OLR Bill Analysis

sSB 1059

AN ACT CONCERNING STRUCTURED SETTLEMENTS

SUMMARY:

This bill makes a number of changes to the law on the transfer of structured settlement payments. A structured settlement is an arrangement for periodic payment of damages by a settlement or judgment in a personal injury or workers' compensation claim. The payee is the person who receives the payments and the obligor is the person obligated to make the periodic payments. In a transfer of structured settlement payments, the payee gives the right to receive the payments to a transferee.

Under current law, the transferee must make certain disclosures to the payee before entering a transfer agreement and a court must approve the transfer. The bill:

1. changes the disclosure requirements and requires them to be made at least three, rather than 10, days before entering a transfer agreement;

2. requires the transferee, rather than the payee, to seek approval of the transfer and give notice to interested parties;

3. allows approval by a responsible administrative authority, as well as a court;

4. expands the types of transfers subject to the approval requirements;

5. includes more specific requirements for approval;

6. specifies certain consequences of a transfer;

7. alters the jurisdiction and notice requirements for the hearing;

8. includes rules about disputes, life-contingent payments, penalties, and liability; and

9. changes some definitions.

The bill's provisions apply to transfer agreements executed after September 30, 2003. The bill does not authorize a transfer that violates any law and does not imply that any transfer under an agreement before October 1, 2003 is valid or invalid.

As under current law, these requirements for valid transfers cannot be waived.

EFFECTIVE DATE: October 1, 2003

DISCLOSURE NOTICE

By law, the transferee must make certain disclosures to the payee before entering an agreement. The bill requires the payee to receive this disclosure statement at least three, rather than 10, days before entering a transfer agreement. The bill specifies that the disclosure must be a separate statement in boldface type at least 14 points in size.

As under current law, the disclosure statement must include (1) the amount and due dates of the structured settlement payments transferred and (2) the aggregate amount of payments.

The bill changes three requirements.

1. Instead of requiring disclosure of the gross amount of expenses, the bill requires an itemized listing of transfer expenses, other than attorney's fees and related disbursements payable in connection with the transferee's application for approval of the transfer and the transferee's best estimate of the amount of the fees and disbursements.

2. Instead of requiring disclosure of the amount payable to the payee, net of expenses, in exchange for payment the bill requires (1) the gross advance amount (the sum payable to the payee or for the payee's account as consideration for a transfer of structured settlement payment rights before reductions for transfer expenses or other deductions) and (2) the net advance amount (the gross advance amount minus the aggregate amount of actual and estimated transfer expenses required to be disclosed).

3. As under current law, the bill requires disclosure of the discounted present value of payments to be transferred. The bill defines discounted present value as the present value of future payments determined by discounting the payments to the present using the most recently published applicable federal rate for determining the present value of an annuity, as issued by the IRS. The bill requires this to be identified as the "calculation of current value of the transferred structured settlement payments under federal standards for valuing annuities" and the disclosure must state the applicable federal rate used in the calculation. Current law requires disclosure of the discount rate used in that calculation but does not specify use of a particular rate.

The bill also requires (1) disclosure of the amount of any penalties or liquidated damages payable by the payee if he breaches the transfer agreement and (2) a statement that the payee can cancel the transfer agreement without penalty or obligation within three business days of signing the agreement.

The bill deletes a requirement that the disclosure state that there may be adverse tax consequences as a result of the proposed transfer.

APPROVAL OF TRANSFER

Under current law, a court must approve a transfer of structured settlement payment rights and the obligor or annuity issuer (an insurer who issued a contract to fund periodic payments under the structured settlement) is not required to pay a transferee unless a court approves the transfer. The bill also allows a responsible administrative authority to approve a transfer. It defines a responsible administrative authority as a government authority with exclusive jurisdiction over the settled claim (the original tort claim or workers' compensation claim) resolved by the structured settlement.

As under current law, approval of the transfer is required when the payee is domiciled in Connecticut. The bill alters the other provisions. Under current law, approval is also required when a payee is entitled to receive payments under a structured settlement funded by an insurance contract issued by a insurer domiciled in Connecticut or owned by an insurer or corporation domiciled in Connecticut. The bill instead applies when (1) the structured settlement obligor or the annuity issuer is domiciled or has its principal place of business in Connecticut; (2) a Connecticut court or responsible administrative authority approved the structured settlement agreement; or (3) Connecticut law expressly governs the structured settlement agreement.

Under current law, the court must determine if the transfer of the structured settlement payment rights is in the payee's best interest and is fair and reasonable to all interested parties under the existing circumstances. The bill instead requires approval by a court or administrative authority based on the following express findings:

1. the transfer is in the payee's best interest, taking into account his dependent's welfare and support (this includes a payee's spouse and minor children and other people the payee is legally obligated to provide support for, including alimony);

2. the transferee advised the payee in writing to seek independent professional advice (advice of an attorney, certified public accountant, actuary, or other licensed professional adviser) about the transfer and the payee either received it or knowingly waived in writing his right to get advice; and

3. the transfer does not violate any statute or court or government order.

The bill does not specify that a court may approve the transfer on terms and conditions it deems appropriate, as under current law.

APPLICATION FOR TRANSFER

Jurisdiction

Under current law, jurisdiction for approving the transfer is with the court where (1) the original action was filed or could have been filed or (2) the payee resides. The bill provides that jurisdiction is with (1) the Superior Court in the judicial district where the payee resides or the structured settlement obligor or annuity issuer has its principal place of business or (2) the administrative agency that approved the structured settlement agreement.

Notice of Hearing


As under current law, a notice of a hearing must be served on all interested parties. The bill requires the transferee, rather than payee, to give notice. The bill also requires the notice at least 20 days before the hearing.

The bill expands the definition of interested parties. As under current law, an interested party is the payee, a beneficiary designated to receive payments on the payee's death (the bill specifies that he must be irrevocably designated under the annuity contract), the annuity issuer, and the structured settlement obligor. The bill deletes a provision that, when the designated beneficiary is a minor, the minor's parent or guardian is an interested party. But it adds that any other party with continuing rights and obligations under the structured settlement is also an interested party.

As under current law, the notice must include a copy of the application for approval and the disclosure statement. The bill also adds requirements that the notice include (1) a copy of the transfer agreement; (2) a listing of each of the payee's dependents and their ages; and (3) notice that any interested party can support, oppose, or otherwise respond to the application in person, by counsel, by written comments to the court or authority, or by participating in the hearing.

Both the bill and current law require notice of the hearing. But the bill specifies that the notice must contain the time and place of the hearing and the manner in which written responses to the application can be filed (which must be at least 15 days after serving the notice). Current law authorizes the payee to seek an order setting the deadline for filing written objections; requires him to notify all interested parties of the deadline; and requires notice to be mailed at least 10 days before the deadline.

EFFECT OF TRANSFER

The bill specifies that, after a transfer of structured settlement payment rights:

1. the structured settlement obligor and the annuity issuer are discharged and released from liability for the transferred payment as to all parties except the transferee;

2. the transferee is liable to the structured settlement obligor and annuity issuer for (a) any taxes incurred because of the transfer if it violates the terms of the structured settlement and (b) other liabilities or costs, including reasonable costs and attorney's fees, for complying with the court or agency order or from the transferee's failure to comply with the bill's provisions;

3. the structured settlement obligor and annuity issuer cannot be required to divide any periodic payment between the payee and a transferee or assignee or between two or more of them; and

4. any further transfer of structured settlement payment rights by the payee must comply with the bill's provisions.

DISPUTES

Under the bill, transfer agreements entered into after September 30, 2003 by a payee residing in Connecticut must provide that disputes about the agreement are determined in Connecticut and under Connecticut law. This includes claims that the payee breached the agreement. The bill prohibits transfer agreements from authorizing the transferee or another party from confessing judgment or consenting to judgment against the payee. (In a confession of judgment, a person agrees beforehand to the entry of a judgment against him if a specified event occurs or fails to occur, such as making a required payment. )

PAYMENTS THAT ARE LIFE-CONTINGENT

The bill prohibits transfers of structured settlement payment rights from including payments that are life-contingent unless the transferee, before the payee signs the transfer agreement, establishes and agrees to maintain procedures reasonably satisfactory to the structured settlement obligor and annuity issuer for (1) periodically confirming the payee's survival and (2) giving the structured settlement obligor and annuity issuer prompt written notice of the payee's death.

OTHER PROVISIONS

Under the bill, a payee who proposes to transfer structured settlement payment rights is not subject to any penalty, forfeiture of application fees, other payments, or liability to a proposed transferee or assignee for a failure of the transfer to satisfy the bill's conditions.

The bill makes the transferee solely responsible for complying with its disclosure and approval requirements and the structured settlement obligor and annuity issuer are not responsible or liable for noncompliance or failure to fulfill any conditions.

DEFINITIONS

The bill adds definitions for:

1. "periodic payments," which include both recurring payments and scheduled future lump-sum payments;

2. "qualified assignment agreement," which is an agreement for a qualified assignment within the meaning of federal tax law (which qualifies for certain tax benefits);

3. "structured settlement agreement," which is the agreement, judgment, stipulation, or release embodying the structured settlement's terms; and

4. "terms of the structured settlement," which include the terms of the agreement; the annuity contract; any qualified assignment agreement; and any order or approval of a court, responsible administrative authority, or the government authority that authorized or approved the structured settlement.

As under current law, transfer means sale, assignment, pledge, hypothecation (pledging as security or collateral), alienation, or encumbrance of structured settlement payment rights made by a payee for consideration. The bill specifies that this does not include creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution, in the absence of any action to redirect the structured settlement payments to the insured depository, or their agent or successor, or otherwise to enforce a blanket security interest against the structured settlement payment rights.

COMMITTEE ACTION

Judiciary Committee

Joint Favorable Report

Yea

41

Nay

0