BILL NUMBER: AB 2161 CHAPTERED 09/18/04 CHAPTER 582 FILED WITH SECRETARY OF STATE SEPTEMBER 18, 2004 APPROVED BY GOVERNOR SEPTEMBER 18, 2004 PASSED THE ASSEMBLY AUGUST 17, 2004 PASSED THE SENATE AUGUST 11, 2004 AMENDED IN SENATE AUGUST 9, 2004 AMENDED IN SENATE JUNE 17, 2004 AMENDED IN ASSEMBLY APRIL 1, 2004 INTRODUCED BY Assembly Member Reyes FEBRUARY 18, 2004 An act to amend Sections 10136, 10137, 10138, 10139, and 10139.5 of the Insurance Code, relating to structured settlements. LEGISLATIVE COUNSEL'S DIGEST AB 2161, Reyes. Structured settlement transfers. Existing law provides that no transfer of structured settlement payment rights, as defined, shall be effective by a payee domiciled in this state, or by a payee entitled to receive payments under a structured settlement funded by an insurance contract issued by an insurer domiciled in this state or owned by an insurer or corporation domiciled in this state, unless specified conditions are satisfied. Existing law requires a transferee of structured settlement payment rights to provide the payee with a written disclosure statement containing certain information. This bill would make specified changes to the requirements regarding this disclosure statement. Existing law requires that the transferee of structured settlement payment rights provide written notice of a proposed transfer to all interested parties at certain times, except as specified. This bill would eliminate this requirement. Existing law requires a transferee of structured settlement payment rights to file specified documents with the Attorney General, and requires the Attorney General to review a transfer agreement to ensure that the agreement complies with the provisions of law applicable to these agreements. This bill would provide that these requirements do not apply to a payee who is not a resident of California at the time the payee executes the transfer agreement. Existing law, effective until January 1, 2005, provides that a transfer of structured settlement payment rights is not effective unless the transfer has been approved in advance in a final court order based on certain findings. Existing law requires a transferee, at or before the time of filing a petition for court approval, to advise the payee of the payee's right to seek counsel in connection with the petition, and that the transferee shall pay the fees of the payee's counsel, up to a specified amount. This bill would delete the expiration date for these provisions. The bill would add findings related to the payee's understanding of the transfer agreement and the right to cancel the agreement to the findings required pursuant to court approval of a transfer of structured settlement payment rights. It would require the transferee, in addition to advising the payee with respect to counsel as provided above, to advise the payee of his or her right to seek financial advice in connection with the petition for court approval, and that the transferee will pay the fees of the payee's accountant or actuary, up to a specified aggregate amount. The bill would require the court to retain continuing jurisdiction over the transfer agreement. Existing law allows a payee under a structured settlement transfer agreement to cancel the agreement at any time prior to the date on which the agreement becomes binding on the payee. This bill would instead allow the payee to cancel the agreement at any time before the date on which a court enters a final order approving the transfer agreement. Existing law requires a transferee of structured settlement payment rights to file with the Attorney General a copy of any final court order approving or denying the transfer. Existing law requires the Attorney General, not later than March 31, 2004, to file a report with the Legislature to assist in the evaluation of the provisions of law regarding transfers of structured settlement payment rights, as specified. This bill would eliminate these requirements. The bill would provide that it shall apply only to transfer agreements executed on or after January 1, 2005. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 10136 of the Insurance Code is amended to read: 10136. (a) No transfer of structured settlement payment rights, either directly or indirectly, shall be effective by a payee domiciled in this state, or by a payee entitled to receive payments under a structured settlement funded by an insurance contract issued by an insurer domiciled in this state or owned by an insurer or corporation domiciled in this state, and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to a transferee, unless all of the provisions of this section are satisfied. (b) Ten or more days before the payee executes a transfer agreement, the transferee shall provide the payee with a separate written disclosure statement, accurately completed with the information that applies to the transfer agreement, in substantially the following form, in at least 12-point type unless otherwise indicated (bracketed instructions shall not appear in the form): "Disclosure Notice Required By Law (14-point boldface type ) You are selling (technically called "transferring") your right to receive your payments under a structured settlement. You should get this disclosure notice at least 10 days before you sign any contract. IMPORTANT TERMS: (14-point boldface type ) Total dollar amount of payments you are selling: $__________________ Present value of amount you are selling: $__________________ Net amount paid to you: $__________________ For comparison purposes: If you did not sell your right to receive structured settlement payments, but instead borrowed the net amount of $____ and paid that loan back in installments with each of the payments you are now selling, the equivalent interest rate you would be paying for that loan would be ____% per year. (The text and information set forth above under "IMPORTANT TERMS" shall be in 14-point type and circumscribed by a box with a bold border ) To figure the net amount we are paying, we have charged you for the following expenses: (itemize in a list by type and amount) for a total of $____ in expenses. You should get independent professional advice about whether selling your structured settlement payments is a good idea for you and for your dependents. You also should get independent professional advice from an accountant or lawyer experienced in tax matters about any income tax consequences from selling your structured settlement payments. We cannot give you the name of anyone to advise you. Court approval is needed (14-point boldface type). A court must approve any agreement you sign to sell your rights under a structured settlement. You will not receive any money until the court approves the sale. Court approval could take more than 30 days following the day you sign an agreement selling your rights under a structured settlement. You may cancel the contract before court approval (14-point boldface type). You may cancel the agreement selling (or transferring) your rights under a structured settlement without any cost or obligation. You may cancel at any time before the court approves the contract. You will get notice of the date of the court hearing. If you want to cancel, you do not need any special form. But, you must cancel in writing. Send your cancellation to: (insert transferee's name and address). If you believe that you have been treated unfairly or have been misled, you should contact your local district attorney or the state Attorney General." (c) The transfer agreement shall be written in at least 12-point type and shall be complete and without blank spaces to be completed after the payee's signature. The transfer agreement shall set forth clear and conspicuously, and in no less than 12-point type, all of the following: (1) A statement that the agreement is not effective until the date on which a court enters a final order approving the transfer agreement and that payment to the payee pursuant to the transfer agreement will be delayed up to 30 days or more after the date the payee signed the transfer agreement in order for the court to review and approve the transfer agreement. (2) The amounts and due dates of the structured settlement payments to be transferred. (3) The aggregate amount of the structured settlement payments to be transferred. This amount shall be disclosed in the form prescribed in subdivision (b) in the space for"Total dollar amount of payments you are selling." (4) The aggregate amount of all expenses, if any, to be deducted from the purchase price to be paid to the payee in exchange for the payments to be transferred, and an itemization of all expenses by type and amount. (5) The amount payable to the payee, net of all expenses, in exchange for the payments to be transferred. This amount shall be disclosed in the form prescribed in subdivision (b) in the spaces for" Net amount paid to you" and "net amount." (6) The discounted present value of all structured settlement payments to be transferred and a statement that "This is the value of your structured settlement in current dollars." This amount shall be disclosed in the form prescribed in subdivision (b) in the space for"Present value of the amount you are selling." (7) The federal rate, as described in subdivision (c) of Section 10134, used in determining the discounted present value. (8) The effective equivalent interest rate, which shall be disclosed in the following statement: "YOU WILL BE PAYING THE EQUIVALENT OF AN INTEREST RATE OF ____% PER YEAR. Based on the net amount that you will receive from us and the amounts and timing of the structured settlement payments that you are transferring to us, if the transferred structured settlement payments were installment payments on a loan, with each payment applied first to accrued unpaid interest and then to principal, it would be as if you were paying interest to us of ____% per year, assuming funding on the effective date of transfer." This percentage amount shall be disclosed in the form prescribed in subdivision (b) in the space for "the equivalent interest rate you would be paying for this loan would be ____% per year." (9) The quotient (expressed as a percentage) obtained by dividing the net payment amount by the discounted present value of the payments. (10) A statement that the payee should obtain independent professional advice regarding any federal and state income tax consequences arising from the proposed transfer, and that the transferee may not refer the payee to any specific adviser for that purpose. (11) A statement that the court approving the transfer agreement retains continuing jurisdiction to interpret and monitor implementation of the agreement as justice may require. (12) The following statement: "If you believe you were treated unfairly or were misled as to the nature of the obligations you assumed upon entering into this agreement, you should report those circumstances to your local district attorney or the office of the Attorney General." (13) The following statement printed in 14-point type, circumscribed by a box with a bold border, and set forth immediately above or adjacent to the space reserved for the payee's signature: "You have the right to cancel this agreement without any cost or obligation until the date the court approves this agreement. You will receive notice of the court hearing date when approval may occur. You must cancel in writing and send your cancellation to (insert transferee's name and address)." (d) The contract for transferring the structured settlement payment rights may not violate Section 10138. (e) At any time before the date on which a court enters a final order approving the transfer agreement pursuant to Section 10139.5, the payee may cancel the transfer agreement, without cost or further obligation, by providing written notice of cancellation to the transferee. SEC. 2. Section 10137 of the Insurance Code is amended to read: 10137. A transfer of structured settlement payment rights is void unless all of the following conditions are met: (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 is approved by a court as provided in Section 10139.5. SEC. 3. Section 10138 of the Insurance Code is amended to read: 10138. (a) A transfer agreement, as defined in subdivision (o) of Section 10134, shall not include any provision described in the paragraphs below. Any inclusion of a prohibited provision, with respect to a seller who is a California resident, shall make the contract void and unenforceable. (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) Any forum selection provision providing for jurisdiction to be in a court outside of California for any action arising under the contract. (10) 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. (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. (b) The provisions in this section may not be waived by agreement of the parties. SEC. 4. Section 10139 of the Insurance Code is amended to read: 10139. (a) At the time of filing a petition pursuant to Section 10139.5 for court approval, the transferee shall file with the Attorney General a copy of the transferee's petition for approval, a copy of the written disclosure statement required by subdivision (a) of Section 10136, a copy of the transfer agreement as defined in subdivision (o) of Section 10134, a copy of the annuity contract, a copy of any qualified assignment agreement, a copy of the underlying structured settlement agreement, a copy of any order or approval of any court or responsible administrative authority authorizing or approving the structured settlement, a copy and proof of notice to the interested parties, and a verified statement from the transferee stating that all of the conditions set forth in Sections 10136, 10137, and 10138 have been met. (b) The Attorney General may, but is not required to, review any transfer agreement in order to ensure that the transfer meets the requirements of this article. (c) The Attorney General may charge a reasonable fee for the filing of the transfer agreement as provided in this section. The fee shall be paid by the transferee. (d) This section does not apply to a transfer by a payee who is not a resident of California at the time the payee executes the transfer agreement. SEC. 5. Section 10139.5 of the Insurance Code is amended to read: 10139.5. (a) A direct or indirect transfer of structured settlement payment rights is not effective and a structured settlement obligor or annuity issuer is not required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order based on express written findings by the court that: (1) The transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents. (2) 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 knowingly waived that advice in writing. (3) The transferee has provided the payee with a disclosure form that complies with Section 10136 and the transfer agreement complies with Sections 10136 and 10138. (4) The transfer does not contravene any applicable statute or the order of any court or other government authority. (5) The payee reasonably understands the terms of the transfer agreement, including the terms set forth in the disclosure statement required by Section 10136. (6) The payee reasonably understands and does not wish to exercise the payee's right to cancel the transfer agreement. (b) Following a transfer of structured settlement payment rights under this article: (1) The structured settlement obligor and the annuity issuer shall, as to all parties except the transferee, be discharged and released from any and all liability for the transferred payments. (2) The transferee shall be liable to the structured settlement obligor and the annuity issuer if the transfer contravenes the terms of the structured settlement for the following: (A) Any taxes incurred by those parties as a consequence of the transfer. (B) Any other liabilities or costs, including reasonable costs and attorney's fees, arising from compliance by those parties with the order of the court or arising as a consequence of the transferee's failure to comply with this article. (3) Neither the annuity issuer nor the structured settlement obligor may be required to divide any periodic payment between the payee and any transferee or assignee or between two, or more, transferees or assignees. (4) Any further transfer of structured settlement payment rights by the payee may be made only after compliance with all of the requirements of this article. (c) (1) An application under this article for approval of a transfer of structured settlement payment rights shall be made by the transferee and brought in the county in which the payee resides. (2) Not less than 20 days prior to the scheduled hearing on any application for approval of a transfer of structured settlement payment rights under this article, the transferee shall file with the court and serve on all interested parties a notice of the proposed transfer and the application for its authorization, and shall include the following with that notice: (A) A copy of the transferee's application. (B) A copy of the transfer agreement. (C) A listing of each of the payee's dependents, together with each dependent's age. (D) A copy of the disclosure required in subdivision (b) of Section 10136. (E) A copy of the annuity contract. (F) A copy of any qualified assignment agreement. (G) A copy of the underlying structured settlement agreement. (H) Notification that any interested party is entitled to support, oppose, or otherwise respond to the transferee's application, either in person or by counsel, by submitting written comments to the court or by participating in the hearing. (I) Notification of the time and place of the hearing and notification of the manner in which and the time by which written responses to the application must be filed, which may not be less than 15 days after service of the transferee's notice, in order to be considered by the court. (d) All court costs and filing fees shall be paid by the transferee. (e) No later than the time of filing the petition for court approval, the transferee shall advise the payee of the payee's right to seek independent counsel and financial advice in connection with the transferee's petition for court approval of the transfer agreement, and shall further advise the payee that if the payee retains counsel, a licensed certified public accountant, or a licensed actuary in connection with a petition for an order approving the transfer agreement, that the transferee shall pay the fees of the payee's counsel, accountant, or actuary, regardless of whether the transfer agreement is approved, and regardless of whether the attorney, accountant, or actuary files any document or appears at the hearing on the application for transfer, in an aggregate amount not to exceed one thousand five hundred dollars ($1,500). The transferee' s accountant, counsel, or actuary may not advise the payee. (f) The court shall retain continuing jurisdiction to interpret and monitor the implementation of the transfer agreement as justice requires. SEC. 6. This act shall apply only to agreements for the transfer of structured settlement payment rights that are executed on or after January 1, 2005.