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Defense Structured Settlements: Home of the Whopper
from: Halpern GroupSad but true: some professions exist through lies, and there
are businesses to which particularly seductive whoppers are as valuable as
patents. The legal profession is one of the very few on the face of the earth
that prohibits its members from lying. Attorneys may not engage in
fraud, dishonesty, misrepresentation... or even that favorite pastime of our
elected officials, deceit. Our system of law is based upon the search for truth,
after all. So it is no wonder that plaintiff's counsel have been vulnerable to
the maneuvers of the structured settlement industry, an institution built,
maintained, and nourished by lies.
Harsh words? In fact, not harsh enough. These lies are more than
gentle deceptions, casual exaggerations, or even everyday weasel words: they are
carefully considered weapons designed to make the plaintiff's bar accessories as
the industry enriches itself to the detriment of injured parties.
Were this column the size of War and Peace, I might be able to
discuss thoroughly all of the lies, large and small, that contribute to so much
harm and deception. But I must content myself, for now, with five of the most
egregious defense whoppers, beginning with:
1. Present Value Sleight of Hand
"Now you see it. Now you don't." You would think the one piece
of information plaintiffs and their attorneys would have a right to in the
settlement process would be the cost of the settlement
modality. And you would be correct, except that the defense doesn't want the
plaintiff to know the true cost. The defense wants to use "present value," a
number based on the estimates of its annuity broker and subject to manipulations
according to which assumptions are used. The defense also wants you and your
plaintiff to believe that "present value" is the same as cost, so if that
misconception exists, the defense will do nothing to clarify it. This is what
your state rules of professional responsibility describe as "deceit,"
impermissible conduct for an attorney. Deceit is nourishing a misconception
without directly misstating the facts. Deceit is also presenting present value
to a plaintiff as if it represented the cost of a structured settlement, which
it isn't.
Why do they do this?
Power, plain and simple. Since the present value number is the
end result of a calculation based on speculative variables, it can be adjusted
by the defense to serve its purposes. If the plaintiff hears "cost" when the
defense says "present value," then conditions are perfect for a defense slam
dunk: the plaintiff is making decisions based on misleading and defense-serving
information. Of course, no plaintiff's counsel would ever recommend a course of
action in a trial setting based on the other side's expert's analysis. But the
defense believes that you as a plaintiff's attorney have no reason to challenge
it on this point, and a big reason not to challenge it: your fee. Since
defense-provided present values are usually higher than cost, if you base your
fee on "present value" you may get more money. You will also be over-charging,
because the present value presented by the defense is usually significantly more
than the actual settlement. See how insidious this deception is? The defense
believes it can pull you into the lie by making you a beneficiary of it. (They
have even influenced certain state legislatures to enact statutes allowing
contingent attorneys' fees to be based on present value rather than
cost.)
Attempt to pierce the subterfuge, however, and you encounter the
next whopper.
2. The Constructive Receipt Dodge
"I can't tell you the cost. That would be constructive receipt."
This is the defense equivalent of the old spy gag, "I could tell you, but then I
would have to kill you." The difference is that while there may have been a
kernel of truth behind the spy line, there is none behind this one. It is a
naked ploy to avoid disclosing cost using the false theory that once the
plaintiff has the true cost, he or she has taken "control" of the settlement,
thus constituting constructive receipt under I.R.C. Section 130. Now if this
were true, the periodic payments to the plaintiff would no longer be tax-exempt,
which would certainly be a good reason for the defense not to disclose the cost.
If it were true.
It isn't. The IRS never said this, implied it or intended it.
The defense made it up! Indeed, the IRS has explicitly
rejected this fantasy, in Private Letter Ruling 83-33035. That ruling responded
to a clarification request on this point "because of... concern that your
knowledge of the existence of cost of the annuity might cause you to be in
constructive receipt of that annuity." The IRS's answer?
..."[W]e conclude that disclosure by defendant of the existence,
cost, or present value of the annuity will not cause you to be in constructive
receipt of the present value of the amount invested in the annuity."
You can't be more plain than that... and this ruling, readily
accessible, dates from May 16, 1983. The very fact that the defense has repeated
the constructive receipt myth to thousands of plaintiffs since then is powerful
evidence of the insurance industry's reliance on lies as a primary strategy in
settlement.
3. The Imaginary Pay-Out
"Bait and switch:" it's one of the oldest swindles known to
human civilization, and it's key to the defense's strategy in pushing your
client into a structured settlement. In this common maneuver, you will be shown
a pay-out to a normal life expectancy on an injured client with a very high age
rating; let's say a three-year-old client whose proper age rating is 82. So even
though your client will probably live only a few years, the proposal projects a
full life expectancy. The defense is counting on a passive plaintiff's attorney
in order for this outrageous tactic to succeed, an attorney who does not
determine an accurate age rating. It is trying to turn human nature to its
advantage: guardians or parents who want to believe that an injured minor will
live a normal life span... an attorney eager to wrap up a case with a big
settlement figure. The tactic works all too often. Then once the papers have
been signed, the defense buys a much cheaper annuity using the true age-rating,
and pockets the difference.
4. The Money Management Shuffle
Remember Christmas clubs? Some banks would sell naive customers
on putting money aside at no interest to make sure they had an extra account at
the end of the year for Christmas gifts. Mad Magazine, in one of its
old "Lighter Side Of..." features, had a perplexed bank patron querying a bank
officer on this point, saying, "Your promotion says `Our Christmas Club will
make the holidays a little brighter!' I could do just as well putting my money
in an old sock. How is your Christmas Club going to make my holidays
`brighter?'" The officer's reply: "I don't know about your holidays,
but it sure makes our holidays brighter!"
I think of this whenever the defense trumpets to the plaintiff
that its structured settlement provides "professional money management." Sure it
does... for the annuity carrier's money! The plaintiff receives a fixed
income stream based on today's interest rates. There is nothing to manage for
the plaintiff. But if the principal is invested so as to bring in more than the
amount to the paid to the plaintiff, that benefit of "professional money
management" goes to the insurance company. This "professional money management"
line is in fact an admission that the defense is going to make excessive money
off of the plaintiff's settlement. It is presented in such a way as to
intentionally mislead plaintiffs into believing that they are getting something
they are not.
Ah, but if that "professional money management" is not so
astute? Then the carrier may fail, leading to seizure by the insurance
commissioners and the possibility of a reduced benefit stream for the rest of
the plaintiff's life.
With defense-controlled structured settlements, the only proper
way for plaintiffs to regard the defense's "professional money management" is to
fear it. It can only benefit the life insurance company, and the only thing it
can bestow on a plaintiff is either the predetermined income stream, or
financial hardship.
5."Risk is Safety"
"War is Peace." George Orwell's 1984 totalitarians perfected a
chilling system of institutionalized lies in which the population was confused
into believing that things were their exact opposites. The defense is practicing
the same technique when it tries to sell your plaintiff on an annuity-based
structured settlement by explaining that its Section 130 assignment of liability
provides enhanced security. The truth is often exactly the opposite!
The assignment of liability takes the defendant off the hook, of course: the
settlement agreement transfers the obligation to pay to the assignee, and
relieves the defense of liability and responsibility forever. But this is the
real twist: the plaintiff, by approving the assignment, often has agreed to let
the defense replace an insurance company with billions in assets with a shell
corporation having a small fraction of those assets. The chances of the liable
party going under, thus jeopardizing the plaintiff's future, may be vastly
increased.
Orwell didn't use "Risk is Safety." Maybe even his totalitarian
truth-twisters couldn't say that one with a straight face.
Does this exhaust the parade of whoppers? Not a chance... and
more are being uncovered all the time, like the "customer service pledge"
recently being used by Allstate to lure injured plaintiffs into foregoing legal
representation [ATLA Advocate, November 1997, Vol. 23, No. 9, "States
Outlaw Allstate Pledge."] That's the insurance industry. If they were witnesses,
you could impeach them with ease. If they were applying for a job, their
credentials wouldn't check out. You'd never buy a car from them, or let them be
treasurer of your charitable organization.
It's time to stop trusting them to safeguard your client's
future. It's time to stop trusting them, period.
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