The Nine Lives of "Bob"
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I first heard the fascinating tale of “Bob” (real claimant/cover name) at a recent meeting with one of my clients. The case had been settled in the 1980’s, long before this litigation manager worked for his company or I ever worked for him. Bob our claimant has been lucky, very lucky. As I relate the tale, part of the message is the luck of Bob, but I will finish with a “structure moral to the story”.
Bob’s case first settled way back in 1987 and, lucky for Bob, he was smart enough to negotiate for a structured settlement. At the time, one particular life insurance company was offering to underwrite structures for prices far below what other similarly-rated companies would do. Many of us brokers were leery of this pricing; I personally steered my clients away from it. But whoever the broker was who put this case together apparently couldn’t resist the siren song of extreme pricing and persuaded this company to structure Bob’s settlement using this particular life company.
Sure enough, the life company was First Executive Life Insurance Company of New York, the New York affiliate of the California company that was taken into rehabilitation shortly thereafter by the state Insurance Commissioner*.
Lucky for Bob, he lived in New York, where insurance commissioners are tough. The New York insurance commissioner had been eyeing these unrealistic prices also and had forced First Executive to increase its reserves again and again throughout the period.
Lucky for Bob, when the “clever” pricing scheme finally imploded, the Life Insurance Company Guaranty Corporation of New York worked exactly as designed. He experienced no interruption in payments and his checks ultimately began arriving from MetLife rather than First Executive. Disaster averted. Think Bob is out of the woods? Not hardly.
Things go along quietly on Bob’s case for more than decade when, out of the blue, our client is served with a default judgment stemming from a lawsuit filed in the State of Maryland. This client does no business in Maryland, so the litigation manager was mystified as to how they could get sued there and why they were never notified suit was pending. As he investigated, he found that the suit was filed and the default judgment engineered by… a factoring company (surprise).
For those of you who have not yet had the pleasure of their introduction, factoring companies are the firms who put those cheesy advertisements on late night television offering to make “all your dreams come true” by offering claimants “CASH NOW!!” in exchange for the right to receive their future structure payments.
This firm claimed to have “purchased” annuity payments from Bob. Now we all know they really do not and can not “purchase” the annuity payments; what they normally do, and what they did here, is give Bob a check for some percentage of the present value of his future annuity benefits. In consideration of their making Bob’s “dreams come true”, they had Bob sign an irrevocable direct deposit form instructing MetLife to issue his payments to a post office box actually controlled by the factoring company. This way, the factoring company receives the guaranteed future structured settlement payments originally promised to Bob.
Lucky for Bob, it seems that he is also a clever fellow. Bob managed to redirect MetLife’s payments to yet another post office box, one that he controlled. Thus, Bob kept receiving his own structured settlement payments as well as those allegedly signed over to the factoring company. As you can imagine, this did not sit too well with that firm. They wanted their money! Bob figured they would come looking for him and Bob disappeared.
With both Bob and their money having flown off into the wind, the factoring company fell back on a part of their contract that most people do not read. They filed suit in a state where none of the parties reside. After the defendant failed to file an answer (since they were never served or notified of the suit), the factoring company filed for, and was granted, a default judgment. In this case, since they could not find Bob, they filed their suit against the owner of the annuity policy.
Enter our client. Although it was available at the time, for some inexplicable reason, the original broker who put this settlement together did not have the client execute a third party assignment. This would have eliminated any interest or involvement on their part in the future payments. The defendant simply purchased and owned the annuity policy. The default judgment, thus, was entered against them.
The suit sought to recover all the funds paid to Bob plus all future payments the factoring company claimed to be entitled to under their “contract” with Bob. Our client’s position is that they are simply the owner of a settlement annuity policy and that they have nothing to do with Bob or this litigation. They directed the factoring company to MetLife as the issuer of the (potentially) misdirected future annuity payments. The factoring company proceeded against MetLife for the future payments and informed our client that they expect MetLife to make good on the funds Bob re-re-directed that they claim properly belonged to them. The current status of the case is that MetLife is holding all future payments until they receive a court order telling them to whom they should issue the payments.
While Bob and the factoring company likely deserve each other, I hold someone else responsible for my client’s involvement in this mess: the original settlement broker. By not exercising a healthy skepticism of unrealistic pricing, he allowed the defendant’s future payments to be funded with an unhealthy annuity issuer. He cemented and preserved their exposure by failing to utilize a third party assignment which would have closed them out of the case altogether.
As lucky as Bob has been—so far—, I share this story to emphasize the surprising complexities present in these deals. You should work only with full-time, certified professionals.
Want to offer all the benefits of a bona fide structured settlement but also settle your case fully and finally? Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.
* Their demise was directly linked to an arrogant over-reliance on the so-called “junk” bonds of the 1980s’, “greed is good”, Wall Street fame.
