place at settlement, needs to expand the degree of services offered to match the obvious needs of the plaintiff. The best advocate for that is a plaintiff oriented structured settlement expert, of which there are hundreds to choose from who take this long term planning responsibility seriously. The legislative changes are welcome and needed on the sale process, but the structured settlement profession needs to also up their game to not just sell and annuity and wish the claimant luck in the future. We can do better, get paid for it and provide real value if we communicate the message to trial lawyers effectively.