BILL ANALYSIS
AB 982
Page 1
Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 982 (Tran) - As Amended: April 23, 2009
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : TRANSFER OF STRUCTURED SETTLEMENT RIGHTS
KEY ISSUE : SHOULD THE STRUCTURED SETTLEMENT TRANSFER APPROVAL
PROCESS BE MODIFIED AND CLARIFIED TO ADDRESS CONCERNS BY THE
SETTLEMENT PURCHASERS INDUSTRY?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This non-controversial measure makes certain technical and
clarifying changes to the statutes regulating the process by
which structured settlement rights may be transferred. There is
no known opposition.
SUMMARY : Revises existing law regarding rights and procedures
regulating the transfer of structured settlements.
Specifically, this bill :
1)Revises the definition of "interested parties" (i.e., persons
who get notice of a proposed transfer of structured settlement
payment rights) to narrow the class of "other parties" who
have continuing rights or obligations under the structured
settlement agreement to include only those whose continuing
rights or obligations "could be affected by the proposed
transfer."
2)Clarifies that the existing prohibitions against choice of
forum and choice of law provisions apply if the payee is
domiciled in California at the time the transfer agreement is
signed, and to any forum covered by the provision.
3)Likewise clarifies that venue for an action seeking approval
of a proposed transfer is to be determined as of the payee or
obligor's domicile at the time the transfer agreement is
signed.
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4)Makes a non-substantive change to clarify court findings
regarding waiver of independent professional advice.
EXISTING LAW :
1)Defines a "structured settlement agreement" as 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.
(Insurance Code section 10134.)
2)Provides that no transfer of structured settlement payment
rights shall be effective by a payee (i.e., an individual who
received tax-free payments pursuant to a structured settlement
agreement) 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 to a transferee unless
the rights described below are satisfied. (Insurance Code
section 10136.)
3)Establishes a set of rights in connection with transfers of
structured settlement payments, including the following:
a) 10 days before the execution of the transfer agreement,
the person shall receive a written disclosure statement of
the terms of the transfer agreement including:
i) disclosing that the person is selling his or her
right to receive the payments under a structured
settlement
ii) the total dollar amount of payments the person is
selling
iii) the present value of the amount the person is
selling
iv) the net amount that will be paid to the person
v) the interest rate that would be charged if the
person borrowed the amount
vi) the total expenses being charged
vii) notification that the person should obtain
independent professional advice to determine if the
transfer is a good idea for him or her, and that the
person should get independent professional advice from an
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accountant or lawyer experienced in tax matters about any
income tax consequences from selling his or her
structured settlement payments. (Insurance Code Section
10136.)
b) Requires that a court approve the transfer agreement.
(Insurance Code Section 10139.5.)
c) Allows the payee the right to cancel the transfer
agreement without cost before court approval. (Insurance
Code Section 10138.)
d) Prohibits the transfer agreement from containing
language that waives the right of the seller to sue, that
requires the seller to indemnify and hold harmless the
buyer, and other specific legal protections. (Insurance
Code Section 10138.)
4)Requires that an application for approval of a transfer of
structured settlement payment rights be made by the transferee
and brought in the county in which the payee resides.
Transferee means any person receiving structured settlement
payment rights resulting from a transfer. (Insurance Code
Section 10138.)
COMMENTS : This bill is sponsored by National Association of
Settlement Purchasers, the industry trade group for companies in
the business of purchasing structured settlement contracts
(discussed further below). According to the author, this bill
addresses issues "encountered by companies that acquire future
structured settlement payment rights from payees (i.e.
individuals who are entitled to receive future structured
settlement payments as a result of the settlement of a
lawsuit/claim) in return for a discounted lump sum payment.
These transactions are completed by court order and the issues
in this bill are intended to address some of the technical
aspects of the procedure and process for court approval of the
transactions."
As the author states, structured settlements are sometimes
established to distribute law suit proceeds over time without
tax obligations, rather than in a lump-sum, through the purchase
of an annuity - typically to benefit vulnerable victims, such as
children and certain persons who are elderly or who have
disabilities, frequently to meet future medical expenses and
basic living needs. A structured settlement may be agreed to
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privately (e.g., in a pre-trial settlement) or be required by a
court order (e.g., in cases involving a minor). These payment
streams are valuable, and a market has therefore developed for
companies to purchase these rights from the injured person or a
successor in interest, who is free to sell their rights for a
cash payment, even if having previously agreed to the structured
settlement arrangement. Because the injured person is
potentially subject to being preyed upon by more sophisticated
entities using sharp or unscrupulous practices, existing law
establishes certain rights and procedures if a structured
settlement is to be transferred by the injured person, including
obtaining court approval after a determination that the proposed
transfer is in the best interest of the payee.
There are continuing concerns about whether existing law is
sufficiently protective. According to a recent article in the
Recorder/Cal Law publication:
Settlement purchases are a multibillion-dollar industry.
Firms like Pennsylvania-based J.G. Wentworth - best known
for its "It's my money and I want it now!" pitch in
television ads - offer annuitants an upfront cash
alternative to awaiting the annual arrival of structured
payments over 20 or 30 years.
But critics say some companies dupe unsophisticated or
injured clients into accepting pennies on the dollar for
their settlement without fully explaining the potential
pitfalls.
"I'm concerned that all the work you do as a lawyer could
be undone by someone who wants to give your client fast
money," said CAOC President Christine Spagnoli. "It just
seems that lawyers should do what they can to make sure
their clients are taken care of."
Earl Nesbitt, executive director and general counsel for
the National Association of Settlement Purchasers [sponsors
of this bill], said federal laws and rules on the books in
three dozen states already provide protection to
annuitants. And while the trade group is willing to
negotiate changes in California's law, Nesbitt said,
respect should be given to free-thinking adults who choose
to cash out - especially at a time when many families are
suffering financially.
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"What one person believes is being ripped off, another
person believes is a great opportunity," Nesbitt said.
"It's a balancing act."
Current law requires a court to determine that a transferee
has a reasonable understanding of the terms and that a
transfer "is in the best interest" of the annuitant.
Changes proposed in Senate Bill 510 would force a judge to
consider a person's mental capacity, maturity level and
need for future medical care. The bill also proposes
additional consideration for the payee's dependents, spouse
and child support obligations. Family members and the
payee's attorneys would have to be notified of the pending
transfer, too.
The changes would ensure that transfers are scrutinized
more consistently from court to court around the state,
Spagnoli said. (C. Miller, Reining In Settlement Sales,
Cal Law (04-13-2009).)
Author's Clarifying Amendments. To address various drafting
issues, the author prudently offers the following clarifying
amendments:
10134 (g) "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 if those continuing
rights or obligations could be affected by the proposed
transfer. If the designated beneficiary is a minor, the
beneficiary's parent or guardian shall be an interested party.
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.
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(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 or other
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forum outside of California for any action arising under the
contract.
10139.5(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 at the time the transfer agreement is signed by the
payee or, if the payee is not domiciled in California at the
time the transfer agreement is signed by the payee , the county
where the structured settlement obligor or annuity issuer is
domiciled.
10139.5(c)(2)
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(E) A copy of the annuity contract , if available .
(F) A copy of any qualified assignment agreement , if available.
(G) A copy of the underlying structured settlement agreement, if
available.
Pending Related Legislation. SB 510 (Corbett) proposes to
specify circumstances which the court must consider before
approving the transfer of structured settlement payments. It is
scheduled for hearing in the Senate Judiciary Committee on April
28, 2009.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334