A structured settlement attorney’s perspective on the effect OF new changes to California law on the process of approving sales of annuity payments
On January 01, 2010, revisions to the “California Structured Settlement Protection Act” codified in California Insurance Code Sections 10134-10139.5 went into effect, as a result of Senate Bill SB 510. The new revisions to the statute were nominal in certain respects but quite comprehensive in others. Previously, all that was essentially required to approve the sale of a structured settlement was for a judge to make four specific findings pursuant to California Insurance Code section 10139.5. The required findings were:
1. That the transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.
2. That the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received that advice, or waived such advice in writing.
3. That the transferee has provided the payee with a disclosure form consistent with Section 10136 of the California Insurance Code and the transfer agreement complies with Section 10138 of the California Insurance Code.
4. That the transfer does not contravene any applicable statute or the order of any court or other government authority.
However, pursuant to the SB 510 revisions to the California Insurance Code (the Code”), and in addition to the prior findings required by Section 10139.5 of the Code, the revised requirements for the approval of a transfer of structured settlement payment rights have been expanded to include approximately 25 separate criteria (located in Sections 10137, 10138, and 10139.5 of the Code).
Specifically, as summarized under Section 10139.5(b): “When determining whether the proposed transfer should be approved, the court shall consider the totality of the circumstances,” including all of the following:
(1) The reasonable preference and desire of the payee to complete the proposed transaction, taking into account the payee’s age, mental capacity, legal knowledge, and apparent maturity level;
(2) The stated purpose of the transfer;
(3) The payee’s financial and economic situation;
(4) The terms of the transaction, including whether the payee is transferring monthly or lump sum payments or all or a portion of his or her future payments;
(5) Whether, when the settlement was completed, the future periodic payments that are the subject of the proposed transfer were intended to pay for the future medical care and treatment of the
payee relating to injuries sustained by the payee in the incident that was the subject of the settlement and whether the payee still needs those future payments to pay for that future care and treatment;
(6) Whether, when the settlement was completed, the future periodic payments that are the subject of the proposed transfer were intended to provide for the necessary living expenses of the payee and whether the payee still needs the future structured settlement payments to pay for future necessary living expenses;
(7) Whether the payee is, at the time of the proposed transfer, likely to require future medical care and treatment for the injuries that the payee sustained in connection with the incident that was the subject of the settlement and whether the payee lacks other resources, including insurance, sufficient to cover those future medical expenses;
(8) Whether the payee has other means of income or support, aside from the structured settlement payments that are the subject of the proposed transfer, sufficient to meet the payee’s future financial obligations for maintenance and support of the payee’s dependents, specifically including, but not limited to, the payee’s child support obligations, if any. The payee shall disclose to the transferee and the court his or her court-ordered child support or maintenance obligations for the court’s consideration;
(9) Whether the financial terms of the transaction, including the discount rate applied to determine the amount to be paid to the payee, the expenses and costs of the transaction for both the payee and the transferee, the size of the transaction, the available financial alternatives to the payee to achieve the payee’s stated objectives, are fair and reasonable;
(10) Whether the payee completed previous transactions involving the payee’s structured settlement payments and the timing and size of the previous transactions and whether the payee was satisfied with any previous transaction;
(11) Whether the transferee attempted previous transactions involving the payee’s structured settlement payments that were denied, or that were dismissed or withdrawn prior to a decision on the merits, within the past five years;
(12) Whether, to the best of the transferee’s knowledge after making inquiry with the payee, the payee has attempted structured settlement payment transfer transactions with another person or entity, other than the transferee, that were denied, or which were dismissed or withdrawn prior to a decision on the merits, within the past five years;
(13) Whether the payee, or his or her family or dependents, are in or are facing a hardship situation;
(14) Whether the payee received independent legal or financial advice regarding the transaction. The court may deny or defer ruling on the petition for approval of a transfer of structured settlement payment rights if the court believes that the payee does not fully understand the proposed transaction and that independent legal or financial advice regarding the transaction should be obtained by the payee.
(15) Any other factors or facts that the payee, the transferee, or any other interested party calls to the attention of the reviewing court or that the court determines should be considered in reviewing
Further, and pursuant to Section 10137 (formerly the criteria for approval located at Section 10139.5 of the Code), that:
(a) The transfer of the structured settlement payment rights is fair and reasonable and in the best interest of the payee, taking into account the welfare and support of his or her dependents;
(b) The transfer complies with the requirements of this article, will not contravene other applicable law, and the court has reviewed and approved the transfer as provided in Section 10139.5;
Finally, and in addition to ALL of the above required findings, Section 10138 of the Code further allows a Court to void any provision of a transfer agreement, if the transfer agreement contains ANY of the following contract provisions:
(1) Any provision that waives the seller’s right to sue under any law, or in which the seller agrees not to sue, or that waives jurisdiction or standing to sue under the contract;
(2) Any provision that requires the seller to indemnify and hold harmless the buyer, or to pay the buyer’s costs of defense, in any claim or action brought by the seller or on the seller’s behalf contesting the sale for any reason;
(3) Any provision that waives benefits or rights conferred by law with respect to garnishment of wages;
(4) Any provision providing that the contract is confidential or proprietary, belonging to the buyer;
(5) Any provision in which the seller stipulates to a confession of judgment;
(6) Any provision requiring the seller to pay the buyer’s attorney’ s fees and costs if the purchase agreement is not completed;
(7) Any provision requiring the seller to pay any tax liability arising under the federal tax laws, other than the seller’s own tax liability, if any, that results from the transfer;
(8) Any provision providing for brokerage fees incurred in the contract to be deducted from the purchase price disclosed pursuant to paragraph (5) of subdivision (b) of Section 10136;
(9) If the payee is domiciled in California at the time that the transfer agreement is signed by the payee, any forum selection provision providing for jurisdiction to be in a court outside of California for any action arising under the contract;
(10) If the payee is domiciled in California at the time that the transfer agreement is signed by the payee, any choice-of-law provision that provides for controlling law to be other than California law in any action arising under the contract;
(11) A provision that provides the transferee with a security interest or collateral interest in any structured settlement payment rights that exceed the actual dollar amount of the structured settlement payment rights being transferred; or
(12) Any provision that creates a “buyer’s first right of refusal” to purchase any remaining structured payment rights that the payee may desire to sell in the future.
EFFECT OF CHANGES TO CALIFORNIA LAW ON COURT APPROVALS OF TRANSFERS FOR STRUCTURED SETTLEMENT PAYMENT RIGHTS
Even with the current “budget crisis” in California, most Courts and Judges are taking the revised provisions of the CA. Ins. Code very seriously. Particularly, the changes pertaining to determining whether a transfer is in a payee’s best interests under the “totality of the circumstances” taking into account many, if not all, of the revised criteria provided for in Section 10139.5(b) of the California Insurance Code.
Specific factors that Judges pay particular attention to when determining whether to approve a transfer include:
(a) Whether the person seeking to sell their payments has sought independent professional advice regarding the transfer. This is particularly important as the term “independent professional advisor” is mentioned at least five separate times in the new provisions of the California Insurance Code.
(b) Whether a payee is 21 years of age or younger;
(c) Whether a payee has minor children;
(d) Whether a payee is unemployed, disabled, on social security, state disability,
receiving “AFDC” (Aid to Families with Dependent Children), or receiving other forms of child and or spousal support;
(e) Whether the payee is transferring monthly payments used for daily living expenses;
(f) Whether a payee is transferring all of their future payments;
(g) Whether the payee is still under medical care and or treatment for the underlying injury, and whether the proposed transfer includes payments intended to pay for such medical care and or treatment.
(h) Whether the payee has completed a number of prior transfers in the past.
(i) Whether the payee, or his or her family or dependents, are in current financial economic hardship.
The new changes to the California Insurance Code, while extremely comprehensive, are also both fair and reasonable for all parties involved. As the law itself is consumer protection in nature, a Court should have a full and complete history of each individual’s circumstances prior to making a decision of whether selling future payments are in a person’s best interests. Conversely, individual’s seeking to sell their payments can also prevail under the new statutory legislative scheme provided the reasons for the transfer are well thought out and designed to address an “urgent” need, or change in financial circumstances that they would otherwise not be able to resolve.
It is also highly recommended that any person seeking to sell their structured payment rights, seek the advice of a qualified independent advisor, expert, financial planner, and/or attorney given the complexity of the changes to the current law. Additionally, such an advisor can assist an individual in locating the best possible purchase price for the payments to be sold, and appear with the person in Court to offer both guidance and support at the hearing to approve the proposed sale.
Eugene A. Ahtirski, Esq. – a Southern California Attorney with nationwide Associates that over the past 16 years has handled in excess of 6,000 structured settlement transfers. Mr. Ahtirski is not only a recognized expert and author in the industry, but is also an advisor to both purchasers, and sellers of structured settlement payment rights.
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