BILL NUMBER: SB 491 CHAPTERED 10/10/99 CHAPTER 742 FILED WITH SECRETARY OF STATE OCTOBER 10, 1999 APPROVED BY GOVERNOR OCTOBER 7, 1999 PASSED THE SENATE SEPTEMBER 9, 1999 PASSED THE ASSEMBLY SEPTEMBER 7, 1999 AMENDED IN ASSEMBLY SEPTEMBER 3, 1999 AMENDED IN ASSEMBLY AUGUST 16, 1999 AMENDED IN ASSEMBLY JULY 8, 1999 AMENDED IN SENATE APRIL 27, 1999 AMENDED IN SENATE APRIL 5, 1999 INTRODUCED BY Senator Johnston FEBRUARY 18, 1999 An act to add Article 2.3 (commencing with Section 10134) to Chapter 1 of Part 2 of Division 2 of the Insurance Code, relating to structured settlements. LEGISLATIVE COUNSEL'S DIGEST SB 491, Johnston. Structured settlements: transfers. Existing law permits a judgment awarded by a court for damages for personal injury in resolution of a tort claim, or an award for permanent disability for personal injuries subject to the workers' compensation law, to be paid in periodic payments rather than a lump-sum payment, which is known as a structured settlement. This bill would require a transfer of structured settlement payment rights entered into on or after January 1, 2000, to be preceded by a specified disclosure and to include notice to all other interested parties. It would also require a transfer of structured settlement payment rights to comply with specified conditions, including conditions as to fairness and compliance with law. It would prohibit the inclusion of various provisions in an agreement for the transfer of structured settlement payment rights and would make an agreement void and unenforceable if a prohibited provision is included. It would require the filing of a copy of the transfer agreements with the Attorney General, as specified, and would authorize the Attorney General to charge a reasonable fee for filing a copy of those agreements. It would exempt from these provisions, blanket loan agreements in which the lender takes a security interest in the borrower's assets to secure the loan. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Article 2.3 (commencing with Section 10134) is added to Chapter 1 of Part 2 of Division 2 of the Insurance Code, to read: Article 2.3. Transfers of Structured Settlement Payment Rights 10134. For the purposes of this article, the following terms have the following meanings: (a) "Discounted present value" means the fair present value of future payments, as determined by discounting those payments to the present using the most recently published applicable federal rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service. (b) "Expenses" means all broker's commissions, service charges, application or processing fees, closing costs, filing or administrative charges, legal fees, notary fees and other commissions, fees, costs, and charges that a payee would have to pay to transfer the structured settlement payment rights of a structured settlement agreement or that would be deducted from the gross consideration that would be paid to the payee in connection with the transfer of the structured settlement payment rights of a structured settlement agreement. (c) "Interested parties" means, with respect to a structured settlement agreement, the payee, the payee's attorney, any beneficiary irrevocably designated under the annuity contract to receive payments following the payee's death, the annuity issuer, the structured settlement obligor, and any other party who has continuing rights or obligations under the structured settlement agreement. (d) "Payee" means an individual who received tax-free payments pursuant to a structured settlement agreement. (e) "Structured settlement agreement" means an arrangement for periodic payment of damages established by settlement or judgment in resolution of a tort claim in which the payment of the judgment or award is paid in whole, or in part, in periodic tax-free payments rather than a lump-sum payment. A structured settlement agreement entered into pursuant to Section 667.7 of the Code of Civil Procedure or Section 970.6 or 984 of the Government Code is not subject to the provisions of this article other than the requirements of Section 10138. (f) "Structured settlement payment rights" means rights to receive periodic payments, including lump-sum payments, pursuant to a structured settlement agreement, whether from the settlement obligor or an annuity issuer. (g) "Transfer" means any sale, assignment, pledge, hypothecation, or other form of alienation or encumbrance made for consideration. (h) "Transfer agreement" means the agreement providing for the transfer from the payee to the transferee of structured settlement payment rights of a structured settlement agreement. (i) "Transferee" means any person receiving structured settlement payment rights resulting from a transfer. 10135. This article is only applicable to transfers entered into on or after January 1, 2000. 10136. 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 following subdivisions are satisfied: (a) Ten or more days prior to the effective date of a transfer agreement, the transferee provides the payee with a written disclosure statement disclosing all of the following: (1) The amounts and due dates of the structured settlement payments to be transferred. (2) The aggregate amount of the structured settlement payments to be transferred. (3) The gross amount of all expenses, if any, to be deducted from the amount to be paid to the payee in exchange for the payments to be transferred. (4) The amount payable to the payee, net of all expenses, in exchange for the payments to be transferred. (5) The discounted present value of all structured settlement payments to be transferred and the discount rate used in determining that discounted present value. (6) The quotient (expressed as a percentage) obtained by dividing the net payment amount by the discounted present value of the payments. (7) A statement that the payee should consult with their own counsel, accountant, or financial advisor regarding any federal and state income tax consequences arising from the proposed transfer. (8) A statement that "THE PROVISIONS OF THIS CONTRACT ARE GOVERNED BY CALIFORNIA'S UNFAIR PRACTICES ACT, BUSINESS AND PROFESSIONS CODE SECTION 17200. 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 MAY CALL YOUR LOCAL DISTRICT ATTORNEY OR THE OFFICE OF THE ATTORNEY GENERAL FOR ASSISTANCE. No contract for the transfer of structured settlement payment rights shall be valid unless the seller has separately acknowledged that he or she has read the language required by this subdivision. (b) The transferee provides written notice of the proposed transfer to all other interested parties 10 or more days prior to the date specified in the transfer agreement as the date on which the transfer agreement first becomes binding upon the payee and 60 or more days prior to the date on which the first payment is due under a schedule established by the structured settlement agreement. At any time prior to the date on which the transfer agreement first becomes binding upon the payee, the payee may cancel the transfer agreement without cost or further obligation, by providing written notice of cancellation to the transferee. (c) The contract for transferring the structured settlement payment rights does not violate the provisions of Section 10138. 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. (b) The transfer complies with the requirements of this chapter and will not contravene other applicable law. (c) Notice is given in compliance with subdivision (b) of Section 10136. 10138. (a) A contract for the transfer of structured settlement payment rights shall not include any provision described in the paragraphs below, where the seller is a California resident. Any inclusion of a prohibited provision 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 which 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 (4) of subdivision (a) 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. (b) This section may not be waived by agreement of the parties. 10139. (a) At the time notice is provided to interested parties pursuant to subdivision (b) of Section 10136, or subdivision (c) of Section 10137, the transferee shall file with the Attorney General a copy of the transfer agreement, a copy of the written disclosure statement required by subdivision (a) of Section 10136, 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. The Attorney General may review any transfer agreement filed pursuant to this section in order to ensure that it meets the requirements of this article. (b) 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. 10140. Nothing in this article applies to blanket loan agreements in which the lender takes a security interest in the borrower's assets to secure the loan. 10141. Any notice required by this article shall be deemed to have been given if addressed to the recipient's last known address and deposited, first class postage paid, in the United States mail not less than five calendar days prior to the date on which notice is required.