In a structured settlement, there may be several insurance companies involved. One company will own the annuity policy. The annuity will be issued by another company, often a related one. And there is an issuer making the payments. Dallas attorney Matt Bracy how the various parties are involved in the sale of a structured settlement in this report.
Under the structured settlement laws of various states, these companies are called interested parties. Being an interested party means that a company receives official notice when any attempt is made to transfer ownership of some part or all of a structured settlement, including the date and time of the court hearing for approval of the transfer. Bracy says that, over the years, some companies have developed their own standards, their own criteria, for what is a proper transfer of a structured settlement. If a would-be seller doesn’t comply with these standards, the companies may object.
Bracy says he doesn’t understand why issuers feel the need to participate in the sales of these settlements. His conclusion is not that the companies are acting out of any bad motives but are rather trying to figure out what a sale would mean for them. Similarly, courts often struggle to figure out how the best interest standard applies to a particular case and what the court should do. Bracy suggests that sometimes, insurance companies go too far in their involvement in proposed transfers.
By adding its own standards to those imposed by statute, an insurance company is adding extra burdens to the sale of a settlement. If a company is not satisfied and objects, that can cause a delay in the proceedings. A court will listen to such objections and may deny a transfer because of the objections. And that is problematic for everyone.
Bracy points out that people with structured settlements who contact a factoring company have an immediate need for cash, a need that was unanticipated. The need for cash is immediate. So any time there is a delay in the sale process, it harms the person trying to make the sale. The possibility of an objection is a hammer that insurance companies hold over the head of the factoring companies.
By way of an example, Bracy mentions Allstate Insurance Company. Allstate has what it calls the six-month rule. What the rule means is that, if a seller has completed a transfer within the last six months, Allstate will object to an additional transfer. Bracy says he understands the notion that a person should not treat a structured settlement “like an ATM machine.” The problem with that rule, Bracy says, is that it ignores the inability of any person to predict what will happen in the future. When people are sitting around the table at a conference setting up a structured settlement that will pay out a certain dollar amount every month, there’s an assumption that the monthly amount will be adequate. And over 90% of the time, things go as anticipated.
However, when things don’t go as planned, structured settlement beneficiaries should have the right to sell future benefits for present cash. For a company to stand in the way of such a transfer is offensive in several ways, Bracy opines, and one of them is that the company is arrogating to itself an authority that rightfully belongs to a court. Bracy says he doesn’t know of a court that has bowed to the six-month rule.
Matt Bracy is a partner in Scheef & Stone, L.L.P., Dallas, Texas, representing businesses and business owners in the areas of general business law, contract negotiations and drafting, business formation, transactions, collections, commercial litigation and government relations. Over his career he has represented diverse businesses and individuals in private practice, and in-house as General Counsel and Director of Government Relations for multi-million dollar companies. The Factoring Channel is a featured network of the Sequence Media Group.