Annuitant May Not Sell Part of Structured Settlement Annuity
When minors are severely injured in an accident for which an insured person is liable concern for protecting the funds awarded to a minor result in a structured settlement where the insurer buys an annuity to pay out the settlement amount in partial payments growing as the injured party reaches maturity. However, as needs of the minor arise attempts are made to get around the terms of the structured settlement by discounting the payments to a purchaser.
Like the old Popeye comic strips, the annuitant takes a payment today and will pay it back in the future. It is a loan made with a guarantee from the insurer issuing the annuity.
In RSL Funding, LLC v. Alford, — Cal.Rptr.3d —-, 2015 WL 4919874 (Cal.App. 4 Dist., 8/18/2015) the annuitant tried to sell part of an annuity to RSL Funding. State Farm Fire and Casualty Company (State Farm Fire) and State Farm Life Insurance Company (State Farm Life) (collectively, State Farm) appealed the trial court’s approval of an order directing the transfer of structured settlement payments to plaintiff and respondent RSL Funding, LLC ( RSL).
In 1994, defendant Felicia Alford, then a minor, by her guardians, settled a personal injury claim against certain insureds of defendant State Farm Fire. The settlement was approved by a court order that provided, “for the best interest of the minor … the proceeds of such settlement be paid and used in the manner hereinafter specifically provided.” Under the settlement, the payor, State Farm Life, was to deliver an annuity providing for guaranteed payments, as follows:
(1) $10,000 annually from August 11, 2003, through August 11, 2006;
(2) $50,000 on August 11, 2009;
(3) $100,000 on August 11, 2016; and
(4) $151,558.80 on August 11, 2021.
State Farm Fire purchased an annuity contract from State Farm Life, which provides for the periodic payments to be made.
In July 2012, Alford entered into a contract with RSL under which she received $30,000 in exchange for a $50,000 portion of the payment due on August 11, 2016. RSL assigned its payment to Extended Holdings, Ltd. (EHL). The trial court approved the transfer, and State Farm did not contest the transfer. Thus, under the 2012 order, State Farm was required to deliver a $50,000 portion of the August 11, 2016, payment to EHL.
On July 12, 2013, Alford entered into a second contract with RSL in which Alford agreed to assign to RSL $25,000 of the $100,000 payment due on August 11, 2016, and $25,000 of the payment of $151,558.80 due on August 11, 2021, in exchange for a current payment of $22,500. RSL filed a petition for approval of the transfer. State Farm filed an opposition to the petition, asserting, among other grounds, that (1) the proposed transfer would violate a California statute (Ins.Code, § 10139.5, subd. (e)(3)), which provides that an annuity issuer and settlement obligor “may not” be required to divide payments; and (2) the proposed transfer would materially increase State Farm’s burdens and risks.
RSL asked the court to apply what it called “settled principles of statutory construction” direct that he court “ordinarily” construe the word “may” as permissive and the word “shall” as mandatory, particularly when a single statute uses both terms. (Tarrant Bell Prop., LLC v. Superior Court (2011) 51 Cal.4th 538, 542, 121 Cal.Rptr.3d 312, 247 P.3d 542.) RSL fails to recognize that a contrary principle of statutory construction governs when the statute, such as section 10139, subdivision (e), uses a negative form of the word “may.”
Where statutory restrictions are couched in negative terms they are usually held to be mandatory. The statute’s use of the words “neither” and “nor” combined with “may be required” clearly indicates the Legislature’s intention to impose a mandatory rule.
Moreover, while the parties have cited no published California case law expressly applying section 10139.3, subdivision (e), and our own research has revealed none, courts in other states have construed similar language in their own statutes to be mandatory. Where there is no California case directly on point, foreign decisions involving similar statutes and similar factual situations are of great value to the California courts.” (Martinez v. Enterprise Rent–A–Car Co. (2004) 119 Cal.App.4th 46, 55, 13 Cal.Rptr.3d 857.)
The court of appeal concluded that the trial court erred in entering an order that requires State Farm to divide payments because the SSPA provides that an annuity issuer may not be required to do so.
RSL argues that State Farm submitted a proposed 2013 order in the same form as the 2012 order (which provided for splitting the Aug. 11, 2016, payment between Alford and EHL) and consented to splitting payments.
State Farm filed a written opposition to the proposed transfer and appeared at hearings on the proposed transfer where it asserted its opposition to payment splitting. At the close of the September 24, 2013, hearing, the trial court stated it would approve the transfer and instructed the parties to work out the form of the order. RSL and State Farm agreed to an order similar to the 2012 order, but RSL did not submit that proposed order to the trial court. State Farm therefore filed an objection to the proposed order, stating that State Farm had not withdrawn its objection to the proposed order, that State Farm disagreed with the trial court’s ruling, and that RSL had misrepresented State Farm’s position by submitting a proposed order that differed from the proposed order to which State Farm had agreed.
It is clear from the record that State Farm never withdrew its objections to the proposed 2013 transfer and never consented to split payments in connection with the 2013 transfer.
Since the court of appeal concluded that the trial court’s order violated section 10139.5, subdivision (e), and State Farm has not forfeited its right to oppose that order, reversal was therefore required.
In addition, State Farm correctly pointed out that such an order would put it in the position of having to rely on another entity to fulfill its contractual obligations to Alford and would expose State Farm to litigation if, for example, RSL or its assignee sought bankruptcy protection.
People who are the beneficiaries of a structured settlement are bombarded by television advertising promising to allow immediate access to the funds promised by the annuity in the future. The purchasers take, as here, a large portion of the future payment for a small, immediate, cash payment. The statute was enacted to protect the annuitant and make sure the settlement agreed to is paid as agreed. The court of appeal recognized the intent of the insurer and the annuitant and protected her from what she wanted.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
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