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    Settlement Planning

    Judges and mediators play important, but distinctive, roles in settlement planning. So it may have surprised some attendees that a recent Society of Settlement Planners (SSP) 2021 Annual Conference virtual presentation advertised as the “Judiciary Panel: Planning from the Court’s Perspective” featured two mediators (one a retired judge) and focused on mediation not judicial issues.

    Skillfully moderated by SSP President Joseph DiGangi with guest mediators Melissa Nickson of New York and the Hon. Emil Giordano of Pennsylvania, the panel discussed several mediation topics including: the mediators’ most important personal assets in resolving disputes; challenges in addressing Medicare and other government benefit liens; COVID and virtual mediations; structured settlements vs. trusts in a low interest rate market; and how Section 50B Periodic Payment of Judgments impact mediations in New York.

    DiGangi introduced a hypothetical case and mediation-focused excel spreadsheet he had personally designed as a proposed tool to assist mediators. Both Nickson and Giordano seemed impressed. It was unclear, however, how this tool might be economically offered to mediators, how it would be integrated into a mediation, and whether DiGangi was promoting the product as a proprietary or as a universal solution.

    Structured Settlement Mediation Recommendation

    The panel briefly mentioned multiple structured settlement issues. One of the most important mediator-related structured settlement issues, however, was not addressed.

    In large, complex mediations, plaintiff attorneys should not rely on verbal agreements to subsequently structure an agreed upon cash settlement. Rather, they should preserve their clients’ structured settlement options by proposing, even insisting upon, language similar to the following be included in a binding and admissible mediation term sheet:

    The parties agree to settle this case for $_____ a portion of which may be placed in one or more structured settlements funded with either a qualified or non-qualified assignment. Plaintiff’s attorney will communicate to Defendant on or before _____ payment instructions including: the payee (the name of the QSF or the assignee), the structured settlement periodic payments, structured settlement annuity provider(s), structured settlement cost, purchase date and whether the structured settlement(s) is/are to be excluded from income tax under IRC 104(a)(2). Plaintiff’s attorney will also provide Defendant’s attorney with sample structured settlement closing documentation. Defendant agrees to cooperate in arranging the Plaintiff’s structured settlement(s).

    Judicial Review of Proposed Settlement Plans

    Although the content of this particular SSP panel did not match its title, “Settlement Planning from the Court’s Perspective” does represent an important topic for a future SSP conference. Among the issues, perhaps the most important issue, for such a presentation would be judicial approval of settlement plans.

    At least when settlements affect the interests of a minor or other protected person, state and federal court judges sitting in review of petitions to approve a settlement plan generally apply a “best interest” test when deciding whether to approve a proposed settlement plan.

    What does “best interest” mean in the context of personal injury settlement planning? And how should a judge determine whether a proposed settlement plan meets a “best interest” test?

    SSP Settlement Planning Practice Standards

    Before addressing those issues, it should be noted that the SSP’s own Settlement Planning Practice Standards (SSP Practice Standards), available for download on the SSP website, do not currently require a “best interest” product standard.

    Practice Standard #9 reads in full (with emphasis added): “The settlement planner shall recommend appropriate products and services that are consistent with the client's goals, needs and priorities.”

    The Explanation to Practice Standard #9 adds in relevant part (with emphasis added): The products or services selected to implement the recommendation(s) must be suitable to the client's financial situation and consistent with the client's goals, needs and priorities.

    Other Industry Standards

    Both the Securities and Exchange Commission (SEC) and the National Association of Insurance Commissioner (NAIC) have raised their relevant product standards to “best interest” status during the past two years. The SEC adopted “Regulation Best Interest” on June 5, 2019.

    This regulation “establishes a new standard of conduct under the Securities Exchange Act of 1934 (“Exchange Act”) for broker-dealers and natural persons who are associated persons of a broker-dealer (“associated persons”) (unless otherwise indicated, together referred to as “broker-dealer” or “you”) when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer.” (emphasis added)

    Similarly, in February of 2020, the National Association of Insurance Commissioners (NAIC) approved revisions to Model Regulation #275 (Suitability in Annuity Transactions)“clarifying that all recommendations by agents and insurers must be in the best interest of the consumer and that agents and carriers may not place their financial interest ahead of the consumers’ interest in making a recommendation.”

    Significantly for structured settlements, the 2020 Revised Model Regulation, like its 2010 predecessor, exempts from its application, requirements and penalties: “settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.” 

    Fiduciary Duty

    SSP should have already been aware of an additional argument suggesting a “best interest” product standard in 2017 when SSP adopted its Practice Standards – Professor Stephen Saltzburg’s 2006 opinion that plaintiff structured settlement experts owe a fiduciary duty to their client.

    A fiduciary duty, by definition, incorporates a “best interest” standard of conduct which arguably applies to, among other applications, product recommendations.

    Challenge for Judges

    The underlying concern for Judges in approving a settlement plan is twofold: (1) judges lack specialized knowledge or expertise, and luxury of time, to inform themselves as to details of complex settlement arrangements having a lifespan well into the future; and (2) to date, there is no uniform or standardized set of disclosures required to be made by the proponents of a settlement plan.

    SSP can find a template which they can modify to help judges, and SSP members, formulate a “best interest” test for evaluating proposed settlement plans in Section 8.04 of “Structured Settlements and Periodic Payment Judgments.”

    Section 8.04 focuses exclusively on structured settlements. It proposes that judges address their responsibility (a) by relying on a sample checklist of questions to be answered by the proponents of a structured settlement plan, and (b) by using the court’s inherent judicial authority to mandate applicable disclosures – in writing and under oath – in advance of hearings on such petitions and as a condition for approval of structured settlement plans under review.

    Conclusion

    Since SSP was founded 26 years ago, it has continued to broaden the scope of its educational analysis of settlement planning. The most recent SSP 2021 virtual Annual Conference produced 20 presentations that continued this professional progression and also provided Independent Life an opportunity to selectively add our own perspective to the following topics as part of our “Let’s Talk About” series:

    Multiple industry associations and forums should encourage expanded, ever more knowledgeable dialogue about these and other issues not only to better protect injured claimants but also to improve and grow the structured settlement and settlement planning markets.

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