1,500 ELNY short fall victims under pressure to accept payment cuts rather than appeal
When an injured party is the recipient of a court-awarded compensation it is often encouraged by everyone involved for the party to receive their settlement in the form of periodic payments through a tax-free income stream. The intention is to ensure that the injured party does not prematurely exhaust their settlement funds and have guaranteed income for a specific time period. [2]
As previously reported, Nassau County Supreme Court Justice John Galasso approved a plan to liquidate Executive Life Insurance Company of New York (ELNY) resulting in major losses in benefits for many personal injury victims. [2]
Obviously this causes a great financial burden to those victims who rely on the money in order to support themselves as well as their families. As you can imagine there are many people who disagree with the outcome, specifically the 1,500 annuitants who will be receiving cuts in their payments as a result of the approved liquidation. In some cases these cuts are more than 50%. [1]
According to structured settlement industry expert, Patrick Hindert, the life insurance industry is voluntarily establishing a $100 million “Hardship Fund” to assist those people who are affected the most by the liquidation. This amount only represents 10% of the actual shortfall. [3]
Hindert, quoting several passages from documents sent to shortfall victims, has implied that any appeal and subsequent rejection of Judge Galasso’s order will cancel the conditions for establishing the fund. As a result no payments will be made available to the shortfall victims. [3]
Many individuals are worried by the perceived attempt to strong arm annuitants into accepting the deal rather than appealing the terms of liquidation order. [3]
Speaking for the ELNY structured settlement shortfall victims he represents, attorney Edward Stone states, "These statements represent another strong arm tactic to try to prevent ELNY shortfall victims from pursuing their constitutional rights." [3]
Some victims who chose to remain anonymous believed it would have been more fair if the loss would have been distributed equally among all annuitants rather than single out the 1,500.[3]
One industry expert had a different take stating, “Annuitants received 100% of what was a grossly unreasonable annuity amount.” [5] Implying incompetent regulators who allowed the sales to happen, the poor pricing of annuities as well as the annuitants’ willingness to put all their “eggs in one basket” were part of the reason ELNY failed while others prevailed. [5] This individual suggests that ELNY victims, many of whom were minors at the time, should examine all the facts around their cases, sales literature, correspondence and financial comparison to determine if their parents, lawyers etc were at fault for buying the ELNY annuities in the first place. [5]
Since the 1970’s, life insurers have paid benefits worth approximately $100 billion, according to industry experts.[1] Structured Settlement annuities have been a major source of profits for many life insurance companies including some that are currently experiencing losses. [4] Therefore it comes as a shock to discover that the insurance companies aren’t willing to do more to help the victims.
If annuitants can no longer believe the guarantees stated by insurers, the perceived value of annuities, as a whole, will greatly diminish ultimately decreasing the demand for such products. While the ELNY case may be the only such case of an insured not being able to pay its annuitants, we do not know if it will be the last time this will happen. We do know that any perceived instability by insurers, whether real or imagined, could adversely affect the reputation of an industry that markets itself as a “safer” investment.
Regardless for the reason for ELNY’s demise there needs to be something in place to protect the rights of all annuitants ensuring that their guarantees are honored. Perhaps there is a need for additional legislation, perhaps the system as a whole needs to be re-examined.
1. http://online.wsj.com/article/SB10001424052702304299304577348342869349010.html
2. http://rescuecapital.com/blogs/2012/04/a-bad-day-for-structured-settlement-annuitants/
3. http://s2kmblog.typepad.com/rethinking_structured_set/2012/05/elny-hardship-fund.html
4. http://rescuecapital.com/blogs/2012/04/metlife-first-quarter-2012-losses/
5. http://structuredsettlements.typepad.com/structured_settlements_4r/2012/05/with-all-due-respect-to-elny-victims.html
Two former insurance agents receive jail time for swindling elderly clients
New York regulators have announced that former insurance agents Cynthia Gibbons aka Cynthia Bulinski, 48, and Kellie Will, 47 were sentenced to jail time and restitution for swindling $400,000 from elderly clients.
The agents, who had scams in place to steal approximately $2.4 million, fraudulently changed beneficiary information on annuity contracts.
According to investigators, the pair admitted that Gibbons, an investment advisor, sold annuities and then changed beneficiary information to Will who received payouts when the clients died. Gibbons and Will would than split the proceeds. Gibbons also received commissions on the sales.
A funeral director notified authorities because he was suspicious of a death certificate request by the pair for one of Gibbons’ clients. The pair wanted the certificate so Will could make a claim as the beneficiary of the annuity. The investigation ultimately led to their arrest.
Gibbons was employed at a Key Bank for 10 years before becoming an independent broker/dealer with J.W. Cole Financial. Previously, she was also associated with Cadaret Grant, another investment advisory firm. Her licensed was revoked in December.
Will was a Key Bank employee and her license expired in 1997.
A bad day for structured settlement annuitants
Nassau County, NY-The Wall Street Journal has reported that Nassau County Supreme Court Justice John Galasso approved a plan to liquidate Executive Life Insurance Company of New York (ELNY) resulting in major losses in benefits for many personal injury victims.
Due to the collapse of its parent company, ELNY was placed under the control of the New York Liquidation Bureau in 1991. Unfortunately after 20 years, the bureau was not able to save the company. As a result, approximately 1,500 annuitants will receive cuts in their payments.
According to industry experts, the liquidation hits structured settlement annuitants the hardest. Used in settling personal injury or malpractice suits, a structured settlement is a financial arrangement that allows court-awarded compensation to be paid in regular installments rather than in one lump sum. Typically these guaranteed payments provide money for a fixed period or lifetime.
The plan also calls for life insurance guaranty associations across the U.S. to contribute approximately $700 million toward the shortfall and annuitants receiving cuts will have access to a special hardship fund.
Judge Galasso stated that the plan provided the best possible outcome compared to the other proposals.
Since the wide spread adoption of structured settlements began in the 1970’s the ELNY case marks the first time where an insurer of structured settlement annuities has failed to make good on their payments. Structured settlement industry experts estimate that dozens of life insurers have paid benefits worth approximately $100 billion.
Protecting annuitants one transfer at a time
Queens, NY—Last month, a New York trial court judge denied a request of court approval for the transfer of Allia Rahman’s structured settlement payment rights to J.G. Wentworth Originations, LLC. The court denied the application under the New York Structured Settlement Protection Act (NY SPPA) because the transfer was not in Rahman’s best interest nor was it “fair and reasonable” as set forth in the legislation. While denials are NOT new, the suggestion that current legislation needs to be altered to protect annuitants is.
In J.G. Wentworth Originations, LLC v Rahman, Elliot stated that the discount rate of 14.99%, which increased to 17.78% when including attorneys’ fees, was inherently not fair and reasonable, nor in the payees’ best interests. In addition, Elliot felt that the annuitant as well as the factoring the company failed to once again justify the expenses. Rahman was previously denied the transfer of payment rights by Honorable Charles J. Markey. [1] [2]
In his opinion, Judge Elliot recommended that New York legislators amend the General Obligations Law to add a discount rate cap similar to the 10% rate cap for New York State Lottery deals. Other states such as North Carolina have similar structured settlement transfer rate caps. [3]
Judges Elliot and Markey seem to be following the lead of New York Supreme Court Judge Thomas Feinman, who denied several petitions this summer due to excessive interest rates. [4] Since the New York courts are paying close attention to the discount rates of these deals and not the rubber stamping them, it would come as no surprise if we were to see alterations to NY SSPA in the near future.
Sources:
1. http://www.secondaryinsurancemarketblog.com/weblog/2012/01/new-york-ourt.html
4. http://rescuecapital.com/blogs/2011/10/ny-judge-nixes-structured-settlement-factoring-deals/
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