Structured Settlements – Seattle, Washington and Buffalo, New York

Should You Pay the Plaintiff's Medicaid Lien? (August 2010)

Recent Court of Appeals Decision Addresses Intervention (January 2009)

"Neutral" Brokers – Who is Truly Loyal To You and Your Client? (March 2009)

The Hidden Dangers of Recovery Rights with Self-Funded Employee Benefit Plans (February 2008)

Self-Funded Employee Benefit Plans: Wal-Mart Update (March 2008)

Confidentiality Clause Cautions (May 2008)

Using Rated Ages to Maximize Structure Benefits (May 2008)

The Benefits of Structuring in a Downward Spiraling Economy (July 2008)

The Risk of Dissipation in Troubled Financial Times (October 2008)

Beware of the Medicare Super Lien! (January 2006)

Medical Underwriting: What The Defense Wishes You Didn't Know! (September 2005)

THE SMOKING GUN! (September 2005)

ATTORNEY AND GUARDIAN AD LITEM (GAL) SUED FOR FAILING TO PROPOSE A STRUCTURED SETTLEMENT: CLAIMS SETTLE FOR $4.1 MILLION (September 2005)

How much does that structured settlement really cost the defense? (September 2005)

To Fee or Not to Fee? - Is Structuring Attorney Fees Right for You? (December 2005)

Should You Pay the Plaintiff's Medicaid Lien?

Many attorneys and agencies have interpreted the U.S. Supreme Court’s decision in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268,126 S.Ct. 1752 (2006), to mean that, Social Services agencies may be entitled to a lien on only that portion of personal injury litigation proceeds that reasonably represents the past medical portion of the award or settlement. In fact, the New York State’s Office of Medicaid Management published a memorandum dated September 14, 2006, which has confirmed that limitation, as applied in New York Cases.

Since Ahlborn was decided, some trial courts have held allocation hearings to determine the medical portion of a recovery, so that the Medicaid ‘lien’ could be computed. Recently, in Homan v. County of Cattaraugus Department of Social Services, 74 A.D. 3d, 1754, 2010 WL 2332742 (N.Y.A.D. 4th Dept.), New York’s Appellate Division, Fourth Department, rejected the theory that one could avoid a Medicaid Lien by settling for “pain and suffering” only, and sent the case back to the trial court for such an allocation.

However, for almost four years now, I have taken the position that Ahlborn gave us much more guidance, and implied, that the various Medicaid agencies might not be entitled to any “lien” against personal injury
proceeds-even on the portion of the proceeds that reasonably represents medical payments:

“Read literally and in isolation, the anti-lien prohibition contained in §1396p(a) would appear to ban even a lien on that portion of the settlement proceeds that represents payments for medical care.” Ahlborn, 547 U.S. at 284-285

The Federal Anti-Lien Statute is but a piece of the Federal legislation, which governs a state’s use of Medicaid funds. Specifically, 42 U.S.C. §1396p states in relevant part:

“§1396p. Liens, adjustments and recoveries, and transfers of assets.
(a) Imposition of lien against property of an individual on account of medical
assistance rendered to him under a State plan
(1) No lien may be imposed against the property of any individual prior to his
death on account of medical assistance paid or to be paid on his behalf under the
State plan…”

Last year, the Federal District Court for the Western District of Pennsylvania, citing Ahlborn but, relying on the clear mandate of 42 U.S.C. §1396p, declared parts of Pennsylvania’s Medicaid recovery statute void. This was true, even though the Pennsylvania statute had recently been modified to attempt to comply with Ahlborn by limiting the local Social Services agency’s recovery rights to that portion of the award
that was related to medical expenses.

In Tristani v. Richmond, 609 F. Supp. 2d 423 (W.D. PA Mar. 25, 2009) (No. CIV. A
06-694) the Court, in an exhaustive review of §1396p, found that,

“The court holds only that the assignment provisions of Title XIX do not provide the DPW with a license to ignore the clear, unambiguous mandates of the anti-lien and anti-recovery provisions when the DPW
chooses to remain on the sidelines in actions commenced by Medicaid beneficiaries against liable third parties.”
Tristani, 609 F. Supp. 2d at 473.

Furthermore, the Court found that,

“The liens imposed by the DPW against the settlement awards obtained by Tristani and Valenta contravened the anti-lien provisions, and the payments extracted from Tristani and Valenta by the DPW
contravened the anti-recovery provisions.”
Tristani, 609 F. Supp. 2d at 471.

Over the past several years, even before Tristani, some of my clients had used this argument to significantly reduce or eliminate the plaintiff’s Medicaid “lien”. It is my belief, that with Tristani’s indisputable logic in hand, every plaintiff’s attorney should consider making the same argument (i.e. the Supremacy Clause prevents giving effect to a state lien which conflicts with the Federal Anti-Lien Statute) until the issue is resolved with finality.

Let there be no mistake about it: the Courts will do everything possible to protect the state’s interests in these recoveries, especially where state recovery statutes have been modified to conform to the allocation view of Ahlborn (see, Andrews v. Haygood, 188 N.C. App. 244, 655 S.E.2d 440 (N.C. Ct. App. 2008), Russell v. Agency for Health Care, 23 So. 3d 1266 (Fla. 2d DCA 2010), and Scharba v. Everett 2010, WL 1380121 (M.D. Fla, Mar. 31, 2010) (No. CIV. 1294-T-33). But, Ahlborn does not control since, there, it was stipulated that a lien existed.

Remember, this does not mean that the Department of Social Services cannot proceed directly against the responsible parties. However, when they sit back and do nothing, they may be precluded from obtaining a recovery from the plaintiff’s proceeds.

I recommend that plaintiff’s counsel make the argument. There is nothing to lose.

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Recent Court of Appeals Decision Addresses Intervention by Health Insurer Asserting a Claim for Equitable Subrogation

The New York State Court of Appeals in the case of Fasso v. Doerr (2009 NY Slip Op 01320) recently decided that the subrogation claim of a subrogee health insurer cannot be discontinued without the subrogee's consent, thereby reversing the decision of the Appellate Division, Fourth Department (848 N.Y.S.2d 799, 2007 N.Y. Slip Op. 10217).

By way of background, the Plaintiffs commenced a medical malpractice action against Dr. Doerr and other Defendants. The medical and surgical expenses incurred by the Plaintiffs totaled approximately $780,000, all of which was paid by Independent Health Association, Inc. (IHA). IHA moved to intervene in the medical malpractice action pursuant to CPLR Section 1013 to assert an equitable subrogation claim against Dr. Doerr for reimbursement of the payments made on behalf of the Plaintiffs. Neither the plaintiffs nor the defendants opposed IHA's motion and Supreme Court therefore allowed IHA to intervene and become a party to the case. After the trial commenced, the attorneys for Plaintiffs and the doctor advised the court that a settlement had been reached for the sum of $900,000 and including the dismissal of IHA's equitable subrogation claim on the basis that Plaintiff was not "made whole". But, IHA had not participated in the settlement negotiations, nor agreed to the dismissal of its cause of action against Dr. Doerr. IHA did contest the dismissal of its equitable subrogation claim on the basis that there remained $1.1 million in potential insurance coverage (an amount greater than the $780,000 that IHA sought in subrogation) after payment of the settlement amount. IHA also moved for a mistrial. The Trial Court, in denying IHA's motion, ruled that “[t]o permit [IHA] to thwart settlement would elevate [its] role from subordinate to controlling....” and sua sponte dismissed IHA's “Complaint in Intervention.”

The Appellate Division upheld the Trial Court’s decision by holding “[t]he rights of a health insurer in an equitable subrogation action are derived from the injured plaintiff . . . and a health insurer therefore has no right to control the settlement of the injured plaintiff's action. Here, the settlement agreement between the Fassos and defendant was expressly conditioned on the satisfaction of both plaintiffs' medical malpractice action and IHA's equitable subrogation cause of action. We thus conclude that the court did not err in dismissing IHA's “Complaint in Intervention,” albeit sua sponte.”

The Court of Appeals, in reversing the prior lower court decisions, began by stating : “when an insurer pays for losses sustained by its insured that were occasioned by a wrongdoer, the insurer is entitled to seek recovery of the monies it expended under the doctrine of equitable subrogation.” The Court recognized the made-whole” rule as an important limitation on recovery under the doctrine of equitable subrogation, by stating "the insurer may seek subrogation against only those funds and assets that remain after the insured has been compensated. In this case, as the settlement was not for the entire amount of insurance coverage, the Court reasoned that “the made whole rule did not mandate dismissal of IHA's equitable subrogation claim merely because the Plaintiffs decided to accept a settlement figure that did not completely compensate them for the full extent of their damages.”

As held by the Court. “[o]nce an insurer has paid a claim and the tortfeasor knows or should have known that a right to subrogation exists, the wrongdoer and the insured cannot agree to terminate the insurer's claim without its consent and such an agreement cannot be asserted as a defense to the insurer's cause of action [emphasis added].” Therefore, the provision of the settlement between the Plaintiff and Defendant that purported to bar IHA's equitable subrogation claim could not be enforced and would not prevent IHA from proceeding to obtain reimbursement from Dr. Doerr for the payments it made for Plaintiffs’ medical expenses. The subrogation claim was revived and remitted to the Supreme Court for further proceedings.

It is anticipated that there will be much discussion and debate on this decision in the upcoming days and weeks. The Judiciary, in its decision, specifically instructed that the Legislature “may wish to reexamine the concept of permissible intervention under CPLR 1013 as it applies to personal injury actions involving a health insurer’s claim of equitable subrogation.”

Until that time, one principal is readily apparent regardless of which side you represent, do not take motions to intervene by subrogees lightly, especially if statute of limitations has already run on Plaintiff’s claims. Had there been an objection by the parties in the Fasso case when the motion was argued, perhaps intervention could have been denied along with the equitable subrogation claim.

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"Neutral" Brokers – Who is Truly Loyal To You and Your Client?

Plaintiff attorneys need to be wary regarding the pitfalls of relying on the representations of a structured settlement broker hired by the defendant’s casualty company.

Many casualty companies and defense-loyal structured settlement brokers still believe they have the absolute right to dictate the terms of a structured settlement. A majority of casualty companies insist on using an “approved broker” exclusively to handle the structured settlement transaction. These “approved brokers” are required to comply with the casualty company’s rules in order to continue to receive their business in the future. Such rules may include steeriNeautng settlements to the casualty company’s life insurance affiliate (asset retention), to an annuity company on an “approved list,” or rebating commissions.

While casualty companies are entitled to have representation in the structured settlement process, it obvious that the plaintiff should select and choose the terms of the structure as well as the annuity company. By doing so, a plaintiff can insure that the structure is best suited to their financial goals and avoid having to potentially transfer their structure at a later date to a factoring company for significantly less than the anticipated benefits to be received.

The defendant, the casualty company, and the defense broker are all released from any future liability, so the only one with any exposure and/or potential liability following the signing of the settlement agreement is the plaintiff, and more importantly, you as counsel.

Since many plaintiff attorneys are now wise to the fact that they need to retain their own structured settlement expert, some defense-oriented structured settlement brokers are holding themselves out as impartial “neutrals” or representing that they also so “some Plaintiff’s work”.
A recent tactic of some defense brokers includes offering to sign a home-made, and often self-serving, “affidavit” in an attempt to assuage plaintiff attorneys’ fears. Such affidavits include disclosures regarding the commission paid to the broker, assurances that the plaintiff has received the “best available” rates, etc. A plaintiff attorney should not let his/her guard down because the broker hired by the casualty company offers to sign such an affidavit or represents that they also do Plaintiff’s work as well.

Some defense brokers may state that they have quoted “all available” annuity companies. This is usually a signal that they intend to limit their choice of company to the three or four on the casualty company’s approved list and they may also still allow the insurer’s life affiliate to retain a right of first refusal. Additionally, some defense brokers will neglect to: state whether they have any on-going relationships with casualty companies, participate in kickback or rebate programs, provide a listing of all requirements and fees associated with being an “approved broker” of a casualty company; or disclose as to whether the casualty company will fund a structure only with a particular “approved list” of annuity companies.

We have come across several instances where settlement documents, originally drafted by defense-retained brokers, had many provisions favorable to the defendants inserted. Upon being retained by the Plaintiffs in those cases, the offending provisions were immediately removed or substantially revised.

Certainly there many defense-retained brokers who will do what is in the best interest of the plaintiff. The question for plaintiff attorneys becomes, “Should I take a chance and risk it?”

If you represent plaintiffs, consider this a warning and be vigilant to these tactics. If and when presented with an affidavit or assurances from a broker who you did not hire that they will protect your interests, it should be a red flag reminding you to retain your own Plaintiff-Loyal Settlement Planner. We at Settlement Professionals, Inc. are here to protect Plaintiff attorneys and their clients in structured settlement transactions. Please contact us if we may be of assistance to you.

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The Hidden Dangers of Recovery Rights with Self-Funded Employee Benefit Plans

Recent developments concerning self-funded employee benefit plans regulated by ERISA have created hidden dangers regarding recovery rights that you must address in your personal injury practice.

In the case of Administrative Committee of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan, vs. James A. Shank, as Trustee of Deborah J. Shank Irrevocable Trust, et al(Case No. 06-3531, Aug. 31, 2007), the United States Court of Appeals for Eighth Circuit addressed the recovery rights of one such plan, possibly signifying the emergence of a new wave of health care reimbursement litigation. The relevant facts of the Wal-Mart case are as follows: Deborah J. Shank was employed by Wal-Mart when she sustained severe injuries in a motor vehicle accident unrelated to her employment. However, as an employee of Wal-Mart, she participated in the Wal-Mart Associates' Health and Welfare Plan. Mrs. Shank’s injuries from the accident left her brain-injured and incompetent requiring future medical treatment and nursing home care. The case settled for $700,000.00. After legal fees and costs, Mrs. Shank’s net settlement proceeds of $417,000.00 were placed into a Supplemental Needs Trust to provide for her care. Following settlement, the Committee of the Wal-Mart Stores, Inc. Associate’s Health and Welfare Plan brought suit against Deborah Shank, James Shank as Trustee, and the Special Needs Trust itself, to recover, in full, the amount of $469,216.00 paid on the Shank's behalf for medical expenses under section 502(a)(3) of ERISA.

It is noteworthy that the Wal-Mart Plan contained subrogation and reimbursement clauses which purported to grant the Committee first priority over any judgment or settlement received relating to the accident. The relevant portions of the plan were as follows:

The Plan has the right to . . . recover or subrogate 100 percent of the benefits paid by the Plan on your behalf. . . to the extent of. . . [a]ny judgment, settlement, or any payment made or to be made, relating to the accident . . . These rights apply regardless of whether such payments are designated as payment for . . . [m]edical benefits [or] [w]hether the participant has been made whole (i.e., fully compensated for his/her injuries). . . .The Plan has first priority with respect to its right to reduction, reimbursement and subrogation [Emphasis added].

The U.S. District Court ruled in favor of Wal-Mart and the Court of Appeals affirmed, allowing a full recovery of the medical expenses against the Supplemental Needs Trust. The Court declined to apply the “made whole doctrine” or the Alhborn “pro-rata doctrine” to the claim for reimbursement holding as follows:

ERISA's purposes of upholding the integrity of written plans and protecting the interest and expectations of all participants and beneficiaries are best served by enforcing the Committee's contractual right to reimbursement. We thus hold that such relief is "appropriate" under section 502(a)(3). For these reasons, the judgment of the district court is affirmed.

Imagine the same facts, but with an even larger amount of medical expenses. Could such all-encompassing recovery language devour the entire amount of your client’s settlement, including counsel fees? Therefore, it is critical that you inquire early on as to any health insurance benefit plans that your client may have through his/her employer and obtain a copy of the terms immediately. Having such knowledge ahead of time will help you avoid and address such potential dangers and, possibly, negotiate a better outcome for your client.

We, at Settlement Professionals, Inc. are Plaintiff-Loyal Settlement Planners dedicated to protecting Plaintiffs and their attorneys in structured settlement transactions. Please give us a call if we can be of assistance to you.

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Self-Funded Employee Benefit Plans: Wal-Mart Update

In our February Fast Facts, we informed you as to certain developments concerning recovery rights of self-funded employee benefit plans regulated by ERISA. In doing so, the United States Court of Appeals for Eighth Circuit case of Administrative Committee of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan, vs. James A. Shank, as Trustee of Deborah J. Shank Irrevocable Trust, et al(Case No. 06-3531, Aug. 31, 2007) was discussed. Recently, there have been unexpected developments in this case, which we thought important to update you on.

By way of summary, the relevant facts of the Wal-Mart case are as follows: Deborah J. Shank was employed by Wal-Mart when she sustained severe injuries in a motor vehicle accident unrelated to her employment. However, as an employee of Wal-Mart, she participated in the Wal-Mart Associates' Health and Welfare Plan. Mrs. Shank’s injuries from the accident left her brain-injured and incompetent requiring future medical treatment and nursing home care. The case settled for $700,000.00. After legal fees and costs, Mrs. Shank’s net settlement proceeds of $417,000.00 were placed into a Supplemental Needs Trust to provide for her care. Following settlement, the Committee of the Wal-Mart Stores, Inc. Associate’s Health and Welfare Plan brought suit against Deborah Shank, James Shank as Trustee, and the Special Needs Trust itself, to recover, in full, the amount of $469,216.00 paid on the Shank's behalf for medical expenses under section 502(a)(3) of ERISA.

The U.S. District Court had ruled in favor of Wal-Mart and the Court of Appeals affirmed, allowing a full recovery of the medical expenses against the Supplemental Needs Trust. The Court declined to apply the “made whole doctrine” or the Alhborn “pro-rata doctrine” to the claim for reimbursement holding as follows:

ERISA's purposes of upholding the integrity of written plans and protecting the interest and expectations of all participants and beneficiaries are best served by enforcing the Committee's contractual right to reimbursement. We thus hold that such relief is "appropriate" under section 502(a)(3). For these reasons, the judgment of the district court is affirmed.

A few weeks ago (late March 2008), the United States Supreme Court denied certiorari on the Shank’s appeal, thereby exhausting their remedies and leaving intact the lower Court’s ruling in favor of Wal-Mart.

On April 1, 2008, in a sudden and unexpected change of events, Wal-Mart sent a letter to Mr. Shank stating “[w]e wanted you to know that Wal-Mart will not seek any reimbursement for the money already spent on Ms. Shank’s care, and we will work with you to ensure the remaining amounts in the trust can be used for her ongoing care.” Wal-Mart further indicated in the letter that it is modifying its health care plan to allow “more discretion” in individual cases.

Only time will tell if the changes Wal-Mart indicated in their letter will come to fruition, or if other companies with self-funded employee benefits plans will follow suit in changing their plans to provide for more discretion to compromise their recovery rights. In the meantime, it would appear that public scrutiny of a large corporation has resulted in justice for one family.

However, in your practice, it will still remain critical that you inquire early on as to any health insurance benefit plans that your client may have through his/her employer and obtain a copy of the terms immediately, together with any modifications or changes. Such information will allow you to address any recovery rights prior to settlement and hopefully avoid the ordeal through which the Shank family suffered through.

We, at Settlement Professionals, Inc. are Plaintiff-Loyal Settlement Planners dedicated to keeping Plaintiffs and their attorneys advised as to recent developments which may affect their cases. Please give us a call if we can be of assistance to you.

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Confidentiality Clause Cautions

Settlement agreements and releases in personal injury cases are increasingly containing confidentiality provisions that may potentially result in adverse tax consequences to the unwary.

The little known tax court decision of Amos v. Commissioner, T.C. Memo 2003-329 (December 1, 2003), is a cautionary tale for Plaintiff’s counsel. The relevant facts of the Amos case are condensed as follows:

Professional athlete, Dennis Rodman, kicked a photographer in the groin upon falling out of bounds during an NBA game.
The photographer commenced a lawsuit, which eventually settled for the sum of $200,000.00.
A settlement agreement was executed between the parties which contained a confidentiality clause.
The photographer treated the entire amount of the settlement as compensation for a personal physical injury under IRC Sec. 104(a)(2) and excluded same as income.
Possibly as a result of the publicity of the incident, the photographer’s income tax return was audited. The IRS sought to treat the entire sum of $200,000.00 as taxable compensation, reasoning that the settlement amount was motivated by a desire for confidentiality, as opposed to compensation for a personal physical injury.

The Tax Court analyzed the facts as follows:

A taxpayer has the burden of proving that damages are on account of personal physical injuries or sickness, under IRC Sec. 104(a)(2), citing Commissioner v Schleir, 515 U.S. 323, 328 (1995), and United States v. Burke, 504 U.S. 229, 248 (1992).
“The nature of the claim forming the basis for the settlement controls whether such damages are excludable under IRC Sec. 104 (a)(2).” Burke, supra, 504 U.S. at 237 [emphasis added].
“The intent of the payor is critical” and “the character of the settlement payment hinges ultimately on the dominant reason of the payor in making the payment.” Knuckles v. Commissioner, 349 F.2d 610, 613 (10th Cir. 1995).

The Court’s decision was to treat 60% of the damages as compensation for the photographer’s physical injuries and 40% as payment for confidentiality. Thus, 40% of the damages were taxable. The impact of the ruling was an acknowledgment that despite the dominant reason Mr. Rodman paid the photographer was to compensate him for his physical injuries, the court still held that a portion of the award represented taxable damages. The holding in Amos provides justification for the IRS to treat all personal injury damage awards as part taxable and part non-taxable if the settlement agreement contains a confidentiality provision.

Therefore, counsel must be cautious during settlement negotiations and insist on striking such confidentiality provisions from personal injury settlements that fall within the purview of IRC Sec. 104(a)(2). If confidentiality is non-negotiable, any such clause should be drafted so as to contain express language that confidentiality is mutually beneficial to both parties and that no consideration is being paid or intended for that purpose. Also be sure to strike the phase “in settlement of a doubtful and dubious claim” which is frequently inserted into settlement agreements. In the worst case scenario, the settlement agreement and/or release needs to be clear as to the percentage of the total settlement that is being allocated to confidentiality and the percentage allocated as compensation for personal physical injury. It could thus be argued that additional consideration must be paid to offset any such potential tax implications for such apportionment.

We at Settlement Professionals, Inc. are Plaintiff-Loyal Settlement Planners dedicated to assisting you in your personal injury practice. Please give us a call if we can be of assistance to you.

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Using Rated Ages to Maximize Structure Benefits

The financial decisions a client makes at the time of settlement will have an impact for the rest of the client’s life. Often times, these critical decisions are made under the pressures of mediation and/or settlement conference. Careful planning and consideration outside this stressful environment is required. One way to ensure that your client’s interests are protected and their structured settlement benefits are maximized is through medical underwriting.

Medical underwriting is the process annuity companies use to evaluate the remaining life expectancy of an injured or medically impaired prospective annuitant. Life insurance companies offering lifetime annuities will evaluate an injured party’s medical records in an effort to determine the extent to which the injured party’s medical condition affects his/her remaining life expectancy. This process is important in determining the premium charged for a lifetime annuity.

The medical impairment rating, or "rated age", can significantly improve the payout per premium dollar on a lifetime annuity, since the rated age, rather than the biological age of the annuitant is used to price the annuity. Any health impairments (obesity, smoking, high blood pressure, depression, diabetes, etc), whether related to the injury or not, can and should be sent to the annuity companies for consideration as well.

Rated ages can significantly improve the payout on a lifetime annuity. The annuity company uses the rated age to price the annuity, which decreases the cost of the lifetime annuity payments.

Most life insurance companies offering medical underwriting to structured settlement annuitants need only 10-30 faxed pages of relevant medical records, and generally respond with a rated age within 1-2 business days. The rated ages obtained are generally valid for one year. However, there are some companies for which the rated ages are valid for only six (6) months.

The earlier you involve your settlement planner in your cases, the better the chance that your client will implement a sound settlement plan that will make the most of the net settlement recovery.

We at Settlement Professionals, Inc. are Plaintiff-Loyal Settlement Planners dedicated to protecting Plaintiffs and their attorneys in structured settlement transactions. We have experience in obtaining and using rated ages to maximize structure benefits. Please give us a call if we can be of assistance to you.

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The Benefits of Structuring in a Downward Spiraling Economy

Media and newspaper headlines are replete with indications of a troubled U.S. economy, leaving investors to cope with volatile financial markets. Plaintiffs contemplating settling their personal injury actions are often left alone to chart a course in this often treacherous sea of financial uncertainty.

One method in which investors, and Plaintiffs alike, use to compare the various financial investment products is to examine the Internal Rate of Return (IRR). IRR is the discount rate for which the total present value of future cash flows equals the cost of the investment. The higher the IRR- the greater the return on the investment.

In analyzing several major market funds during the ten (10) year period from June 9, 1998 to June 9, 2008, the IRRs have been roughly calculated as follows: NASDAQ: 2.709%; S&P: 1.9595%; Dow Jones Industrial: 3.0971%; and Russell 2000: 4.934%. As for bank accounts and CD’s the rates vary regionally, however, the recent rates in the Western New York (Buffalo) area range from 2.57% to 1.59% for a one (1) year CD; 4.50% to 1.73% for a five (5) year CD; and 3.50% to 2.96% for money market accounts. With any market based investments, there is risk and uncertainty as to whether the same returns could be maintained going forward. For instance, from May 29 to June 29, 2008, the Dow Index had lost 10% of its value. For instance, a client who had the proceeds of a $2,000,000.00 net settlement invested in Dow Indexed funds could have lost $200,000.00 in that period.

In addition to volatility and risk of dissipation of principal, there are also Federal and State tax considerations which ultimately will have an adverse impact on the returns of the investments.

A structured settlement is a settlement that provides a combination of a lump sum of up-front cash, with a package of carefully designed and guaranteed future payments at a fixed internal rate of return that, when properly crafted, are entirely exempt from local, state and federal income tax.

The IRR for structures will vary depending on the benefits selected and the time periods during which payments are to be made. Current tax-exempt yields on structures are typically around 5.5% to 6.5% for annuity-funded structured settlements. Depending on the Plaintiff’s tax bracket after the settlement, this could be equivalent to a taxable return of 7%-9%, or more, guaranteed.

In a recent case, while closely working with a Plaintiff to achieve his financial goals and needs, we were able to structure a portion of his settlement proceeds with an “A++ “ A.M. Best Company rated Life Insurance Company to provide him monthly lifetime payments, guaranteed for twenty-five (25) years, commencing one month after funding with an IRR of 6.28%. Oh, and by the way, those payments are entirely tax-free. Similar guaranteed, tax-free returns on an investment in the non-structure marketplace are nonexistent.

Although the IRR for each structure will vary, in the midst of an unstable U.S. economy, the financial benefits to a Plaintiff through structuring can not be overlooked. In our professional opinion, Plaintiffs’ counsel might be remiss for not advising their clients of the opportunity to structure their settlements to take advantage of these benefits before the option is forever lost. It is important to remember: DO NOT SIGN A GENERAL RELEASE CALLING FOR A CASH PAYMENT UNLESS THAT IS WHAT YOU WANT.

Once your case is settled, or a verdict awarded, Settlement Professionals, Incorporated, can professionally advise, assist and inform Plaintiffs as to the benefits of structuring as well as guide them step by step through the settlement process to provide for a stable future to meet their financial needs. Please feel free to contact us, we are here to help.

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The Risk of Dissipation in Troubled Financial Times

There should be no surprise that the biggest threat to your client’s settlement proceeds and lifetime of stability is dissipation risk.

A recent impartial survey that shows that 57% of those who elected a lump sum settlement payment have nothing left. Experience has shown us that the percentage is much higher than that. When funds are not structured, they are generally completely dissipated within 3-5 years.

Dissipation risks can be the cumulative purchases of goods and/or luxury items, loans and/or gifts to friends and relatives, and bad business investment decisions. As the stock market during the past month has demonstrated, dissipation can occur passively and cause substantial losses of settlement proceeds without any action whatsoever on the part of your client. During the past three (3) month period, the Dow Jones Industrial Average lost 20% of its value.

For instance, a Plaintiff who had the proceeds of a $2,000,000.00 net settlement invested in Dow Indexed funds could have lost $400,000.00 in that period had they remained in the market. Individuals that suffer such losses most often are more inclined to take greater risks in an attempt to recapture and regain those lost investments. More often than not, such decisions result in further depletion of assets. In addition to the recent financial crisis and uncertainty in the market, questions have arisen as to the credit, liquidity, and solvency of some insurance companies. However, there are two things of which we are certain: 1) No structured settlement payee has missed a payment throughout this crisis and 2) No structured settlement payee has received a payment for less than guaranteed during this crisis.

As a result of your client’s personal injury settlement, they have a one-time opportunity to receive tax-free lifetime benefits which they cannot outlive at a guaranteed rate of return. Most States have “guaranty finds” which protect and will pay a maximum amount of the present value for each annuity contract (structure). This amount is usually $100,000.00. However, in certain states, such as New York, that amount is $500,000.00, affording the Plaintiff an additional “safety net” of protection.

Once your case is settled, Settlement Professionals, Incorporated, can professionally advise, assist and inform Plaintiffs as to the benefits of structuring as well as guide them step by step through the settlement process to provide for a stable future to meet their financial needs. Please feel free to contact us, we are here to help in these times of economic doubt and fear.

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Beware of the Medicare Super Lien!

Most attorneys are generally cognizant of protecting Medicaid’s rights in a settlement, and of the repercussions of the failure to do so, including possible personal liability for the attorney. In dealing with Medicare, on the other hand, I have found it to be a different situation.

Over the past months, I have been told of several settlement negotiations where a few of the attorneys involved were unaware of the significance of the recent statutory enhancement to the enforcement of the “Medicare Super Lien” (42 U.S.C.S § 1395 et seq.). On some of these occasions, the settlement was derailed until the “Super Lien” could be managed, delaying the resolution of the plaintiff’s case by months. Depending on the facts, Medicare could require a portion of the settlement proceeds be set aside for future medical expenses. It’s been labeled the “Super Lien” because it was created by statute and often, plaintiff’s counsel has no reference to the lien in their file. Secondly, the Super Lien can create an obligation to set aside funds for the payment of future medical expenses related to the claim.

Therefore, I have compiled the following “cheat sheet” of when Medicare should be consulted in the settlement of a personal injury case. (Please be advised that this is not intended to be an all-inclusive legal opinion or an attempt to give legal advice. Attorneys should follow up with their own independent research.)

Does the statute apply to all third party cases? Yes, but in practicality, the future set-aside portion of the statute has been primarily enforced against cases involving a settlement or release of Worker’s Compensation claims or benefits, or where there is a clear obligation of a third party to pay medical expenses relating to the claim.

When must Medicare be consulted? At a minimum:

When the Plaintiff is already entitled to Medicare benefits regardless of the settlement amount, or
The settlement is in excess of $250,000 and the Plaintiff has a reasonable expectation of Medicare enrollment within 30 months of the settlement date.

What is a reasonable expectation of Medicare enrollment within 30 months? According to a CMS (Centers for Medicaid and Medicare Services) interoffice memo sent to all regional offices:

Some examples of a reasonable expectation of Medicare enrollment within 30 months include, but are not limited to, when:

The individual has applied for Social Security Disability Benefits;
The individual has been denied Social Security Disability but anticipates appealing that decision, has appealed, or re-filed;
The individual is 62 years and 6 months old.

What can happen to your client if Medicare’s interests are ignored? The client could be denied Medicare if future treatment relating to the claim is required. Medicare could bring enforcement proceedings against your client for any payments made which should have been paid by Worker’s Compensation. Medicare will not pay any healthcare costs relating to the claim until the entire settlement has been exhausted. This could mean your client would have to “private pay” in the case of future surgery. We all know from experience that “private pay” patients get no discounts and pay for medical services at a much higher rate.

What can happen to you if Medicare’s interests are ignored? An attorney or law firm can be held responsible for the failure to protect Medicare’s interest in a personal injury settlement. CMS may bring enforcement proceedings against any entity. In an excerpt from an April 21, 2003 memo, CMS writes:

“13) From where can CMS recover if Medicare’s interest are ignored in a WC case? The CMS has a direct priority right of recovery against any entity, including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has received any portion of a third party payment directly or indirectly. The CMS also has a subrogation right with respect to any such third party payment. See, for example, 42 CFR 411.24 (b), (e), and (g) and 42 CFR 411.26.”

42 U.S.C.S § 1395 et seq. provides that where an action is brought to force recovery, the third party may be responsible for double damages. Therefore, I would not recommend attempting to resolve the future set-aside on your own. There are a number of Medicare approved third party advocates, known as “Medicare Set-Aside Allocators”, who are experienced and efficient in dealing with these issues. If you need a referral, or a copy of one of the above referenced CMS memos, feel free to give me a call.

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Medical Underwriting: What The Defense Wishes You Didn't Know!

What is Medical Underwriting (“MU”)? Everyone has a chronological age as determined by their date of birth. This chronological age determines average life expectancy. However, certain events (car accidents), activities (smoking or drinking) and conditions (high blood pressure or diabetes) can age us prematurely and shorten our life expectancies. MU is simply the process for assessing whether a Plaintiff’s life expectancy is shorter than average.

How does MU work? Twenty to thirty pages of a Plaintiff’s most telling medical records are submitted to each annuity company for review. After reviewing the medical records and comparing the conditions outlined in the medical records to actuarial tables, each annuity company will assign what is called an “age uprate” or “rated age” to the Plaintiff, which represents the Plaintiff’s biological or actuarial age. Each annuity company assesses a Plaintiff’s medical records separately and will assign an independent rated age. The rated age then replaces the Plaintiff’s chronological age for purposes of pricing a lifetime structured settlement annuity. The shorter the life expectancy, the less money the annuity company anticipates paying out over a Plaintiff’s lifetime, which impacts pricing. The goal of MU for purposes of pricing a lifetime structured settlement annuity is to convince the actuaries at the annuity companies that the Plaintiff’s life expectancy is below average. Even if the Plaintiff lives beyond the biological life expectancy, payments continue until death.

How does MU benefit a Plaintiff? MU allows the frailties of a Plaintiff to be taken into account in pricing a lifetime structured settlement annuity, while still allowing a Plaintiff to hedge against longevity by creating guaranteed income that cannot be outlived. If the cost of the annuity remains fixed, MU can increase the monthly benefit, or, if the monthly benefit remains fixed, MU can lower the cost to guarantee this lifetime of income. The best way to illustrate the benefit of MU is look at a real example: Plaintiff is an 11-year old boy who has suffered a significant injury requiring $3,000.00 per month for life. In order to provide this supplemental income with a standard (no medical underwriting) structured settlement annuity it would cost approximately $675,000. However, after the case is medically underwritten and a rated age of 54 is assigned, the rated age then replaces the Plaintiff’s chronological age for purposes of pricing the structured settlement annuity, and now the cost to provide the same benefit stream has dropped to approximately $410,000. While still guaranteeing a lifetime of income for the Plaintiff, MU has just reduced the cost for the same benefits by over $265,000, which represents a cost reduction of over 39%. This savings can be used to cover a Plaintiff’s other needs, or to pay the costs and fees related to settlement. Had the $265,000 in savings been poured back into the benefit, the monthly benefit would have been over $4,900.00 per month, instead of just $3,000.00.

[NOTE: The above example illustrates the fact pattern from Lyons v. Medical Malpractice Insurance Association, 730 N.Y.S.2d 345 (2001). In the Lyons case Plaintiffs alleged that the Defendant captured the $265,000 in savings (until they were sued), disclosing only the standard cost ($675,000) as the cost of the annuity for purposes of settlement.]

Since age rating assessments and opinions can vary widely from company to company, it is important to determine that a significant market segment of companies have been surveyed to ensure that competitive bidding has taken place. It is also important that you have your own structured settlement expert looking out for the best interests of your Client. Call us so we can help capture the benefits of MU for your Client, not the Defendant.

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THE SMOKING GUN!

Imagine a plaintiff’s attorney preparing for a significant personal injury trial, which is finally coming up the following week, after years of fighting with the defense. Would you ever expect that attorney to rely completely on the testimony of the Defendant’s IME doctor in presenting the Plaintiff’s case? We know this would never happen!

Yet, when it comes to the real damages phase-how much a client will actually receive and, whom that commitment to pay will come from, many attorneys still rely on the expert retained by and provided for by their opponent. The same team they’ve been fighting for years!

Those of you who have read our previous “Fast Facts” know from Macomber v Travelers, that “rebating” does occur. You might also be familiar with “short changing,” see MacComber, Lyons v Medical Malpractice Insurance Corporation. However, recently the most compelling reason for retaining your own plaintiff loyal structured settlement planner has been clearly provided by one of the nation’s largest casualty insurers, in what is purportedly an internal memorandum/email distributed from the insurer to the insurer’s “approved” structured settlement firms/brokers. The memorandum/email reads in relevant part as follows:

“Unless compelled by the plaintiff or the plaintiff’s broker to illustrate competitiveness, the broker need not canvas the Approved Life list for the best quote.” (Please call or email me at pisaac@settlepro.com to request a copy of the memo or the aforementioned Fast Facts.)

In spite of the above, why do plaintiff’s attorneys still rely on the defense experts in setting up the client’s payment stream? The only reasons, I can discern, from my experience are:

Many believe that a “deal is a deal” and once agreed upon, the defendant’s insurer would never try to play games with your client’s money.
Because the defendant’s insurer has given an ultimatum to use only their brokers, some attorneys think that the involvement of a plaintiff-loyal settlement planner might upset the apple cart and spoil a good settlement.

We know from the above referenced cases and the excerpt from the internal memo that “a)” is simply not true. As for “b)” it has simply not happened in any situation that our team has been involved in. In either case, why not let a Plaintiff’s- loyal broker confidentially “X-Ray” the defense’s proposal. Please keep in mind that we have experienced attorneys on our staff. We know the delicacy with which matters have to be handled at this stage. We know that there is no room for error or excessive aggression. We know that this is not a sale, but a resolution to litigation that will likely impact your clients for the rest of their lives.

Most importantly, when a member of our team shows up, we follow your lead. We are in the mediation or, if you wish, in the room next door wired and ready to go-wherever we make the most strategic sense to you.

Rather than stepping on your toes, we are watching you march. We believe that we can be an invaluable part of your settlement team. Only, you never get a bill from us.

Remember, we protect plaintiffs and their attorneys in Structured Settlement transactions.

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ATTORNEY AND GUARDIAN AD LITEM (GAL) SUED FOR FAILING TO PROPOSE A STRUCTURED SETTLEMENT: CLAIMS SETTLE FOR $4.1 MILLION

In Texas, an attorney and Guardian ad Litem were successfully sued for legal malpractice for failing to recommend a structured settlement for their client.

The case underlying this legal malpractice claim was a 1984 medical negligence claim, wherein the plaintiff, a minor, purportedly suffered injuries at birth due to the negligence of the defendant physician. This case settled after trial for $2.5 million. The plaintiff’s attorney accepted the settlement as cash, creating actual receipt of the settlement proceeds, which precludes a tax-exempt structured settlement.

The plaintiff’s mother, Josephine Grillo, was instructed by counsel to “request court approval of a Section 142 Trust and the purchase of annuities which were not tax free and did not maximize the future value” of the plaintiff’s recovery.

As the trust was eaten away by medical expenses, taxes and administrative expenses and fees, Ms. Grillo became enlightened about the tax-exempt benefits of an IRC §104 structured settlement, which was available at the time of settlement. Accordingly, Ms. Grillo consulted with an attorney and filed lawsuits in the 96th District Court of Tarrant County, Texas, against her former attorney (Cause No. 96-145090-92) and the Guardian as Litem (Cause No. 96-167943-97) for failing to recommend a structured settlement.

On March 23, 2001, the legal malpractice claims were brought to a conclusion. The suit against the attorney settled for $1.6 million, and the suit against the Guardian ad Litem settled for $2.5 million.

A structured settlement allows your client’s tax-exempt settlement proceeds from a personal injury or wrongful death claim to be directed into safe and secure settlement annuities or U.S. Treasury obligations, where the interest earned while in the structure is tax-exempt and free from management fees. When the interest and principal is paid to the claimant, the entire payment is tax-exempt.

In the case discussed above, use of a tax-exempt IRC §104 structured settlement in conjunction a supplemental/special needs trust, with the state’s approval, could have helped maximize the value of the settlement, without subjecting it to unnecessary risk, while preserving the plaintiff’s eligibility to receive Medicare and Medicaid benefits.

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How much does that structured settlement really cost the defense?

A recent decision from the Supreme Court of Connecticut could be laying the framework to eliminate “rebating schemes” from the structured settlement industry. These “rebating schemes” grew out of the relationships between defense brokers and casualty companies. In order to capture business referrals from casualty companies, many defense-loyal structured settlement firms proposed rebating part of their commissions back to the casualty company or the casual company’s life affiliate.

In the instant case, the plaintiffs Lisa Macomber and Kathryn Huaman, acting as guardian for a minor claimant, settled their personal injury claims for a combination of immediate cash payments and future periodic payments (i.e. a structured settlement annuity). Macomber, 261 Conn at 620. In both cases, Travelers Casualty, through its agents, represented a specific cash cost to Travelers Casualty to purchase the annuities, which were to provide the future payments. Id. At 621. The plaintiffs alleged that the Travelers Casualty, “misrepresented the fundamental nature and terms of those settlements by failing to disclose that certain alleged rebating and short-changing schemes used by the defendants reduced the actual cost and true value of the annuities provided to the plaintiffs.” Id.

The “rebating scheme” worked as follows: Travelers Casualty enlisted the services of an insurance broker to arrange the purchase, from a life insurance company, of annuities to meet the terms previously agreed upon between the claimants and Travelers Casualty. Id. at 625. After the annuities were purchased, the life insurance companies paid the insurance broker a commission. Id. The insurance broker then paid between 25% - 75% of the commission back to Travelers Casualty. Id. at 625. This “rebating scheme” was never disclosed to the plaintiffs. Id. “In January, 1998, Travelers Casualty entered into a similar arrangement with Ringler Associates, and with Wells and Associates (currently known as EPS Settlements Group), both of whom are not parties to this action.”Id.

In addition to the rebating scheme, the plaintiffs further alleged that Travelers Casualty frequently spent less on its purchase of annuities than agreed, by overstating the present net worth of the annuities. Id. Huaman’s specific allegation stated that Travelers Casualty paid Travelers Annuity $6,569.51 instead of the represented $6,667.00. Id. at 627. The Supreme Court referred to this course of conduct as the “short-changing scheme.” Id. at 625.

Plaintiff’s lawsuit included 10 specific causes of action: (1) breach of the implied duty of good faith and fair dealing; (2) breach of fiduciary duty; (3) breach of contract (alleged against Travelers Casualty only); (4) violation of the Connecticut Unfair Trade Practices Act (CUTPA); (5) violation of the Connecticut Unfair Insurance Practices Act (CUIPA); (6) fraud; (7) negligent misrepresentation; (8) civil conspiracy; (9) conversion; and (10) unjust enrichment. Id. at 627.

The trial court dismissed all counts stating that the plaintiffs failed to assert a legally cognizable injury, stating that “they have not suffered any damage because they received the exact amounts which they agreed to and expected to receive under the structure settlement agreements…” Id. at 628. In response to this statement, the Supreme Court of Connecticut pointed out that the trial court “failed to consider that the payment plan that the plaintiffs had agreed to ‘was induced by a representation as to it cost, and that the cost was not accurately reported to the plaintiffs in food faith.’” Id.

The only issue before the Supreme Court was whether the trial court properly determined that the plaintiffs failed to allege any cognizable damages as set forth in their complaint; not whether plaintiffs could prove their claims. Id. at 629. The Supreme Court reinstated counts 3, 4, 6, 7, 8, and 10 and remanded the case to the trial court for further proceedings according to law. Id. at 653.

In nearly every case involving litigation over the represented value of a structured settlement, there are two constants: 1) the plaintiffs or their counsel did not hire or consult with their own structured settlement planner; and 2) the defense adamantly argues and the courts almost always agree that “the defendants did not owe the plaintiffs a single duty of loyalty characteristic of the relationship that exists between a principal and his agent.” Id. at 639, Fn12. With this in mind, why, after fighting with the defense on nearly every issue, countering their experts with your own, and avoiding conflicts throughout your representation, would you hand over your client to the defense when it comes to structuring a settlement?

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To Fee or Not to Fee? - Is Structuring Attorney Fees Right for You?

As the end of the year approaches, more and more attorneys are calling with questions about structuring attorney fees. Hopefully the information below will help answer some of the most frequently asked questions, and clear up some of the confusion related to structuring attorney fees:

1. How does fee structuring work?

Structuring an attorney fee is just like structuring a Plaintiff’s settlement. The same rules and tax principles must be followed in order to protect the tax benefits of any attorney fee structure. One of the most important rules is: DO NOT take receipt of the settlement proceeds intended to be structured. If you take receipt of the portion of the settlement you’d like to structure, whether actual (in your trust account) or constructive (bad or poorly drafted documents), your ability to structure your attorney fee on a tax-deferred basis is undermined. A key concept to remember, and what makes fee structuring so valuable to attorneys, is that regardless of the nature (taxable or tax-exempt) of the underlying settlement, attorney fees are structured on a tax-deferred basis. For example, assume you are about to settle a case for $300,000 and your fee is going to be $100,000. One option is to take the fee, pay taxes on it, and then invest the remainder, which may be about $60,000. Another option is to put the full $100,000 fee to work for you in a structured settlement annuity and only pay taxes on the annuity payments as you receive them in the future. Fee structuring allows you to maximize the value of your fee and provides you with guaranteed future income, which can be very comforting in the rollercoaster world of contingency fee income. I have also enclosed a Hartford brochure on attorney fee structures containing a number of specific examples for you to review.

2. Does the Plaintiff have to structure a portion of their settlement before the attorney fee can be structured?

No. The Plaintiff can take cash and the attorney fee can still be structured on a stand-alone basis.

3. Why structure my attorney fee now with interest rates so low?

Consider the following example: It is December and you are about to settle a large case. Your fee from the case will push you into the highest possible tax bracket. While a large tax bill resultant from a large fee isn’t the worst problem in the world, why not structure that fee to cover your fixed expenses for the next few years, or structure it to start paying at your target retirement age? Even though the interest rates seem low, remember that in a structured settlement annuity the pre-tax gross – not the after-tax net – amount of your fee is working for you. Now, whether a fee structure is appropriate for you will depend on a variety of factors, including your age, health, risk tolerance, retirement goals as well as your current and long-term needs. However, structuring your attorney fees could provide beneficial tax relief to you immediately, as well as providing you with secure and stable income for years to come – even for your lifetime, if desired.

4. Can I only structure contingent fees from a personal physical injury or wrongful death settlement?

No. You can structure contingent fees from nearly any type of settlement. A handful of annuity companies have developed innovative products to expand the availability of attorney fee structures.

5. What do I need to do to prepare for structuring my attorney fees?

Prepare yourself in advance by contacting your plaintiff-loyal structured settlement planner. There are some very important foundational requirements that you need to follow before you structure your attorney fees; failure to do so could cause a “constructive receipt” problem. Call me, and I will help you prepare for this great opportunity.

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