In retrospect, the failure of the National Structured Settlement Trade Association (NSSTA) to support the Uniform Periodic Payment of Judgments Act (“Uniform Act”) in 1990 can be viewed as a critical turning point in structured settlement history.
Although enactment of the Uniform Act in the early 1990s would have required a sustained commitment and resource allocation from NSSTA, such a focused effort arguably would have been both justified and worthwhile – especially from a defense perspective.
Structured Settlements in 1990
Both the structured settlement market and the United States tort litigation environment were considerably different in 1990 than today. The structured settlement market was just completing its formative years and defendants still maintained absolute control of NSSTA and the market itself. Changes that would introduce plaintiff brokers and “best interest” personal injury settlement planning had not yet made their appearance.
Tort litigation in 1990 was impacted by rising verdicts, 30-year Treasury rates above 8 percent and tort reform initiatives featuring periodic payment of judgments. In addition, the California Medical Injury Compensation Reform Act (MICRA), which was ruled constitutional in 1984, featured a mandatory periodic payment of judgment statute that demonstrated how such laws could support and help grow structured settlement annuities.
The Uniform Act's Advisors
NSSTA had been organized in 1985 following a successful lobbying effort which resulted in the enactment of IRC 104(a)(2) and 130. When the National Conference of Commissioners on Uniform State Laws (the “Conference”, “Commissioners” or “Uniform Law Commissioners”) commenced drafting the Uniform Act in 1988, NSSTA recognized its potential and offered the services of David Higgins, NSSTA’s General Counsel, as an advisor.
Higgins, a tax expert, along with attorney S. Thomas Todd, a MICRA expert, offered valuable advice to the drafting committee throughout the two-year drafting process. Todd subsequently guest authored Chapter 9 summarizing and analyzing the Uniform Act in “Structured Settlements and Periodic Payment Judgments.”. This writer, a co-author of that book and a NSSTA Board member from 1988-90, also attended every drafting session of the Uniform Act.
Analysis of the Uniform Act
This blog post expands on a prior blog summarizing key sections of the Uniform Act, and looks at those same sections from a more analytical perspective. This brief analysis is intended to highlight how the Uniform Act, drafted and approved by a non-partisan organization whose purpose is to promote uniformity in state laws, aligned with the business standards and practices of the structured settlement market in 1990.
- Public Policy – Unlike federal structured settlement tax laws, whose public policy statements are narrowly defined and plaintiff exclusive, the purposes of the Uniform Act provide arguably the most comprehensive public policy legislative support ever drafted for periodic payments and structured settlements.
- Addressing important issues such as:
- avoiding dissipation
- reducing public assistance costs
- providing fair compensation and more accurate awards thru lifetime medical payments
- assuring economic damages serve intended purposes
- implementing tax policies favoring structured settlements
- making tort liability insurance system more efficient
- keeping liability insurance available and affordable
- Addressing important issues such as:
- Mandatory Application – Many periodic payment of judgment statutes in 1990 (and today) were/are “discretionary” – requiring either the agreement of both parties and/or the judge’s approval. Lack of instructional specificity and/or familiarity results in these statutes rarely being utilized. By contrast, under the Uniform Act, any party to an action for bodily injury may elect (require) to have the case tried - above a certain threshold of future damages. This would mean wide application similar to MICRA in California.
- Damage Findings – Two Uniform Act provisions are noteworthy here. First, non-economic loss damages are paid in lump sum under the act. Among the reasons: attorney fees are assumed to be paid from non-economic damages. Note: the Childs case did not occur until 1994. Second, a unique feature of the Act permits the jury to find that future medical expenses will continue for the claimant’s life, without specifying how long the claimant will live. Obviously, this second provision is perfectly designed for lifetime structured settlement annuities.
- Form of the Judgment – Unlike many/most periodic payment of judgment statutes, the Uniform Act provides specific steps (with an example) instructing a judge how to convert a verdict into a periodic payment judgment and defines the respective roles for both the judge and jury.
- Funding the Judgment – Although multiple options are provided for different types of “qualified funding plans” under the Uniform Act, three facts predominate:
- defendants or their liability insurer provide the funding;
- although specific funding requirements depend on the nature of the obligor, defendants always have the option to utilize annuity funding including an IRC Section 130 qualified assignment; and
- regardless of the obligor, the financial security of the plaintiff must be protected by at least one “qualified insurer.”
- Qualified Insurer – The qualified insurer must have had a minimum of $100,000,000 of capital and surplus and must have had a current rating from two then-existing nationally recognized rating organizations:
- A.M. Best at least A+
- Moody’s at least Aa3
- Standard & Poor’s at least AA-
- Duff & Phelps at least AA-
- Assignee as Obligor – For a qualified assignment, the assignee itself could be a qualified insurer or alternatively, the assignee must purchase an annuity contract from a qualified insurer and the claimant must be given a security interest in the annuity contract. The Commissioners, who also drafted, and continue to annually update, the Uniform Commercial Code (UCC), provided that a security interest could be created and perfected under the Uniform Act simply by giving written notice of the security interest to the insurer issuing the annuity. That provision applied to structured settlements as well periodic payment judgments.
As soon as the Commissioners approved the Uniform Act, NSSTA organized a two-day “Periodic Payment of Judgment” Conference focused on the Uniform Act. More than 300 NSSTA members attended. Speakers included Professor Roger Henderson, representing the drafting committee, as well as David Higgins and Thomas Todd. NSSTA’s initial reaction appeared positive – which was important for the Commissioners who viewed the support of NSSTA, NSSTA’s members and NSSTA’s clients as critical for lobbying success.
What ultimately resulted in NSSTA’s refusal to support the Uniform Act began with the opposition of a single life company member – the one NSSTA life company member in 1990 which did not meet the Uniform Act’s rating requirements for a “qualified insurer” – see above.
The objecting insurer argued the Uniform Act unfairly established a “redline” test and proceeded to successfully lobby all other NSSTA life company members to support its position. The NSSTA life companies collectively, in turn, used the “redline” argument to lobby the NSSTA Board to likewise refuse to endorse the Uniform Act by a majority vote.
Note: if the Uniform Act’s rating requirements for a “qualified insurer” look familiar, some variation thereof has subsequently been adopted by numerous defendants and liability insurers as life company “approved lists” and has also been incorporated, without apparent industry objection, into some state structured settlement legislation.
Without the lobbying support of NSSTA, NSSTA’s members and NSSTA’s clients, the Uniform Act never gained political traction. It was enacted in two states: Arizona and South Dakota, both of which limited its application to medical malpractice.
The Arizona Supreme Court determined that state’s adoption of the Uniform Act to be unconstitutional in 1994. However, the Arizona court stated in its opinion: “the Arizona Constitution is almost unique in its provisions regarding tort law.” Unless another state’s constitution has a similar provision, the Arizona case would appear to have limited or no precedential significance.
As a result, from a structured settlement (especially defense) perspective, the Uniform Act can best be viewed historically as a missed opportunity at a time (1990) when NSSTA and the market were still unified politically and tort reform was still active. If enacted, the Uniform Act could have transformed the lump sum-based state court tort litigation system into a periodic payment of judgment system funded with structured settlement annuities that was consistent with how the structured settlement market was operating in 1990. Its public policy provisions provided a broad, balanced foundation upon which to grow the structured settlement market far beyond its current $6 billion per year pinnacle.
What followed in the 1990s, beginning and ending with the Grillo case (which Independent Life will discuss in a subsequent article), changed the structured settlement market in a different direction – introducing “best interest” personal injury settlement planning and shifting “control” of structured settlements increasingly away from defendants to injury victims and their families.
This article is part 4 of a 6-part retrospective series where key legislation and decisions that have impacted the structured settlement industry are analyzed and revisited.
- Revisiting Periodic Payments of Judgments
- Considering the Uniform Periodic Payment of Judgments Act: Part I
- Considering the Uniform Periodic Payment of Judgments Act: Part II
- Considering the Uniform Periodic Payment of Judgments Act: Conclusion
- Celebrating 30 Years of the ADA