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Strange Bedfellows Reshape |
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By Randy Dyer During the mid-1990s, the structured settlement
industry was in the midst of modest, if unspectacular, growth. With the stock
market surging and Internet companies minting twenty-something millionaires, structures
seemed on the verge of becoming outdated alternatives to a dizzying array of
high-flying investment plans. What a difference a few years makes. Today, structured settlements are among the hot
tickets in tort law. Based on claims settled during the first six months of
2001, the National Structured Settlements Trade Association projects that
structured settlement premiums will increase to more than $7.2 billion this
year, a 20 percent increase over last year’s levels. Moreover, last year was
the structured settlement industry’s best in history, with total premiums
running about $6 billion, or 25 percent higher than in 1999. Perhaps more interesting are the forces driving
that strong growth. During the past three years, a groundswell of support
from virtually every corner of the legal, consumer, and disability
communities has crystallized around structured settlements, giving structures
an important new advantage over other forms of settlements. What is
particularly remarkable about this is how, just a few years ago, a serious
problem confronted the structured settlement industry head-on, threatening to
undermine the traditional security associated with structured settlements, as
well as the industry’s future growth. The story of how the structured settlement
industry responded – effectively turning aside this threat to its existence,
while taking steps that have created strong new demand for its product –
involves a remarkable intersection of law, politics, public policy, and
strange bedfellows. Dramatic Coalescing of Opinion Earlier this year, representatives from nearly
every major organization that advocates on behalf of Americans with
disabilities signed a letter to Congress calling structured settlements,
“prudent public policy and law [that provides] long-term financial security
for injured individuals and their families.” The letter was signed by leaders
from, among others, the National Easter Seals, the National Foundation of the
Blind, the National Organization on Disability, the American Association of
Persons with Disabilities, the National Spinal Cord Injury Association, and
the United Cerebral Palsy Association. What caused so many advocates for Americans with
disabilities to express public support for structured settlements? They were
uniting around a bipartisan consumer protection bill in Congress that would
provide for a stiff federal excise tax on any company trying to purchase
future payments from an injury victim, unless a state court first approved
the transaction. This issue, often termed factoring, has been
around for years, as lottery winners sometimes decided to cash out their
long-term payments to private companies in exchange for cash up front. Around
1995, however, the companies that purchase these payments began to diversify
into structured settlements. They did so through a massive advertising
effort. Government documents indicate that one of these companies ran nearly
34,000 television ads during just the first six months of 1997, and nearly
90,000 television ads during an 18-month period from 1996 to 1997. By
September 1997, this single company had purchased payment streams from
structured settlements totaling more than $430 million. As these types of transactions became more
frequent, so did consumer complaints over numerous aspects of the loan-type
arrangements, particularly the steep discounts to fair market value paid to
the victims. In turn, that caught the attention of state attorneys general,
lawmakers, organizations for the disabled, consumer
advocates, and the structured settlement industry itself. Structured settlement brokers faced a serious
prospect. With one stroke of a pen, a tort victim could sell off the rights
to years of payments – in return for as little as 30 or 40 cents on the
dollar. Lawyers involved in settling tort cases, even ones generally
supportive of structures, began expressing open concern about whether they
could continue to support structures, given the risk that the victims might
be induced to cash them out at huge discounts. In August 1997, Unprecedented Coalition Beginning in 1998, and gathering steam in 1999,
an unprecedented coalition was coming together to defend structured
settlements and the benefits they bring to injury victims. Like the cavalry
in a John Ford western, individuals and organizations from across the legal
spectrum came forward. William T. Robinson, a governor of the American
Bar Association and one of the nation’s leading defense attorneys, spoke out
early and forcefully on structures and why the defense bar should support their
use. “The structured settlement gives all parties peace of mind and a
knowledge that the victim will have guaranteed funding to provide for care,
medical treatment, or basic living needs,” he said. In As noted plaintiff attorney Philip Corboy wrote
in the American Bar Association’s June 1999 edition of Journal, the
factoring issue “has bonded bitter adversaries – tort trial lawyers and the
insurance industry – in a fight to regulate this cottage industry.” That coalescing began to have an impact,
sparking widespread interest in structured settlements and demands that state
and federal lawmakers take action. As the Consumer Federation of America put
it in a 1999 letter to Congress, “Structured settlements have been adopted by
Congress and state legislatures to assure that people who need long-term
medical and other support will get it … . The sales tactics utilized by the
factoring companies, the potential of huge discounts from a fair present
value of the income stream, and the apparent abusive focus on the less
educated … victims of injury cry out for reform.” Throughout 1999 and 2000, as state after state
enacted structured settlement protection laws, a successful pattern kept
recurring. The state insurance association and the state trial lawyer
association would team up with prominent consumer advocates and local
disability activists. This united front became an unprecedented demonstration
to lawmakers that structured settlements had deep support and that further
protection was needed. Indeed, the federal bill that has gained so much
support from insurers, defense and plaintiff counsel, and advocates for the
disabled builds on the impressive state accomplishments that have already
taken place. Since 1997, 30 states have enacted similar consumer protection
laws governing structured settlements. Moreover, since 1999, 38 states have
amended their Uniform Commercial Codes in an additional effort to provide
protections for injury victims receiving structured settlement payments. At Retail Level In the end, however, it isn’t any large public
policy shift that has “caused” the strong recent growth in structured
settlements. Rather, I believe this growth has been spurred by the collective
weight of hundreds of positive testimonials, not just from within the
insurance industry, but from the plaintiff side and from independent third
parties. Typical is a recent case handled by Kevin
Kissel, an EPS structured settlement broker in “At first, I thought the plaintiff attorney was
noncommittal. Instead, he just had no experience with structured settlements
and he was having difficulty controlling the influence of the trust officer,”
Kissel said. Things changed when Kissel presented the attorney a copy of
Jamail’s letter to For those in the insurance industry, the recent
surge in structured settlement growth involves issues greater than just
premiums or liability. It means hundreds, perhaps thousands, of ordinary
Americans are poised to build new, productive lives. s Randy Dyer is the executive vice president of
the National Structured Settlements Trade Association. |
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