Court finds structured settlement defense brokers owe no fiduciary duty to plaintiffs


In this weeks video commentary Mark Wahlstrom takes a deeper look at the issues being revealed in last weeks decision in USDC of Oregon. A decision in which defense brokers argued, and the court agreed, that no fiduciary relationship exists between a defense structured settlement broker and the injured plaintiff who relies upon their advice regarding the selection of the life company that funds their injury settlement.

Knowing this is the position of the brokers and courts, the question Mark asks is why would any trial lawyer settle a case using a structured settlement where they did not engage a plaintiff broker who would have a clear fiduciary responsibility to the injured party? Have trial lawyers been so seduced by years of financial contributions to trial lawyer associations from defense structured settlement firms, or has it just become routine to deal with one broker and to not bother with engaging your own expert? 

Mark also discusses the increasing outside scrutiny of the process by which political figures in New York decided to liquidate ELNY and why that process is still shrouded in secrecy two years after it occurred. He believe it is time for trial lawyers to stop passively taking at face value the defense industry narrative on how structured settlements are used, sold and funded when it comes to assisting your injured clients. Trial lawyers have the right to engage experts, create Qualified Settlement Funds and control the process by which the financial settlement decisions are made for you and your clients, so the question is why aren't they doing it?

Mark Wahlstrom is an industry leader in structured settlements and mass tort administration. His commentary for The Structured Settlement Expert Directory is provided through his weekly show on The Settlement Channel

Class action suit against structured settlement brokers moves forward in Oregon

In a decision dated 12/5.14 in US District of Oregon, in the case of Marie Westrope and Reggie Kelly v Ringler Associates Inc, Paul Hoffman, and DOES 1-100, for the first time in my professional life I saw a court dismiss the arguments of defense brokers regarding no statutory or fiduciary duty of care to plaintiffs and instead determined, that under Oregon law, that defense structured settlement brokers owed plaintiffs a special duty of care under a third party beneficiary theory. 

A full copy of the the decision is available here, or you can search under Case No. 3:14-cv-00604-ST, USDC, Oregon, Portland Division, Magistrate Judge Janice M. Stewart. 

What does this all mean for plaintiffs in the Executive Life of New York litigation which seeks' class status in 26 states, where it is alleged that Ringler Associates brokers sold ELNY contracts using qualified assignments which exposed plaintiffs to excessive financial risk and which relieved defendants of liability to fund payments in the event of an insolvency, which in fact is what occurred in 2013. 

What is stunning about this to me is that for the first time in decades we had a major annuity brokerage firm arguing passionately that when they are working on a structured settlement, they are in fact working specifically on behalf of the defendants and "that defendants (Ringler) owed no fiduciary duty to plaintiffs as their broker", a finding the court agreed with factually and which should be a reminder to trial lawyers all over the country that just because a defense broker says he is working for you, when pressed in court they will vehemently deny that they have ANY duty to you or your injured client what so ever.

Instead of fiduciary standards of care, the Court this time found that Oregon law provided a level of care responsibility for the broker to be held, as the annuity, while purchased and funded by the defendants, was an " annuity intended to benefit plaintiffs and the broker signed both applications". ( emphasis added by the court). This status as benefits intended for plaintiffs thus demanded a heightened duty of care from defendants and to exercise reasonable care in the procuring of structures settlement annuities. As such the negligence claim asserted by the plaintiffs survived under Oregon law due to their status as third party beneficiaries. Again, what this means is that a standard of care was recognized by the court in this decision that prevented the standard industry defense that their client is the defendant and they have no duty to the plaintiff, an argument plaintiff experts have been pointing out to trial lawyers for decades as to why they must engage their own experts to protect their clients in a structured settlement negotiation. 

Not all the news was bad for the defense as the court found that Ringler did NOT have a continuing duty to inform plaintiffs over time of ELNY's declining financial condition, as their was no way the contracts could be surrendered or replaced after issuance. However, I do find it interesting that no one raised the issue that a robust secondary market for the sale of ELNY contracts existed for much of the later part of the 1990's and early 2000's based on the fact it was protected income under the supervision of the NYLB at that time. Possibly that will be pled again at a future date, or the more likely the plain language prohibiting surrender and commutation, will be sufficient to win this argument every time for defense brokers. 

Also, another clear win was on the statutory issue of whether or not brokers have liability for contracts written on behalf of beneficiaries in states where Executive Life of NY was not approved for sale. The court found clearly that was a violation of statutory law and allowed it to go forward as part of the case and complaint as well. 

I will cover this case again later this week in a video commentary, but suffice it to say that ELNY class action litigation was not killed in motions to dismiss and now will move to a district judge, with objections due Monday, December 22, 2014, and with responses due with in 14 days after that. 

The bottom line here is that the mythology that defense brokers working for defendants will be able to safely hide behind the "no fiduciary duty" argument in perpetuity, has for the first time been exposed. Whether the magistrate judges ruling and thinking on this carries forward to US District Court and to trial remains to be seen. However, I will state again the key point for trial lawyers and that is you need to get your own advisor and stop using defense brokers if you want to make sure that if something like this ever occurs again, that they don't immediately dive for cover behind the kind of arguments which were made in this case so far.

Our profession has come a long, long way since the early to mid 1980's when these contracts were sold, but one area we need to further bolster is greater clarity on who actually has a duty to protect the future of the plaintiff as it is abundantly clear that defense broker argue that they have no such duty in cases such as this. 

This commentary is provided for The Structured Settlement Expert Directory by The Settlement Channel, an independent voice on the issues facing structured settlement brokers, planners, purchasers and payment transfer companies. 

Executive Life of NY lawsuits against structured settlement brokers, opening old wounds

Executive Life of New York, or ELNY, is a name that still sends shudders down the spines of structured settlement professionals, trade associations and major structured settlement brokerage firms decades after the junk bond laden company was first put into receivership back in the early 1990's. The question now is will recent litigation being brought by savvy class action trial lawyers against the brokers who sold these contracts in the 1980's resurrect a whole series of questions as to how they were sold in the first place and the role of trade associations and State of NY regulators supervision of the assets during the 1990's and up to and through the final liquidation in August of 2013. 

Some background is necessary before we get to the news on the litigation working it's way through courts in the Pacific Northwest and the Southwestern US. 

Executive Life of New York was one of the subsidiaries of First Executive Corporation, managed by Fred Carr and part of the junk bond era cadre of companies that bought, sold and financed the Drexel Burnham Lambert trading operation. Once concerns were voiced about the safety and liquidity of these investments held in annuity and insurance company portfolios, there was a slow motion crash of both the California and NY subsidiaries, with the unfortunate element being that at that time in the structured settlement profession, most of the big name firms were selling Executive Life contracts as fast as they could ship them out the door. All this despite what should have been a general knowledge of the fragile nature of the company, the risk of a run on the assets by annuity holders and with a general disregard for diversification of credit risk. 

In fact, the primary reason ELNY became so stuffed with assets and liabilities during this period is that the State of NY was well known for providing superior protection and guarantee fund amounts for claimants. Consequently, you could argue that brokers cynically diverted more money to the NY company once concerns were voiced about the CA subsidiary, so as to mitigate plaintiff attorney and client concerns over the long term safety of the deal. This tactical "forum shopping" allowed them to continue to sell cut rate annuity products that saved casualty companies money on claims, while giving the implicit protection of the NY State Guarantee funds to trial lawyers in the event something did go south. 

However, a funny thing happened on the way to liquidation, which was that ELNY, unlike it's California counter part, was not approved to be sold in a wide range of states, a fact that it appears was conveniently over looked by both the brokers, brokerage firms and ELNY compliance staffs, despite the fact that it is in fact illegal to sell insurance in a state where either the broker is not licensed or the company is not approved by the state insurance department. The structured settlement profession hung their hat on the argument that the client was actually the casualty company and or assignment company, so where THEY were located mattered more than where the actual claimant was located. 

This ugly little fact lay dormant as it didn't really impact anyone while the company was under the supervision of the State of NY and benefits continued to be paid to claimants. However, once the managers of the liquidated estate of ELNY finally realized that their future obligations would be impossible to meet with the remaining assets, the domino's started to fall. At that point the issue of where the annuitant lived had a substantial impact on state guarantee fund contributions and in the final determination of who got paid and who had to take a hair cut. 

In part two of this review and analysis, which will be published tomorrow, I will explain the importance of this issue of where the annuitant was domiciled, where the contract was sold, who was licensed in what state and why it was a major determination of who got paid in full on claims and who did not. Also, a look at the court cases, changing public opinion on the treatment of the annuitants and possible governmental action to investigate how the structured settlement profession arrived at this point. 

(This is a re-post of an article Mark Wahlstrom originally wrote for The Settlement Channel)